Edited version of your written advice

Authorisation Number: 1012703264780

Ruling

Subject: Division 250 of the Income Tax Assessment Act 1997.

Question 1

In respect of the depreciating assets of Property A, will the Commissioner make a determination under the fifth exclusion in section 250-45 of the ITAA 1997 that it is unreasonable that Division 250 applies to the lease arrangement entered into in respect of these assets?

Answer

Yes.

This ruling applies for the following period

The period of the lease.

Question 2

In respect of the depreciating assets of Property B, will the exclusion in paragraph 250-30(1)(c) (third exclusion - low value asset arrangements) apply to the lease arrangement entered into in respect of the assets?

Answer

Yes.

This ruling applies for the following period

The period of the lease.

Question 3

In respect of the depreciating assets of Property C, will the exclusion in paragraph 250-30(1)(a) (third exclusion - short term arrangements) apply to the lease arrangement entered into in respect of the assets?

Answer

Yes.

This ruling applies for the following period

The period of the lease.

Relevant facts and circumstances

Lease of Property A - Division 250 fifth exclusion.

• Property A has been leased.

• The term of the lease is greater than five years.

• There are options to renew the lease.

• The lease is over the land, buildings and depreciating assets on the land comprising Property A.

• Annual rent, car park licence and licence fees are payable to the Lessor by the Lessee pursuant to the Lease for Property A.

• The lessee would incur a penalty if it cancels the lease that is of a magnitude that would discourage cancellation as per the lease.

• The present value of the expected financial benefits of the depreciating assets is less than 70% of the total market value of the assets, as at the start of the arrangement period. Accordingly, the taxpayer does not lack a predominant economic interest in the depreciating assets pursuant to satisfying the level of expected financial benefits test in paragraph 250-135(c) of the ITAA 1997.

• Division 250 is not applicable to the pre-Division 43 construction expenditure for the buildings as the fourth requirement in section 250-15 is not satisfied.

• Division 250 is not applicable to the Division 43 eligible construction expenditure as the fourth exclusion in section 250-40 is satisfied.

• Division 250 is not applicable to the land as the fourth requirement in section 250-15 is not satisfied.

• In respect of the depreciating assets of Property A, the general test in subsection 250-15 is satisfied and the exclusions in sections 250-20, 250-25, 250-30 and 250-40 are not applicable.

• Pursuant to the Lease, no assets are to be transferred to the Lessee at the end of the lease and are to remain the property of the Lessor.

• No assets under the lease have a guaranteed residual value.

• The arrangement is not regarded as a 'debt interest' pursuant to Subdivision 974-B.

• The cost of acquiring Property A was not financed through limited recourse debt.

• Depreciating assets as a percentage of total value:

Depreciating Assets (Opening Adjustable Value)	Total Value (Purchase Price)	%
$XX	$XX	XX%

• Percentage of depreciating assets where the arrangement period is 75% or more than the asset's effective life at the start of the arrangement period (for the purposes of subparagraph 250-125(1)(b)(ii)):

Arrangement Period (Years)	Column 1 - Percentage of depreciating assets where arrangement period is 75% or more of the depreciating assets effective life.	Colum 2 - Depreciating assets to total cost of all assets where arrangement period is 75% or more of the depreciating assets effective life.
XX	XX%	XX%

• The Division 250 assessable amount is greater than the alternative assessable amount.

Lease of Property B - Division 250 third exclusion: low value asset arrangements

• Property B has been leased.

• The term of the lease is greater than five years.

• There are options to renew the lease.

• The lease is over the land, buildings and depreciating assets on the land comprising Property B.

• Annual rent, car park licence and licence fees are 'financial benefits' payable to the Lessor by the Lessee pursuant to the lease for Property B.

• The Lease for Property B provides for the rent to be paid monthly, the rent is based on a market rent valuation with regard to the rental value of comparable premises.

