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Edited version of your written advice
Authorisation Number: 1012709942938
Ruling
Subject: Capital allowances
Question 1
Will deductions be available to the taxpayer under section 40-25 of the Income Tax Assessment Act 1997 for the decline in value of depreciating assets acquired or constructed under the Project Deed that are affixed to the land leased from the lessor?
Answer
Yes
Question 2
Will capital works deductions be available to the taxpayer under Division 43 of the Income Tax Assessment Act 1997 for capital works expenditure incurred for the Activities that relate to the construction of the infrastructure and associated structural improvements?
Answer
Yes
Question 3
Will Division 250 of the Income Tax Assessment Act 1997 operate to deny the capital allowance deductions referred to in Questions 1 and 2 above?
Answer
No
Question 4
Will project costs incurred by the taxpayer for the purpose of upgrading community infrastructure associated with the Activities that do not otherwise qualify for deductions under section 40-25 or Division 43 be deductible as project pool expenditure?
Answer
Yes
Question 5
Will the Commissioner be bound by the private ruling issued to subsidiary member in respect of the application of section 51AD and Division 16D of the Income Tax Assessment Act 1936 (authorisation number x) in relation to the taxpayer head company of a tax consolidated group?
Answer
Yes
Question 6
Will section 51AD and Division 16D of the Income Tax Assessment Act 1936 apply in relation to capital allowance deductions for the infrastructure from 1 July 20yy to 30 June 20zz?
Answer
No
Question 7
Will the amendments to the Deed cause Division 250 to apply to the taxpayer in relation to the arrangements relating to the infrastructure?
Answer
No
This ruling applies for the following periods:
1 July 20xx to 30 June 20yy
The scheme commences on:
During the year ended 30 June 20xx
Relevant facts and circumstances
The taxpayer, the head company of a tax consolidated group, applied for a private ruling in relation to certain capital allowance issues in respect of an infrastructure project that it will be involved in as designer, constructor, and then operator of the infrastructure.
Relevant legislative provisions
Income Tax Assessment Act 1997
section 40-25
section 40-40
section 40-832
subsection 40-840(2)
Division 43
subsection 43-20(2)
Division 250
section 250-15
subsection 250-60(1)
subsection 250-60(2)
section 250-70
Income Tax Assessment Act 1936
section 51AD
paragraph 51AD(4)(b)
Division 16D
Reasons for decision
Question 1
Yes. Deductions will be available to the taxpayer under section 40-25 for the decline in value of depreciating assets that are affixed to the land which is leased to the taxpayer by the lessor. The taxpayer will be taken to be the holder of those assets. The land is considered to be subject to a 'quasi-ownership right' and it is advised that the taxpayer has the right to remove depreciating assets affixed to that land. Item 2 in the table to section 40-40 would apply. Alternatively item 3 could apply to the extent the taxpayer hasn't got the right to remove any of those assets but constitute an improvement to the land made by the taxpayer for its own use.
Question 2
Yes. Capital works deductions will be available to the taxpayer for capital works amounts incurred by the taxpayer. There is a 'construction expenditure area' for capital works that will be held by the taxpayer as a 'quasi-ownership right' under the land lease granted by the lessor. The area will be used by the taxpayer to derive assessable income in the form of ordinary revenue.
Question 3
No. Division 250 will not operate to deny the capital allowance deductions referred to in Question 1 and 2. It is considered that the relevant assets would not be put to a 'tax preferred use' by a 'tax preferred end user'.
Question 4
Yes. Project costs incurred by the taxpayer for the purpose of upgrading community infrastructure associated with the project that do not otherwise qualify for deductions under section 40-25 or Division 43 will be deductible under 40-832 as "project pool" expenditure.
Question 5
Yes. The Commissioner will be bound by the 'private ruling' issued to subsidiary member in relation to the taxpayer as head company of a tax consolidated group of which subsidiary is a member of. Although the Project Deed is being amended as part of the Project, those amendments are not considered to alter the basis on which the private ruling was made, being that the lessor does not control the use of the property (refer s51AD(4)).
Question 6
No. Section 51AD and Division 16D will not apply in relation to capital allowance deductions for the infrastructure. Both the existing infrastructure arrangement and the amended arrangement are considered to not involve control of the property by the lessor.
Question 7
No. Division 250 will not apply to the taxpayer in relation to the infrastructure arrangement. The infrastructure arrangements, including the amendments thereto, do not result in the assets being put to a tax preferred use.