ATO ID 2003/149: Capital Allowances: second application of 'reasonable to expect' test to hold a depreciating asset
Date of decision: 11 December 2002
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Is the 'reasonable to expect' test contained in Item 6 of the hold table in section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997) satisfied by the particular call option the sublessee holds under their sublease if the lessee was treated as the holder of the asset under an earlier application of the test?

Decision
Yes. The 'reasonable to expect' test contained in Item 6 of the hold table in section 40-40 of the ITAA 1997 is satisfied by the particular call option held by the sublessee under their sublease because of the nature of the call option and the weighting of factors influencing the sublessee to exercise the option.

Facts
The taxpayer (the sublessee) purchased a depreciating asset which they immediately sold to an unrelated entity (the lessor). The lessor immediately leased the asset to an entity (the lessee) associated with the taxpayer and the lessee immediately subleased the asset to the taxpayer. Other relevant features of the arrangement are:

Reasons for decision

Legislative references: Income Tax Assessment Act 1997 Section 40-25 Item 6 of the table in section 40-40 Item 10 of the table tin section 40-40
Subject references: Capital Allowances CoE Economic holder Hold a depreciating asset Lease financing Reasonable to expect Uniform capital allowances system