Private ruling: Division 250 of the Income Tax Assessment Act 1997
Date of advice: 10 August 2015
Published: August 2015

Ruling: Q1: Will Division 250 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the property due to any leases to tax preferred end users? Advice Yes

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice . Entity A is an exempt entity within the meaning of subsection 995-1(1). The transaction Entity A is proposing to divest its interest in the property. There are, lease/s in place with tax preferred entities as defined in section 995-1 of the ITAA 1997. Assumption That the future purchaser of the building will acquire the building with all current leases in place such that the purchaser at acquisition time is using the assets to carry on the business.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 243-20 | Income Tax Assessment Act 1997 Division 250 | Income Tax Assessment Act 1997 section 250-15 | Income Tax Assessment Act 1997 subsection 250-15(a) | Income Tax Assessment Act 1997 subsection 250-15(b) | Income Tax Assessment Act 1997 subsection 250-15(c) | Income Tax Assessment Act 1997 subsection 250-15(d) | Income Tax Assessment Act 1997 section 250-20 | Income Tax Assessment Act 1997 subsection 250-25(1) | Income Tax Assessment Act 1997 subsection 250-25(2) | Income Tax Assessment Act 1997 subsection 250-30(1) | Income Tax Assessment Act 1997 subparagraph 250-30(1)(a)(i) | Income Tax Assessment Act 1997 subparagraph 250-30(1)(b)(iii) | Income Tax Assessment Act 1997 subparagraph 250-30(1)(c)(i) | Income Tax Assessment Act 1997 subsection 250-30(2) | Income Tax Assessment Act 1997 section 250-40 | Income Tax Assessment Act 1997 section 250-45 | Income Tax Assessment Act 1997 subsection 250-50(1) | Income Tax Assessment Act 1997 subsection 250-50(4) | Income Tax Assessment Act 1997 subsection 250-55(a) | Income Tax Assessment Act 1997 subsection 250-55(b) | Income Tax Assessment Act 1997 subparagraph 250-55(b)(i) | Income Tax Assessment Act 1997 section 250-60 | Income Tax Assessment Act 1997 subsection 250-60(1) | Income Tax Assessment Act 1997 paragraph 250-60(1)(a) | Income Tax Assessment Act 1997 subparagraph 250-60(1)(b)(i) | Income Tax Assessment Act 1997 subsection 250-65(1) | Income Tax Assessment Act 1997 subsection 250-65(2) | Income Tax Assessment Act 1997 section 250-110 | Income Tax Assessment Act 1997 section 250-115 | Income Tax Assessment Act 1997 subsection 250-115(4) | Income Tax Assessment Act 1997 subsection 250-115(5) | Income Tax Assessment Act 1997 subsection 250-115(6) | Income Tax Assessment Act 1997 section 250-120 | Income Tax Assessment Act 1997 subsection 250-120(1) | Income Tax Assessment Act 1997 subsection 250-120(2) | Income Tax Assessment Act 1997 subsection 250-125(1) | Income Tax Assessment Act 1997 section 250-125 | Income Tax Assessment Act 1997 subsection 250-130(1) | Income Tax Assessment Act 1997 section 250-135 | Income Tax Assessment Act 1997 subsection 250-135(2) | Income Tax Assessment Act 1997 section 328-110 | Income Tax Assessment Act 1997 section 974-160 | Tax Laws Amendment (2007 Measures No. 5) Act 2007 Subitem 71(7) | Tax Laws Amendment (2007 Measures No. 5) Act 2007 Subitem 71(8) Further issues for you to consider | The extent of the application of Division 250 of the ITAA 1997 to the arrangement will not be known until the details of the purchaser can be established and the details of the lease/s can be established so it can be determined whether the general test applies and also whether any of the exclusions to Division 250 of the ITAA 1997 apply. | Another consideration is also when the lease was entered. Lessees should consider the transitional rules for any leases which were entered into prior to 1 July 2003 (per subitem 71(7) and (8) of Schedule 1 of the Tax Laws Amendment (2007 Measures No.5) Act 2007 )). If the purchaser is unsure of how Division 250 of the ITAA 1997 will apply once the details of the purchase and leases are established they should contact the Australian Taxation Office to clarify the application of Division 250 of the ITAA 1997 in their own particular circumstances. | Anti-avoidance rules | Part IVA of the ITAA 1997 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 The scope of Division 250 does extend to Entity A and other tax preferred entities that hold a lease in the property. To determine if Division 250 will apply each lease will need to be considered to determine if their use of the asset will satisfy the general test (section 250-15), and if so whether they satisfy any of the exclusions to the application of Division 250 (sections 250-20, 250-25, 250-30, 250-40 and 250-45). | Detailed Reasoning - Detailed reasoning: The main objects of Division 250 are: (a) to deny or reduce your *capital allowance deductions in respect of an asset if the asset is put to a *tax preferred use and you have insufficient economic interest in the asset; and (b) if your capital allowance deductions are denied or reduced, to treat the *arrangement for the tax preferred use of the asset as a loan that is taxed as a financial arrangement (on a compounding accruals