• The lease does not contain any of the following:

• a right, obligation or contingent obligation to purchase or acquire the depreciating assets or a legal or equitable interest in the asset;

• a right to require the transfer of the depreciating assets or a legal or equitable interest in the asset; or

• a residual or reversionary interest in the asset that will arise or become exercisable at or after the end of the arrangement period.

• No member of the tax preferred sector has provided any financing or support for financing in relation to the taxpayer's interest in Property B.

• The total market value of the property at the commencement of the lease was less than $40,000,000.

• The arrangement is not regarded as a 'debt interest' pursuant to Subdivision 974-B.

• The taxpayer lacks a predominant economic interest in the depreciating assets.

• No member of the tax preferred sector has provided any financing or support for financing in relation to the taxpayer's interest in the depreciating assets.

• The arrangement is not a financial lease, non-cancellable operating lease or service concession or similar arrangement.

• The depreciating assets are not so specialised that the Lessee could not carry out one or more of its functions effectively without the assets.

• The general test in subsection 250-10(a) and 250-15 is satisfied.

Lease of Property C - Division 250 third exclusion: short term arrangements

• Property C has been leased.

• The term of the lease is less than five years.

• There is an option to renew the lease for a period.

• The lease is over the land, buildings and depreciating assets on the land comprising Property C.

• Annual rent, car park licence and licence fees are 'financial benefits' payable to the Lessor by the Lessee pursuant to the Lease for Property C.

• The lease does not contain any of the following:

• a right, obligation or contingent obligation to purchase or acquire the depreciating assets or a legal or equitable interest in the asset;

• a right to require the transfer of the depreciating assets or a legal or equitable interest in the property; or

• a residual or reversionary interest in the asset that will arise or become exercisable at or after the end of the arrangement period.

• No member of the tax preferred sector has provided any financing or support for financing in relation to the taxpayer's interest in Property C.

• The arrangement is not regarded as a 'debt interest' pursuant to Subdivision 974-B.

• The taxpayer lacks a predominant economic interest in the depreciating assets.

• No member of the tax preferred sector has provided any financing or support for financing in relation to the taxpayer's interest in the depreciating assets.

• The arrangement is not a financial lease, non-cancellable operating lease or service concession or similar arrangement.

• The depreciating assets are not so specialised that the Lessee could not carry out one or more of its functions effectively without the assets.

• The general test in subsection 250-10(a) and 250-15 is satisfied.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 43

Income Tax Assessment Act 1997 Division 250

Income Tax Assessment Act 1997 section 250-5

Income Tax Assessment Act 1997 section 250-10

Income Tax Assessment Act 1997 subsection 250-10(a)

Income Tax Assessment Act 1997 subsection 250-10(b)

Income Tax Assessment Act 1997 section 250-15

Income Tax Assessment Act 1997 subsection 250-15(a)

Income Tax Assessment Act 1997 section 250-20

Income Tax Assessment Act 1997 section 250-25

Income Tax Assessment Act 1997 section 250-30

Income Tax Assessment Act 1997 subsection 250-30(1)

Income Tax Assessment Act 1997 paragraph 250-30(1)(a)

Income Tax Assessment Act 1997 subparagraph 250-30(1)(a)(ii)

Income Tax Assessment Act 1997 paragraph 250-30(1)(c)

Income Tax Assessment Act 1997 section 250-35

Income Tax Assessment Act 1997 subsection 250-35(1)

Income Tax Assessment Act 1997 subsection 250-35(2)

Income Tax Assessment Act 1997 subsection 250-35(3)

Income Tax Assessment Act 1997 subsection 250-35(4)

Income Tax Assessment Act 1997 subsection 250-35(5)

Income Tax Assessment Act 1997 subsection 250-35(6)

Income Tax Assessment Act 1997 subsection 250-35(7)

Income Tax Assessment Act 1997 subsection 250-35(8)

Income Tax Assessment Act 1997 section 250-35

Income Tax Assessment Act 1997 section 250-40

Income Tax Assessment Act 1997 section 250-45

Income Tax Assessment Act 1997 subsection 250-45(b)

Income Tax Assessment Act 1997 paragraph 250-125(1)(a)

Income Tax Assessment Act 1997 subparagraph 250-125(1)(b)(ii)

Income Tax Assessment Act 1997 subsection 250-135(c)

Income Tax Assessment Act 1997 subdivision 974-B

Reasons for decision

All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Question 1

Overview of Division 250

Division 250 operates to deny or reduce certain capital allowance deductions that would otherwise be available to you in relation to an asset if the asset is put to a tax preferred use in certain circumstances.

