ATO ID 2003/595: Capital Gains Tax: assignment of fixtures attached to land
Date of decision: 19 June 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
For the purposes of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997), did the taxpayer acquire ownership of fixtures separately from the leasehold interest in the land to which the fixtures were attached?

Decision
No. The taxpayer acquired only one asset for the purposes of Parts 3-1 and 3-3 of the ITAA 1997 - rights under a contract.

Facts
A contract for the sale of business was entered into between two entities. Under that contract: The purchaser/lessee has no right to remove the fixtures and must surrender them for their market value at the termination of the lease.

Reasons for decision
Summary: Although the contract of sale between the parties evidences an intention to transfer ownership of the fixtures to the purchaser, an issue arises as to whether there was a transfer of those fixtures at law or in equity. Fixtures are chattels that are annexed to the land and are treated in law as part of the land ( Halsbury's Laws of Australia , vol. 19, paragraph 315-20). Subject to statutory exceptions, when an item is a fixture on land it is part of the land and owned by the owner of the land and cannot be sold separately from it ( Mills v. Stokman (1967) 116 CLR 61). The real effect of the transaction was not to make the purchaser the owner of the fixtures but to create rights in the purchaser in relation to those fixtures. Nothing decided in Eastern Nitrogen Ltd v. Federal Commissioner of Taxation (2001) 108 FCR 27; 2001 ATC 4164; (2001) 46 ATR 474 and FC of T v. Metal Manufacturers Ltd 2001 ATC 4152; (2001) 46 ATR 497 on the sale and leaseback of operating plant fixtures means that ownership of the fixtures vests at law or in equity in the lessee/assignee. In those cases, the rights of the lessor to enter into the land and remove the leased operating plant fixtures, in the event of default or at the termination of the lease agreements were fundamental. Here there is no right of removal of the fixtures by the lessor/assignor under the lease agreement. Accordingly, for the purposes of Parts 3-1 and 3-3 of the ITAA 1997, the purchaser acquired only one asset - the rights under the contract.

Legislative references: Income Tax Assessment Act 1997 Part 3-1 Part 3-3
Case references: Eastern Nitrogen Ltd v. Federal Commissioner of Taxation (2001) 108 FCR 27 2001 ATC 4164
Related public rulings and determinations: Taxation Determination TD 93/86
Other references: Halsbury's Laws of Australia, vol. 19, paragraph 315-20
Subject references: Acquisition of CGT assets Capital gains tax CGT events D1 - D3 - bringing into existence a CGT asset