basis). | Detailed Reasoning - Application of Division 250 and the general test: For leases that were entered into for the property assets post 1 July 2007 Division 250 may apply. Section 250-15 contains the general test, and these five requirements must be satisfied in order for Division 250 to apply. Section 250-15 provides: This Division applies to you and an asset at a particular time if: (a) the asset is being put to a tax preferred use; and (b) the arrangement period for the tax preferred use of the asset is greater than 12 months; and (c) financial benefits in relation to the tax preferred use of the asset have been, will be or can reasonably be expected to be, provided to you (or a connected entity) by: (i) a tax preferred end user (or connected entity); or (ii) any tax preferred entity (or connected entity); or (iii) any entity that is a foreign resident; (d) disregarding this Division, you would be entitled to a capital allowance in relation to: (i) a decline in the value of the assets; or (ii) expenditure in relation to the asset; and (e) you lack a predominant economic interest in the asset at that time. Requirement 1 - asset must be put to a tax preferred use: The end users of the capital works assets and depreciating assets are the lessees under the lease arrangements because the lessees use or effectively control the use of the assets under these arrangements. Subsection 250-50(4) confirms that an entity that holds rights as lessee under a lease of an asset is taken to be an "end user". The relevant assets that are used by end users who are tax preferred entities will be "tax preferred end users" pursuant to subparagraph 250-55(b)(i). Thus the requirements in subsection 250-60(1) in respect of an asset that is "put to a tax preferred use" may be satisfied for the relevant lease arrangements containing "tax preferred end users". To this effect, the tax preferred use of the property assets are the lease arrangements entered into with "tax preferred end users" and therefore the requirement in 250-15(a) will be satisfied for those relevant leases arrangements. Requirement 2 - arrangement period for the tax preferred use is greater than 12 months: Pursuant to subsections 250-65(1) and (2) of the ITAA 1997, the "arrangement period" for the tax preferred use of the assets starts when that tax preferred use starts and ends on the date on which the tax preferred use of the asset is reasonably expected to end. That is, where the arrangement period for the tax preferred use of the depreciating assets and capital work assets under the leases is greater than 12 months, the requirement in 250-15(b) will be satisfied. Requirement 3 - Financial benefits provided by a tax preferred end user, tax preferred entity or a foreign resident: The term "financial benefits" is defined in section 974-160 of the ITAA 1997 to include "anything of economic value". Those lessees who are tax preferred end users due to the fact that they are tax preferred entities, are required to pay rent pursuant to their lease arrangements for the use of the relevant portion of the property assets. The rental payments made by the lessees are regarded as "financial benefits" and the requirement in subsection 250-15(c) would be satisfied. Requirement 4 - The taxpayer would otherwise be entitled to a capital allowance: The purchaser of the property will be entitled to a capital allowance (as defined in subsection 995-1(1) to include Division 40 capital allowances and Division 43 capital works) in the form of deductions under Division 43 for the undeducted construction cost of the capital works assets on the basis that they are the owners of the relevant construction expenditure area. Therefore, the requirement in subsection 250-15(d) is satisfied on the basis that the purchaser would, aside from the application of Division 250, be entitled to capital works deductions in respect of the property. Requirement 5 - the taxpayer lacks a predominant economic interest in the asset: Pursuant to section 250-110, a taxpayer lacks a predominant economic interest in an asset at a particular time if one (or more) of the following tests is satisfied: • Limited recourse debt test (section 250-115); • Right to acquire asset test (section 250-120); • Effectively non-cancellable, long term arrangement test (section 250-125); and • Level of expected financial benefits test (section 250-135). Accordingly, failure of one test is enough for a taxpayer to lack a predominant economic interest. • Limited recourse debt test under section 250-115 Broadly, this test states that a taxpayer lacks a predominant economic interest in an asset at a particular time if, for assets that are put to a tax preferred use because the end use is by a tax preferred entity pursuant to (relevantly) 250-60(1)(b)(i), 80% of the cost of acquiring or constructing the asset is financed by "limited recourse debt". "Limited recourse debt" is broadly defined in section 243-20 of the ITAA 1997 as an obligation where the rights of the creditor as against the debtor in the event of default are limited to rights in relation to the debt property, or to goods or services