Division 250 applies to you and an asset at a particular time if the 'general test' in section 250-15 is satisfied in relation to you and the asset and none of the exclusions referred to in paragraph 250-10(b) apply.

All five requirements of the general test in section 250-15 must be satisfied in relation to the asset for Division 250 to apply. The asset being tested in this case is the class of depreciating assets that form part of Property A.

In this case, the requirements of the general test are met except one test, being that the lessor lacks a predominant economic interest in the asset at the start of the arrangement (subsection 250-15(e)).

Section 250-110 establishes when a taxpayer lacks a predominant economic interest. In this case, all requirements are satisfied except for meeting the effectively non-cancellable test (Subsection 250-110(c)). The Commissioner considers that the lease arrangement, which incurs a penalty in the case of default are effectively non-cancellable (subparagraph 250-140(1)(b)(ii)). As the lease arrangement is effectively non-cancellable, the test in section 250-125 applies. As the lease arrangements are for less than 30 years and the arrangement period is 75 per cent or more than the asset's effective life of the relevant depreciating assets at the start of the arrangement period, you lack a predominant economic interest in the asset at the start of the arrangement (subparagraph 250-125(1)(b)(ii)).

Therefore, as no exclusions apply then the Commissioner may, given the extent of the breach, exercise his discretion under section 250-45. This ruling now considers the application of the fifth exclusion in paragraph 250-10(b) for the exercise of the Commissioner's discretion to make a determination under section 250-45 that Division 250 does not apply to you and the depreciating assets at a particular time.

Section 250-45 - Commissioner discretion to make a determination

Section 250-45 provides that Division 250 does not apply to a taxpayer and an asset at a particular time if:

(a) the taxpayer requests that the Commissioner makes a determination under subsection 250-45; and

(b) the Commissioner determines that it is unreasonable that Division 250 should apply to the taxpayer and the asset at that time, having regard to:

(i) the circumstances because of which this Division would apply to you and the asset; and

(ii) any other relevant circumstances

The Explanatory Memorandum (EM) to the Tax Laws Amendment (2007 Measures No 5) Act 2007 provides guidance as to the circumstances which the Commissioner should consider in applying the discretion. Paragraph 1.136 of the EM provides that in making a determination to exercise the discretion, the Commissioner should give consideration to the objects of Division 250 as set out in section 250-5. The main objects of Division 250, as set out in section 250-5, are:

(a) to deny or reduce capital allowance deductions in respect of an asset if the asset is put to a tax preferred use and the taxpayer has an insufficient economic interest in the asset; and

(b) if the taxpayer's capital allowance deductions are denied or reduced, to treat the arrangement for the tax preferred use of the asset as a loan that is taxed as a financial arrangement on a compounding accruals basis.

Paragraph 1.137 of the EM provides a general example of the general considerations the Commissioner should have regard to in applying the discretion. Paragraph 1.137 of the EM provides that:

1.137 It is expected that the Commissioner would consider applying the discretion, for example, to prevent an arrangement from coming within the scope of Division 250 due to:

• an unintended or marginal breach of one of the safe harbour tests; or

• an unintended or marginal breach of one of the tests that need to be satisfied to qualify for the specific exclusion for certain operating and service arrangements.

The EM also includes two examples of unintended or marginal breaches where the Commissioner may exercise the discretion under section 250-45.

Example 1.17

BF Co owns a 30 storey office building. Ten floors of the building are leased by BF Co to a Australian government department. Another four floors are leased to a state government public authority. The Australian government department temporarily enters into a short term lease for an additional two floors of the building.

