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Edited version of your written advice
Authorisation Number: 1012745260668
Ruling
Subject: Construction and operation of a shared public/private building
Question 1
With respect to the construction of the Building, will income derived and expenditure incurred by Company A be on revenue account?
Answer
Yes.
Question 2
If the answer to question 1 is yes, may the assessable income of Company A with respect to the construction of the Building be determined under the estimated profits basis in accordance with Taxation Ruling IT 2450 Income tax: recognition of income from long term construction contracts?
Answer
Yes.
Question 3
Will the Trustee for the Trust be eligible for deductions under Division 40 and Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997) with respect to relevant expenditure incurred in constructing the Private Portion of the Shared Portion of the Building?
Answer
Yes.
This ruling applies for the following periods:
1 July 2014 - 30 June 2050
Relevant facts and circumstances
In order to protect the privacy and commercial in-confidence components of this private ruling the following summary is provided.
The ruling concerned the following:
The State has announced that it will enter into a public private partnership (PPP) with a Consortium to design, construct and operate an item of infrastructure (the Building). A reference below to the Consortium is a reference individually or jointly to the Trust and to Company A as applicable unless otherwise specified.
The Building will provide services for both public and private members and the Consortium will operate the entire Building.
The State will enter a Project Deed with the Consortium in relation to the construction and operation of the Building, with construction expected to take approximately 3 years.
Upon completion, the Consortium will receive a contract payment from the State for the expenditure it incurred to construct a portion of the Building. The Consortium will fund the remaining construction expenditure itself.
The Consortium will provide services for the State in return for a monthly fee, and will provide services to private members in return for a fee paid by private members.
Relevant legislative provisions
Section 6-5 of the Income Tax Assessment Act 1997
Section 6-10 of the Income Tax Assessment Act 1997
Section 8-1 of the Income Tax Assessment Act 1997
Section 10-5 of the Income Tax Assessment Act 1997
Section 40-25 of the Income Tax Assessment Act 1997
Section 40-35 of the Income Tax Assessment Act 1997
Section 40-40 of the Income Tax Assessment Act 1997
Section 40-45 of the Income Tax Assessment Act 1997
Section 40-60 of the Income Tax Assessment Act 1997
Section 40-65 of the Income Tax Assessment Act 1997
Section 40-70 of the Income Tax Assessment Act 1997
Section 40-95 of the Income Tax Assessment Act 1997
Section 40-100 of the Income Tax Assessment Act 1997
Section 40-102 of the Income Tax Assessment Act 1997
Section 40-103 of the Income Tax Assessment Act 1997
Section 40-105 of the Income Tax Assessment Act 1997
Section 40-110 of the Income Tax Assessment Act 1997
Section 40-220 of the Income Tax Assessment Act 1997
Section 43-10 of the Income Tax Assessment Act 1997
Section 43-20 of the Income Tax Assessment Act 1997
Section 43-70 of the Income Tax Assessment Act 1997
Section 43-75 of the Income Tax Assessment Act 1997
Section 43-85 of the Income Tax Assessment Act 1997
Section 43-120 of the Income Tax Assessment Act 1997
Section 43-140 of the Income Tax Assessment Act 1997
Section 995-1 of the Income Tax Assessment Act 1997
Reasons for decision
All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.
Question 1
Under the Project Deed, Company A agrees to provide services to the State and the Trust over the construction period, in consideration for the State Contract Price and the construction progress payments respectively. The amounts Company A receives are earned by Company A, and are expected and relied upon. Accordingly, the amounts received under the Project Deed are ordinary income and are assessable under section 6-5.
Question 2
Taxation Ruling IT 2450 Income Tax: Recognition of income from long term construction contracts (IT 2450) primarily address the principles and practices which are to apply in bringing to account for income tax purposes income derived from long term construction contracts.
The Commissioner considers that the estimated profits basis is an appropriate method for Company A to use to account for its assessable income with respect to the construction of the Building.
Question 3
The Trust will incur expenditure in constructing the Building. This expenditure will include payments made to Company A.
In accordance with section 43-10, the Trust will be eligible for deductions for expenditure it incurred in constructing the Building.
The Trust will also be eligible for deductions under Division 40 in respect of expenditure on the Building.