Taxation Ruling

IT 98

Investment allowance on bulk carrier ships - leveraged lease arrangement

• Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.
  This document has been Withdrawn.
  View the Withdrawal notice for this document.
  This document is no longer current as has been Archived.
  View the Archival notice for this document.

FOI status:

may be releasedFOI number: I 1071090

Facts

2. Consideration was given to the application of the investment allowance provisions to the situation where an Australian shipping company ('Y'), had contracted with an overseas entity for the construction and delivery of 2 coal-fired mineral carriers. The company proposed, inter alia, upon delivery of the carriers to sell them to 'Nominee' Pty Ltd which was to act as nominee on behalf of a partnership of 2 equity participants. Ownership and leasing, of the vessels would be the sole function of 'Nominee'.

3. Each vessel was intended to be dedicated to the carriage of minerals or other bulk cargo for an Australian mining company ('X') between ports on the Australian coast and would be specifically constructed for that purpose.

4. On acceptance of delivery of the vessels by 'Nominee', a charter party (Head Charter) in respect of each vessel would be entered into between 'Nominee' and a subsidiary company ('Z'). Each of the charters is for a period of 15 years and contains certain option rights. Simultaneously with each Head Charter, a time charter party in respect of each vessel was entered into between 'Z' and 'X' for a period of 15 years. A ship management agreement was also entered into between the 2 companies for the same period whereby 'Z' agreed to crew, store, insure, maintain and operate each vessel.

5. In giving a ruling, this office was requested to confirm:-

(a)

each charter party between 'Nominee' and 'Z' is a long term lease agreement entered into by the equity participants in the course of carrying on business in Australia and was so entered into at arms length for the purposes of Subdivision B of Division 3, Part III of the Act; and

(b)

neither the time charter party, nor the ship management agreement between 'Z' and 'X' constitutes, either separately or together, a contract or agreement entered into by 'Z' with another person for the use of the relevant vessel by that person within the meaning of sections 82AG(3) or 82AG(4) of the Act.

Ruling

6. In respect of this specific fact situation it was ruled that:

1.

The Head Charter would be accepted as a lease for the purposes of the Income Tax Assessment Act 1936 (the Act).

2.

The equity participant partnership would be accepted as a partnership for the purposes of the Act.

3.

Each vessel would constitute a unit of eligible property for the purposes of Subdivision B of Division 3, Part III of the Act.

and that the provisions of sections 82AG(3) and 82AG(4) would have no application to the time charter party or the ship management agreement.

Commissioner of Taxation
9 March 1982

References

ATO references:
NO J137/22/1 P3 F264

Date original memo issued:
09.03.82

Related Rulings/Determinations:

IT 98W
IT 98H

Subject References:
lease - definition
disposal of plant - at arm's length
disposal of plant - within 12 months
investment allowance
charter party - whether a lease

Legislative References:
SUBDIVISION B OF DIVISION 3
82AA
82AG
82AQ