The building is financed by limited recourse debt. If the limited recourse debt test in section 250-115 did not apply, the lease arrangement would be outside the scope of Division 250.

Even though the members of the tax preferred sector occupy as tenants more than half of the area within the building that is occupied or available to be occupied by tenants, the Commissioner may exercise his discretion not to apply the limited recourse debt test because of the temporary nature of the short term lease for an additional two floors of the building. [Emphasis added]

Example 1.18

RP Co, a cleaning contractor, enters into an arrangement with a local government council to provide office cleaning services. Under the contract, the total financial benefits expected to be payable to RP Co are $5.1 million.

The arrangement does not qualify for the exclusion under section 250-25 because the total financial benefits expected to be payable under the arrangement marginally exceed the $5 million threshold.

However, bearing in mind the compliance cost implications of applying Division 250 to the arrangement and that the threshold for the exclusion in section 250-25 was only marginally exceeded, the Commissioner may exercise his discretion to exclude the arrangement from the scope of Division 250. [Emphasis added]

Accordingly, the EM demonstrates that the Commissioner may consider exercising the discretion to make a determination to exclude an arrangement from the scope of Division 250 in circumstances where the breach is:

• unintended because a temporary arrangement results in a marginal breach of the general test in subsection 250-10(a); or

• a marginal breach of one of the five exclusions in subsection 250-10(b) and the compliance cost implications of applying Division 250 would outweigh the benefit received from applying Division 250.

Pursuant to subsection 250-45(b), the Commissioner must also take into consideration the circumstances of the application of Division 250 to the taxpayer, the asset, and any other relevant circumstances.

Unintended or marginal breach of the general test in subsection 250-10(a)

As discussed, the Explanatory Memorandum demonstrates that the Commissioner may make a determination if the general tests in 250-15(a) are satisfied because of an unintended or marginal breach.

The EM does not provide guidance as to what a 'marginal breach' of an exclusion would be. The Macquarie Dictionary 5th edition (online) defines 'marginal' to mean:

1. relating to a margin. 2.  situated on the border or edge. 3.  written or printed in the margin of a page: a marginal note. 4.  minimal for requirements; barely sufficient.

As provided in subsection 250-45(b), the Commissioner may have regard to any other circumstances of the taxpayer and the asset and any other relevant circumstances in making a decision to make a determination that Division 250 should not apply for a marginal breach.

The Commissioner has determined that it is appropriate to exercise the discretion to make a determination that Division 250 will not apply to the depreciating assets of the Property A. In making this determination, the Commissioner has had regard to the fact that:

(a) the depreciating assets form a small percentage of the total value for the property, being XX%;

(b) the percentage of depreciating assets where the arrangement period is 75% or more of the depreciating assets effective life is XX%. For nearly half of the depreciating assets, the taxpayer does not fail the level of expected benefits test in section 250-135, would not lack a predominant economic interest and not be subject to Division 250.

(c) the percentage of depreciating assets to total cost of all assets where the arrangement period is 75% or more of the depreciating asset's effective life is of a small amount, being XX%, indicating that the breaching depreciating assets are a small portion of all assets and not a driver for entering into the lease;

(d) Division 250 would only apply to the depreciating assets and not to the land or buildings;

(e) the applicant has used the Commissioner's effective life for each depreciating asset. These depreciating assets may have a shorter effective life than indicated which would reduce the extent of the breach further below XX%; and

(f) capital expenditure to replace the depreciating assets has not been taken into account in determining the percentage of depreciating assets where the arrangement period is 75% or more of the depreciating assets effective life. Had this been taken into account it would have further reduced the extent of the breach below XX%.

Conclusion

The Commissioner is satisfied that it is appropriate to exercise the discretion to exclude the depreciating assets of Property A from the scope of Division 250. This is because of the compliance cost implications associated with the application of Division 250 to the small number of depreciating assets subject to the arrangement and because the breach of subsection 250-110(c) and subparagraph 250-255(1)(b)(ii), when viewed in terms of the arrangement, is a small amount and does not suggest that the depreciating assets were a driver for entering into the lease.

