Private ruling: Australian taxation implications of proposed substantial equipment lease/change of the sub-lessor
Published: November 2014
Ruling period: 1 January 2012 to 31 December 2025
Date scheme commenced: 1 January 2015

Ruling: A11: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The taxpayer applied for a private ruling in relation to a leasing transaction.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 701-1 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1936 Section 128B | Income Tax Assessment Act 1936 Subsection 128B(2B) | Income Tax Assessment Act 1936 Subsection 128B(3) | Income Tax Assessment Act 1936 Subsection 128B(5A) | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 Section 177A | Income Tax Assessment Act 1936 Section 177C | Income Tax Assessment Act 1936 Section 177CA | Income Tax Assessment Act 1936 Section 177D | Income Tax Assessment Act 1936 Section 177F | Income Tax Assessment Act 1936 Paragraph 177F(1)(b) | Income Tax Assessment Act 1936 Subsection 177F(2A) | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Subsection 4(2) | International Tax Agreements Act 1953 Section 17A | International Tax Agreements Act 1953 Subsection 17A(5) | International Tax Agreements Act 1953 Paragraph 17A(5)(b)


Question 1.1: Will the Sub-Lessor be liable to pay income tax on the rent payable by the Lessee to the Sub-Lessor under the new operating Sub-Lease pursuant to subsection 128B(5A) of the Income Tax Assessment Act 1936 (ITAA 1936)? | Question 1.2: Will the Head Lessor be liable to pay income tax on the rental income derived under the new operating Head Lease between Head Lessor and the Sub-Lessor pursuant to subsection 128B(5A) of the ITAA 1936? | Question 2.1: Will the Sub-Lessor be treated as having a permanent establishment for the purposes of the applicable Business Profits of the relevant tax agreement and accordingly have a liability for Australian income tax in respect of the rental income pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | Question 2.2: Will the rental income derived by the Head Lessor under the operating Head Lease be deemed to be Australian sourced by virtue of the applicable double tax agreement and accordingly be subject to Australian income tax pursuant to section 6-5 of the ITAA 1997? | Question 3.1: Will the Head Lessor be entitled to claim a tax deduction for the decline in value of the substantial equipment pursuant to section 40-25 of the ITAA 1997? | Question 4.1: Apart from Division 240, would the Head Lessor be entitled to claim a deduction for the interest component of the hire-purchase payments made to the Financier under the Finance Lease (subject to the Australian thin capitalisation provisions) pursuant to section 8-1 of the ITAA 1997, such that section 240-50 permits the Head Lessor to deduct the 'notional interest' in respect of the Finance Lease? | Question 5.1: Will the former Sub-Lessor be assessable to any amount under section 6-5 or 6-10 of the ITAA 1997 as a result of the execution of the Lease Transaction and Amendment Deeds? | Question 6.1: Will the Commissioner make a determination under paragraphs 177F(1)(a), 177F(1)(b) or subsection 177F(2A) of the ITAA 1936 to cancel a tax benefit that has been obtained, or would, but for section 177F of the ITAA 1936 be obtained, by the Head Lessor or the Sub-Lessor in connection with any of the following schemes: | (a) the incorporation of the Head Lessor; | (b) the incorporation of the former Sub-Lessor; | (c) the incorporation of the Financier; | (d) the incorporation of the Head Lessor; | (e) the acquisition of the substantial equipment by the Financier; | (f) the Finance Lease from the Financier to the Head Lessor; | (g) the operating Head Lease from the Head Lessor to the former Sub-Lessor; | (h) the operating Sub-Lease from the former Sub-Lessor to the Lessee; | (i) the execution of the Lease Transaction and Amendment Deeds; | (j) the new operating Head Lease from Head Lessor to Sub-Lessor; or | (k) the new operating Sub-Lease from the Sub-Lessor to the Lessee; or | (l) any combination of the above. | Question 7.1: Will the Financier be liable to pay income tax on interest derived under the Finance Lease pursuant to subsection 128B(5) of the Income Tax Assessment Act 1936 (ITAA 1936) | Question 8.1: Will the Financier be liable to pay income tax on the rent derived from the Head Lessor pursuant to subsection 128B(5A) of the ITAA 1936? | Question 9.1: Will the Financier be liable to pay income tax on the rent derived from the Head Lessor pursuant to subsection 6-5(3)) of the ITAA 1936?