Private ruling: Construction Works
Published: October 2014
Ruling period: 1 July 20xx to 30 June 20yy
Date scheme commenced: During the year ended 30 June 20xx

Ruling: Q1: Will the payments made by the third party to related company be assessable to related company under section 6-5 of the Income Tax Assessment Act 1997 at the time that a tax invoice is issued pursuant to clause 5 of the third party works Deed? | A1: Yes | Q2: Will related party be entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 for costs incurred in completing its services under its engagement with the third party to construct the works at the time that it is legally obliged to pay the sub-contractor under the sub-contractor Contract? | A2: Yes

Relevant facts and circumstances: A tax consolidated group and a related company having ultimate common ownership, will contract with a third party land owner under an overall project to design and construct assets and improvements upon land owned by the third party. The related company is contracted by the third party to undertake certain preparatory works to the land and will be paid for that work by the third party. The related party will sub-contract the work. The tax consolidated group will undertake the main design and construction of assets to be affixed to the land. The tax consolidated group will subcontract the work. Upon completion the tax consolidated group will be given use of the land by the third party (and the assets affixed thereto) and will be able to derive income from that use.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | section 8-1

Reasons for decision: Summary: Yes. Payments made by the third party to related party will be assessable income to related party under section 6-5 at the time that a tax invoice is issued pursuant to clause 5 of the third party Works Deed. A recoverable debt arises when the invoice is issued. Yes. related party will be entitled to a deduction under section 8-1 for costs incurred in completing its services under its engagement with the third party to construct the works at the time that it is legally required to pay the sub-contractor. The costs incurred by related party under the sub-contract will be on revenue account and not capital in nature.