Question 2

Division 250 operates to deny or reduce certain capital allowance deductions that would otherwise be available to you in relation to an asset if the asset is put to a tax preferred use in certain circumstances.

Pursuant to section 250-10, Division 250 applies to you and an asset at a particular time if the 'general test' in section 250-15 is satisfied in relation to you and the asset, and none of the exclusions referred to in paragraph 250-10(b) apply.

All five requirements of the general test in section 250-15 must be satisfied in relation to the asset for Division 250 to apply. The class of assets being tested in this case is the depreciating assets that form part of Property B.

The taxpayer has advised that they satisfy the general test in subsection 250-10(a). However, Division 250 will not apply to Property B if an exclusion listed in section 250-10(b) applies. In particular, the exclusion in paragraph 250-30(1)(c) (third exclusion - low value asset arrangements) may apply.

Paragraph 250-30(1)(c): third exclusion - low value asset arrangements

Subsection 250-10(b) lists the sections that contain the exclusions to the application of Division 250. The third exclusion listed is section 250-30, which excludes certain short term or low value arrangements. Pursuant to paragraph 250-30(1)(c), Division 250 does not apply to a taxpayer and an asset that is being put to a tax preferred use under a particular arrangement if:

at the start of the arrangement period, the total of the values of all the assets that are put to a tax preferred use under the arrangement does not exceed:

• $40 million if the asset is real and the tax preferred use of the asset is a lease; or

• $20 million in any other case.

The total consideration paid in 2013 for all the assets that comprise Property B, including the depreciating assets, was less than $40,000,000. Property B is real property and the tax preferred use of the property is a lease entered into on 1 May 2013. Accordingly, the third exclusion in section 250-30 will prima facie apply. However, as provided in subsection 250-30(1), section 250-30 has effect subject to section 250-35. Section 250-35 provides exceptions to the exclusions outlined in section 250-30.

Exceptions to section 250-30

Debt interests:

Subsections 250-35(1) and (2) provide that:

(1) Section 250-30 does not apply if the arrangement (either alone or together with any arrangement in relation to the tax preferred use of the asset or the provision of financial benefits in relation to the tax preferred use of the asset) is a debt interest.

(2) In applying subsection (1), disregard subsection 974-130(4).

The arrangement is not regarded as a 'debt interest' pursuant to Subdivision 974-B. Therefore the exception in subsection 250-35(1) does not apply.

Member of tax preferred sector having certain rights in relation to the asset:

Subsection 250-35(3) provides that subsection 250-30 will not apply if, a member of the tax preferred sector has one of the listed rights, obligations or interests and, the consideration for the right, obligation or interest is not fixed as the market value of the asset at the time of the purchase, acquisition or transfer of the right, obligation or interest. Pursuant to the facts, under the terms of the lease for Property B, the Lessee does not have any of the rights specified in subsection 250-35(3) in respect of the depreciating assets. Therefore the exception in subsection 250-35(3) does not apply.

Member of tax preferred sector providing financing:

Subsection 250-35(4) provides that subsection 250-30 will not apply if a member of the tax preferred sector provides or assists with financing in relation to the taxpayers interest in the asset. Pursuant to the facts, no member of the tax preferred sector has provided any financing or support for financing in relation to the taxpayer's interest in the property. Therefore the exception in subsection 250-35(4) does not apply.

Finance leases, non-cancellable operating leases, service concessions and similar arrangements:

Subsection 250-35(5) provides that subsection 250-30 will not apply if an arrangement in relation to the tax preferred use of the asset or provision of financial benefits for the asset involves a finance lease, non-cancellable operating lease, or service concession or similar arrangement that is required to be included as an asset or a liability in the taxpayer's balance sheet. Pursuant to the facts, the arrangement is not a financial lease, non-cancellable operating lease or service concession or similar arrangement. Therefore the exception in subsection 250-35(5) does not apply.

