ATO ID 2004/252: Capital Allowances: hold - application of item 6 of the hold table
Date of decision: 16 March 2004
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Does the taxpayer, who possesses and uses a depreciating asset under a genuine lease agreement immediately before entering into a hire purchase arrangement for the asset, hold the asset under item 6 of the table in section 40-40 of the Income Tax Assessment Act (ITAA 1997) during the term of the lease?

Decision
No. The taxpayer does not hold the depreciating asset under item 6 of the table in section 40-40 of the ITAA 1997 during the term of the lease because the lease agreement does not provide the taxpayer with sufficient rights to enable them to become a holder under any item of the table in section 40-40.

Facts
The taxpayer (the lessee) possesses and uses a tangible depreciating asset under a genuine lease agreement (that is, the lease satisfies all of the requirements of Taxation Ruling IT 28). Within the lease agreement the lessor acknowledges and agrees, provided no event of default occurs, that on the expiry of the lease they will immediately grant to the lessee a new hire of the depreciating asset under a hire purchase arrangement on such terms as are agreed between the lessor and the lessee. The lease agreement does not impact on the purchase price to be financed under the hire purchase arrangement - it continues to be the market value of the asset at the time the hire purchase arrangement is entered into. The interim lease was entered into because the financing arrangements for the asset were not settled by the time the asset was required for use by the lessee.

Reasons for decision

Legislative references: Income Tax Assessment Act 1997 Section 40-25 Section 40-40
Related public rulings and determinations: Taxation Ruling IT 28
Subject references: Capital Allowances CoE Hire purchase Hold a depreciating asset Uniform capital allowance system