Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 6 - Quasi-ownership of fixtures
Overview
6.1 This chapter covers:
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- rewritten provisions of the Income Tax Assessment Act 1936 (the 1936 Act) relating to leased plant fixtures which are being inserted into the Income Tax Assessment Act 1997 (the 1997 Act); and
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- consequential amendments to the 1936 Act.
Amendments to the Income Tax Assessment Act 1997
6.2 Part 1 of Schedule 6 will amend the 1997 Act to include rewritten provisions of the 1936 Act which give lessors entitlement to taxation depreciation allowances in respect of leased chattels that become a fixture on another person's land in circumstances where they would otherwise be so entitled had the leased item continued to be a chattel and not a fixture. The corresponding provisions are being inserted in Subdivision A of Division 3 of the 1936 Act by Taxation Laws Amendment Bill (No. 3) 1997.
6.3 The amendments will mean that a lessor of plant (as defined in section 42-18 of the 1997 Act) under a chattel lease will qualify as the quasi-owner of the plant. Under section 42-15 of the 1997 Act, the owner or quasi-owner of plant may deduct an amount for depreciation of the plant.
6.4 The amendments will apply in the following circumstances:
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- the lessor grants the plant lessee the right to use the plant for monetary or other consideration;
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- the right is granted under a lease but not a lease of plant or hire purchase agreement;
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- the lessor is not the owner of the plant because it is a fixture on another person's land; and
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- but for being a fixture, the plant would be owned by the lessor.
Where these circumstances apply, the lessor will be quasi-owner of the plant entitled to depreciation deductions under the 1997 Act, instead of any other person. However, the lessor will not be the quasi-owner unless there is an effective right to recover the plant or if the lessor acquired it under a sale and leaseback transaction. (There is an exception to the sale and leaseback prohibition, however, if the sale and leaseback to the plant lessee takes place within 6 months of the lessee - or an associate - first owning and using the plant and at that time there was an arrangement in place to sell and leaseback the plant.)
6.5 The rewritten provisions being inserted in the 1997 Act apply to the 1997-98 income year and later income years.
Amendments to the Income Tax Assessment Act 1936
6.6 Part 2 of Schedule 6 will amend existing provisions of the 1936 Act to ensure that a lessor who is a quasi-owner of plant under the amendments to the 1997 Act explained above, or who is treated as the owner under equivalent amending provisions to the 1936 Act contained in Taxation Laws Amendment Bill (No. 3) 1997, is appropriately treated as the owner of the plant for the purposes of those existing provisions. They are:
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- Section 51AD - Property used in certain leveraged arrangements
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- Section 82AQ - Development allowance
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- Section 159GE - Non-leveraged arrangements relating to the use of property
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- Section 673 - Drought investment allowance