Financial benefits irregular, not based on comparable market-based rates or not reflecting value of tax preferred use of asset:

Subsection 250-35(6) provides that subsection 250-30 will not apply if the financial benefits that have been or are to be provided to the taxpayer by members of the tax preferred sector in relation to the tax preferred use of the asset:

• are not provided on a regular periodic basis (and at least annually),

• are not based on comparable market-based rates, or

• do not reflect the value of the tax preferred use of the asset.

Pursuant to the facts, the annual rent, car park licence and licence fees, are 'financial benefits' that are payable by the Lessee to the Lessor pursuant to the terms of the lease for Property B. The Lease for Property B provides for the rent to be paid monthly and that the rent is based on a market rent valuation with regard to the rental value of comparable premises. Therefore, the exception in subsection 250-35(6) does not apply.

Special rules if tax preferred use is a lease or hire of the asset:

Subsection 250-35(7) provides that if the tax preferred use of the asset is a lease or hire of the asset, section 250-30 will not apply if the asset is so specialised that the end user could not carry out one or more of its functions effectively without the asset and the taxpayer would be unlikely to re-lease, re-hire or resell the asset to another person who is not a member of the tax preferred end user group. Pursuant to the facts, the depreciating assets that form part of Property B are not so specialised that the Lessee could not carry out one or more of its functions effectively without the assets. Therefore, the exception in subsection 240-35(7) does not apply.

Special rules if tax preferred use is not a lease or hire of the asset:

The exception in subsection 250-35(8) may apply if the tax preferred use of the asset is not a lease or hire of the asset. However, as the tax preferred use of the depreciating assets is a lease, subsection 250-35(8) is not satisfied.

Conclusion

Therefore, none of the exceptions in section 250-35 apply. Accordingly, the third exclusion in section 250-30 will apply on the basis that none of the exceptions to this exclusion are satisfied and at the start of the arrangement period the total value of all of the assets under the lease arrangement is less than $40 million (subparagraph 250-30(1)(c)(i)). As an exclusion listed in subsection 250-10(b) applies, Division 250 will not apply to the depreciating assets of Property C.

Question 3

Division 250 operates to deny or reduce certain capital allowance deductions that would otherwise be available to you in relation to an asset if the asset is put to a tax preferred use in certain circumstances.

Pursuant to section 250-10, Division 250 applies to you and an asset at a particular time if the 'general test' in section 250-15 is satisfied in relation to you and the asset and none of the exclusions referred to in paragraph 250-10(b) apply.

All five requirements of the general test in section 250-15 must be satisfied in relation to the asset for Division 250 to apply. The class of assets being tested in this case is the depreciating assets that form part of Property C.

The taxpayer has advised that they satisfy the general test in subsection 250-10(a). However, Division 250 will not apply to Property C if an exclusion listed in subsection 250-10(b) applies. In particular, the exclusion in paragraph 250-30(1)(a) (third exclusion - short-term arrangements) may apply.

Paragraph 250-30(1)(a): third exclusion - short term arrangements

Subsection 250-10(b) lists the sections that contain the exclusions for the application of Division 250. The third exclusion listed is section 250-30 which excludes certain short term or low value arrangements. Pursuant to subparagraph 250-30(1)(a)(i), Division 250 does not apply to a taxpayer and an asset that is being put to a tax preferred use under a particular arrangement if:

• the arrangement period for the tax preferred use of the asset does not exceed 5 years,

• the asset is real property, and

• the tax preferred use of the asset is a lease.

The lease term for Property C, including the option to renew, is less than five years. Property C is real property and the tax preferred use of the property is a lease entered. The lease entered into does not exceed 5 years. Accordingly, the third exclusion in section 250-30 will prima facie apply. However, as provided in subsection 250-30(1), section 250-30 has effect subject to section 250-35. Section 250-35 provides exceptions to the exclusions outlined in section 250-30.

