Edited version of private advice

Authorisation Number: 1052255616498

Date of advice: 12 June 2024

Ruling

Subject: Disposal of fitout assets

Question 1

Did you dispose of the leasehold fitout assets upon sale of the business and transfer of the lease under subsection 104-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. You are the owner of the fitout assets as under the lease agreement the fitout assets must be removed at the end of the lease. Therefore, CGT event A1 occurred when you entered into the contract to sell your business, including your fitout assets.

Question 2

Is the money received for the unclaimed value of the fitout of your business is considered capital proceeds of the disposal of your fitout assets under section 116-20(1) of the ITAA 1997?

Answer

Yes. It is considered that the value of a specified amount is a reasonable value of your fitout assets. The value is supported by evidence from a quantity surveyor. Therefore, it is considered that the value of a specified amount is the capital proceeds you received on disposal of the fitout assets under section 116-20(1) of the ITAA 1997.

Question 3

Do the unclaimed capital works deductions form part of your cost base under section 110-25 of the ITAA 1997?

Answer

Yes. As you are the owner of the improvements the unclaimed capital works deductions form part of your cost base under section 110-25 of the ITAA 1997. Your capital works deductions that you have claimed are excluded from your cost base.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were registered as Company A which you changed to Company B on a specified date.

You carried on a veterinary business from a specified date.

You entered into a lease agreement to rent a retail premise. You provided us with details on the address, when the lease commenced and the lease term.

The lease agreement stated that when the lease ends the lessee must remove any goods that the lessee had fixed to the property and that any items not removed would be removed at the cost to the leasee.

You fitted out your veterinary premises to create a purpose built professional veterinary hospital/surgery.

You engaged a quantity surveyor who determined the original cost for your capital works. You provided us with details on when the report was obtained, the amount that the capital works was valued at and a copy of the report.

You provided us with details on the amount of capital works deductions that you have claimed.

You sold your business and business asset for a specified amount on a specified date as a going concern to Company C under a business purchase agreement.

The business purchase agreement did not include a breakdown of the assets nor the value of the assets.

You received consideration from the buyer reflected that the veterinary hospital was operational and that the purchaser simply had to take over the management of the business as all assets and fitout items were installed by you.

You entered into a Deed of Assignment of Lease on a specified date to transfer to the lease to Company C.

The lease was legally transferred to Company C on a specified date.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-10(2)

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 subsection 116-20(1)