Taxation Laws Amendment Act (No. 3) 1997 (147 of 1997)

Schedule 8   Depreciation of lessor's fixtures

Income Tax Assessment Act 1936

2   After section 54AA

Insert:

54AB Leased property affixed to land - lessor taken to be owner for depreciation purposes

(1) This section applies if:

(a) a taxpayer (the lessor ) enters into a lease with another person (the lessee ) under which a right to use a unit of property that is plant or articles within the meaning of section 54 is granted to the lessee; and

(b) the property is a fixture on the land of a person other than the lessor and therefore the lessor is not the owner of the property; and

(c) if the property were not a fixture, the lessor would be the owner of the property; and

(d) under sections 54AC and 54AD, the lessor is an eligible lessor in relation to the property.

(2) If this section applies, the provisions of this Act relating to depreciation apply as if the lessor were the owner of the property instead of any other person.

(3) Also, section 51AD and Division 16D apply in relation to property to which this section applies as if the lessor were the owner of the property instead of any other person.

(4) For the purposes of this section and sections 54AC and 54AD:

hire purchase agreement means a contract for the hire of goods under which the hirer has a right or obligation to purchase the goods where the charge that is or may be made for hiring the goods, together with any other amount payable under the contract (including an amount to purchase the goods or to exercise an option to do so) exceeds the price of the goods.

lease means:

(a) any arrangement to let a unit of property (other than realty) on hire under which a right to use the property is granted by the owner to another person for a monetary or other consideration; or

(b) a renewal of such an arrangement;

but does not include a hire purchase agreement.

54AC Eligible lessor - right of removal of property

Right of removal

(1) Where a unit of property is a fixture on land owned by the lessee of the property, then, for the purposes of subsection 54AB(1), the lessor is an eligible lessor in relation to that property if:

(a) the lessor has a right, in addition to any other right, to sever and remove the property from the land in the event of default under, or termination of, the lease (a right to remove ); and

(b) the property can be removed without causing substantial damage to the property or to the land.

Effective right of removal

(2) Where the property is a fixture on land owned by a person other than the lessee, then, for the purposes of subsection 54AB(1), the lessor is an eligible lessor in relation to the property if:

(a) the lessee has a right to sever and remove the property from the land; and

(b) the property can be removed without causing substantial damage to the property or to the land; and

(c) under the lease, the lessor has a right against the lessee to recover the property (an effective right to remove ).

Lessor not an eligible lessor if right to remove, or effective right to remove, is lost

(3) The lessor is not an eligible lessor in relation to the property if:

(a) although the lessor has a right to remove, or an effective right to remove, the property, the lease expires or is otherwise terminated without the lessor exercising that right; or

(b) there is an event of default under the lease and the lessor ceases to have a right to remove, or an effective right to remove, the property; or

(c) the lessor disposes of his or her interest in the lease, including the residual interest in the property; or

(d) the lessee discharges his or her obligations under the lease and the property is not returned to the lessor; or

(e) the property is lost or destroyed.

54AD Lessor not an eligible lessor if property previously owned by the lessee

(1) Subject to subsection (2), a lessor is not an eligible lessor in relation to a unit of property for the purposes of subsection 54AB(1) if, at any time before the lease was entered into, the lessee or an associate of the lessee owned the property and used it or held it for use.

(2) Subsection (1) does not apply if:

(a) the property was first owned and used or held for use by the lessee or an associate of the lessee no more than 6 months before the lessor acquired the property; and

(b) the lessor acquired the property from the lessee or an associate of the lessee; and

(c) the property was not a fixture at the time that it was first owned and used or held for use by the lessee or an associate of the lessee; and

(d) at the time the property was first owned and used or held for use by the lessee or an associate of the lessee, there was an arrangement in existence providing for the property to be sold to the lessor and then leased to the lessee.

(3) For the purposes of subsections (1) and (2), a person (the seller ) is taken to have sold property and another person (the purchaser ) is taken to have acquired property where the seller purports to sell the property to the purchaser but does not because the property is a fixture on land.

(4) If the conditions in subsection (2) are satisfied, the cost of the property to the lessor, for the purposes of working out the property's depreciated value under section 62, is taken to be the lesser of:

(a) the sum of:

(i) the amount that would have been the depreciated value of the property of the lessee or an associate of the lessee at the time the lessor acquired it; and

(ii) any amount included in the assessable income of the lessee or associate under section 59 as a result of the sale; or

(b) the consideration paid by the lessor for the property.

(5) For the purposes of this section:

associate has the same meaning as in section 318.

54AE Lessor taken to have disposed of property in certain cases

(1) A lessor who is not an eligible lessor in relation to a unit of property under section 54AB because one or more of the conditions in subsection 54AC(3) is satisfied, is taken to have disposed of the property for the purposes of section 59 or 59AA for the amount of consideration set out in this section.

(2) If:

(a) the lease expires or is otherwise terminated without the lessor exercising his or her right to remove, or effective right to remove, the property; or

(b) there is an event of default under the lease and the lessor ceases to have a right to remove, or an effective right to remove, the property; or

(c) the lessee discharges his or her obligations under the lease and the property is not returned to the lessor;

the lessor is taken to have disposed of the property for a consideration equal to:

(d) if the parties to the lease are dealing at arm's length and there is any termination or residual amount received or receivable under the lease in respect of the property - that termination or residual amount; or

(e) if the parties to the lease are dealing at arm's length and there is no termination or residual amount received or receivable under the lease in respect of the property - any amount received or receivable by way of compensation in lieu of recovery of the property; or

(f) if the parties to the lease are not dealing at arm's length - the market value of the property immediately before the time of disposal referred to in paragraph (a), (b) or (c) worked out as if it were removed from the land.

(3) If the lessor disposes of his or her interest in the lease including the residual interest in the property, the lessor is taken to have disposed of the property for a consideration equal to:

(a) if the parties to the disposal are dealing at arm's length - the part of the disposal price that is reasonably attributable to the property; or

(b) if the parties to the disposal are not dealing at arm's length - the market value immediately before the time of disposal worked out as if the property were removed from the land.

(4) If the property is lost or destroyed, the lessor is taken to have disposed of the property for the sum of any amounts received or receivable in relation to its loss or destruction.