Exceptions to section 250-30

Debt interests:

Subsections 250-35(1) and (2) provide that:

(1) Section 250-30 does not apply if the arrangement (either alone or together with any arrangement in relation to the tax preferred use of the asset or the provision of financial benefits in relation to the tax preferred use of the asset) is a debt interest.

(2) In applying subsection (1), disregard subsection 974-130(4).

The arrangement is not regarded as a 'debt interest' pursuant to Subdivision 974-B. Therefore the exception in subsection 250-35(1) does not apply.

Member of tax preferred sector having certain rights in relation to the asset:

Subsection 250-35(3) provides that subsection 250-30 will not apply if, a member of the tax preferred sector has one of the listed rights, obligations or interests and, the consideration for the right, obligation or interest is not fixed as the market value of the asset at the time of the purchase, acquisition or transfer of the right, obligation or interest. Under the terms of the lease for Property C, the Lessee does not have any of the rights specified in subsection 250-35(3) in respect of the depreciating assets. Therefore the exception in subsection 250-35(3) does not apply.

Member of tax preferred sector providing financing:

Subsection 250-35(4) provides that subsection 250-30 will not apply if a member of the tax preferred sector provides or assists with financing in relation to the taxpayer's interest in the asset. Pursuant to the facts, no member of the tax preferred sector has provided any financing or support for financing in relation to the taxpayer's interest in the property. Therefore the exception in subsection 250-35(4) does not apply.

Finance leases, non-cancellable operating leases, service concessions and similar arrangements:

Subsection 250-35(5) provides that subsection 250-30 will not apply if an arrangement in relation to the tax preferred use of the asset or provision of financial benefits for the asset involves a finance lease, non-cancellable operating lease, or service concession or similar arrangement that is required to be included as an asset or a liability in the taxpayer's balance sheet. The arrangement is not a financial lease, non-cancellable operating lease or service concession or similar arrangement. Therefore the exception in subsection 250-35(5) does not apply.

Financial benefits irregular, not based on comparable market-based rates or not reflecting value of tax preferred use of asset:

Subsection 250-35(6) provides that subsection 250-30 will not apply if the financial benefits that have been or are to be provided to the taxpayer by members of the tax preferred sector in relation to the tax preferred use of the asset are

• not provided on a regular periodic basis,

• based on comparable market-based rates, or

• do not reflect the value of the tax preferred use of the asset.

Pursuant to the facts, the annual rent, car park licence and licence fees, are 'financial benefits' that are payable by the Lessee to the Lessor pursuant to the terms of the lease for Property C. The lease for Property C provides for the rent to be paid monthly and that the rent is based on a market rent valuation with regard to the rental value of comparable premises. Therefore, the exception in subsection 250-35(6) does not apply.

Special rules if tax preferred use is a lease or hire of the asset:

Subsection 250-35(7) provides that if the tax preferred use of the asset is a lease or hire of the asset, section 250-30 will not apply if the asset is so specialised that the end user could not carry out one or more of its functions effectively without the asset and the taxpayer would be unlikely to re-lease, re-hire or resell the asset to another person who is not a member of the tax preferred end user group. The depreciating assets that form part of Property C are not so specialised that the Lessee could not carry out one or more of its functions effectively without the assets. Therefore, the exception in subsection 240-35(7) does not apply.

Special rules if tax preferred use is not a lease or hire of the asset:

The exception in subsection 250-35(8) may apply if the tax preferred use of the asset is not a lease or hire of the asset. However, as the tax preferred use of the depreciating assets is a lease, subsection 250-35(8) is not satisfied.

Conclusion

Therefore, none of the exceptions in section 250-35 apply. Accordingly, the third exclusion in section 250-30 will apply on the basis that none of the exceptions to this exclusion apply and the lease arrangement for the tax preferred use of the depreciating assets does not exceed five years (subparagraph 250-30(1)(a)(i)). As an exclusion listed in subsection 250-10(b) applies, Division 250 will not apply to the depreciating assets of Property C.