Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-10 - CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE  

Division 45 - Disposal of leases and leased plant  

Operative provisions  

SECTION 45-5   Disposal of leased plant or lease  

45-5(1)    
An amount is included in your assessable income if:

(a) you have deducted or can deduct an amount for the decline in value of ^* plant; and

(b) for most of the time when you ^* held the plant, you leased it to another entity; and

(c) all or part of the lease period occurred on or after 22 February 1999; and

(d) on or after that day, you dispose of the plant or an interest in the plant, and that disposal constitutes a ^* balancing adjustment event; and

(e) the sum of the following amounts is more than the plant ' s ^* written down value or of that part of it that is attributable to that interest:

(i) the money you receive or are entitled to receive for the disposal;

(ii) the amount of any reduction in a liability of yours as a result of the disposal;

(iii) the *market value of any other benefit you receive or are entitled to receive as a result of the disposal.

45-5(2)    
The amount included is the excess referred to in paragraph (1)(e). It is included for the income year in which the disposal occurred.

Example:

Sean owns a leased asset. The asset has a written down value of $20,000. He has an outstanding loan for the asset of $60,000.

Sean sells a 50% interest in the asset to Leprechaun Pty Ltd for $40,000. Leprechaun agrees to take over 50% of Sean ' s obligation to make debt service payments.

The excess referred to in paragraph 45-5(1)(e) is:

[$40,000   +   $30,000   =   $70,000]   −   $10,000   =   $60,000

That amount is included in Sean ' s assessable income.

This amount would be reduced if part of it is included in Sean ' s assessable income under another provision (see subsection 45-5(5) ).

Note 1:

There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45-30 .

Note 2:

There is a limit on the amount included for plant for which there is a CGT exemption: see section 45-35 .

45-5(3)    
An amount is also included in your assessable income if:

(a) you have deducted or can deduct an amount for the ^* plant ' s decline in value; and

(b) for most of the time when you ^* held the plant, you leased it to another entity; and

(c) all or part of the lease period occurred on or after 22 February 1999; and

(d) on or after that day, you dispose of:

(i) your interest in the plant, or part of it; or

(ii) a right under, or an interest in, the lease;

and that disposal does not constitute a ^* balancing adjustment event.

45-5(4)    
The amount included is the sum of the following amounts:

(a) the money you receive or are entitled to receive for the disposal;

(b) the amount of any reduction in a liability of yours as a result of the disposal;

(c) the *market value of any other benefit you receive or are entitled to receive as a result of the disposal;

It is included for the income year in which the disposal occurred.

45-5(5)    
However, an amount is not included in your assessable income under this section to the extent that:

(a) it is included in that assessable income under a provision of this Act outside this Division; or

(b) you apply it under section 40-365 (about offsetting balancing adjustments); or

(c) roll-over relief is available for the disposal under section 40-340 .

Note:

There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997 .