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Edited version of your written advice
Authorisation Number: 1012706483367
Ruling
Subject: Enhancements to Contractual Rights
Question 1
Will the rent derived by the Partnership under the subcontract during the additional period be included in the net income of the Partnership under section 90 of the Income Tax Assessment Act 1936 as ordinary income pursuant to section 6-5 of the Income Tax Assessment Act 1997 in each of the relevant income years?
Answer
Yes
Question 2
Will the value of the rights acquired upon the extension of the head contract be included in the net income of Partnership under section 90 of the Income Tax Assessment Act 1936 as ordinary income pursuant to section 6-5 of the Income Tax Assessment Act 1997 at the time Partnership enters into the contract Deed of Variation which effects the extension of the contract?
Answer
No
Question 3
Will the value of the rights acquired upon the extension of the head contract be included in the net income of Partnership under section 90 of the Income Tax Assessment Act 1936 as a subsidy or bounty pursuant to section 15-10 of the Income Tax Assessment Act 1997?
Answer
No
Question 4
Will the value of the rights acquired upon the extension of the head contract be capital proceeds for the purposes of calculating a capital gain or capital loss made by Partnership under Part 3-1 of the Income Tax Assessment Act 1997 as a result of any CGT event happening for the Partnership?
Answer
No
Question 5
Will the value of the rights acquired upon the extension of the subcontract be capital proceeds for the purposes of calculating a capital gain or capital loss made by the Partnership under Part 3-1 of the Income Tax Assessment Act 1997 as a result of any CGT event happening for the Partnership?
Answer
No
This ruling applies for the following periods:
The years ended 30 June 20xx to 20yy
The scheme commences on:
during the year ended 30 June 20xx
Relevant facts and circumstances
The Partnership applied for a private ruling in relation to certain amendments being made to pre-existing contractual rights held by the Partnership that were originally entered into some years ago that provides the Partnership, amongst other things, the right to rental income (of a revenue nature) for a certain number of years. The new enhanced rights will provide the Partnership with further rental income for an increased period. The enhancements are made as part of undertaking obligations in connection with another new arrangement.
Relevant legislative provisions
Income Tax Assessment Act 1936
section 90
Income Tax Assessment Act 1997
subsection 6-5(1)
section 15-10
Part 3-1
Reasons for decision
Question 1
Yes. The rent derived by the Partnership during the additional period constitutes ordinary income for tax purposes derived by the Partnership during each of the relevant income years.
Question 2
No. The value of the rights acquired upon the extension of the head contract are not ordinary income derived for tax purposes at the time of executing the contract Deed of Variation.
Question 3
No. The value of the rights acquired upon the extension of the head contract are not considered to be in the nature of a 'bounty' or 'subsidy'.
Question 4
No. In relation to the extension of the head contract, CGT events C2, D1, F1 and F4 will not happen to the Partnership. CGT event H2 happens as the amendments to the Motorway Stratum Lease are an act, transaction or event that occurs in relation to a CGT asset (that asset being the contractual rights that the Partnership owns under the head contract). However, we agree that there are no capital proceeds because of CGT event H2. Accordingly, there are no capital proceeds from entering into or performance of the contract Deed of Variation for the purposes of calculating a capital gain or capital loss to the Partnership.
Question 5
No. In relation to the extension of the subcontract, CGT events C2, D1, F4 and H2 will not happen to the Partnership. CGT event F1 happens as the amendments to the subcontract are to extend the term. However, we agree that there are no capital proceeds from CGT event F1 happening. Accordingly, there are no capital proceeds from entering into or performance of the subcontract Deed of Variation for the purposes of calculating a capital gain or capital loss to the Partnership.