provided by means of the debt property. Subsection 250-115(4) states that this section does not apply to the asset if: (a) you are a corporate tax entity; and (b) the tax preferred use of the asset is not the lease or hire of the asset (and is not the use of the asset under a lease or hire arrangement); and (c) the asset is put to the tax preferred use wholly or principally in Australia; and (d) no member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide financial benefits in the event of the termination of an arrangement). Subsection 250-115(5) states that Paragraph (4)(b) does not apply if: (a) the asset is real property (or an interest in real property); and (b) the tax preferred use of the asset is a lease; and (c) the space within the property that is occupied by tenants who are members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants. In this case, the asset will be real property and the tax preferred use of the asset will be a lease. Broadly, this means that where the property has 50% or more of its available space which is, or can be, occupied by tenants from the tax preferred sector, and the purchaser is a corporate tax entity, then the purchaser will lack a predominant economic interest in the asset. Subsection 250-115(6) states that this section does not apply to the asset if: (a) you hold the asset as a trustee; and (b) the asset is real property (or an interest in real property); and (c) the tax preferred use of the asset is a lease; and (d) the space with the property that is occupied by tenants who are members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants; and (e) the asset is put to the tax preferred use wholly or principally in Australia; and (f) no member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide financial benefits in the event of the termination of an arrangement). Broadly speaking, the purchaser will lack a predominant economic interest in the property assets if they are a trustee and the tenants who are members of the tax preferred sector is more than 50% of the occupied space or the space available to be occupied by tenants. • Right to acquire asset test (section 250-120) Subsection 250-120(1) states that you lack a predominant economic interest in an asset at a particular time if, at that time: (a) the asset is to be transferred to a member of the tax preferred sector after the end of the arrangement period; and (b) the consideration for the transfer is not fixed as the market value of the asset at the time of the transfer. Broadly this test will apply where an asset is to be transferred for less than market value to a tax preferred entity or non-resident after the tax preferred use of the asset comes to an end. Subsection 250-120(2) extends this test to apply where a tax preferred entity or no-resident has certain rights or obligations to purchase, or acquire, or require the transfer of an asset or an interest in the asset where the transfer is not fixed at market value at the time of the transaction as part of those rights or obligations. • Effectively non-cancellable, long term arrangement test (section 250-125) Subsection 250-125(1) states that you lack a predominant economic interest in an asset at a particular time if: (a) any arrangement that relates to: (i) the tax preferred use of the asset; or (ii) the financial benefits to be provided by the members of the tax preferred sector in relation to the tax preferred use of the asset. is effectively non-cancellable; and (b) the arrangement period for the tax preferred use of the asset is: (i) greater than 30 years; or (ii) if the arrangement period is less than or equal to 30 years - 75% or more of that part of the asset's effective life that remains when the tax preferred use of the asset starts. The purchaser will lack a predominant economic interest in an asset where the arrangement is effectively non-cancellable or non-cancellable for a substantial portion of the asset's effective life. Subsection 250-130(1) states an arrangement that relates to financial benefits to be provided by a member the tax preferred sector in relation to the tax preferred use of an asset is effectively non-cancellable if: (a) the arrangement can be cancelled only with: (i) your permission; or (ii) the permission of a connected entity of yours; or (iii) an agent or entity acting on your behalf (or on behalf of a connected entity of yours); or (b) the arrangement can be cancelled without the permission of an entity referred to in paragraph (a) but, if the arrangement were cancelled, the member of the tax preferred sector or another member of the tax preferred sector: (i) would be required to enter into a new arrangement for the provision of financial benefits in relation to the tax preferred use of the asset; or (ii) would incur a penalty and the magnitude of the penalty would be such as to discourage cancellation. • Level of expected financial benefits test (section 250-135) Subsection 250-135(1) states that you lack a predominant economic interest in an asset at a particular time if the asset has a guaranteed residual value at that time. Subsection 250-135(2) states that you also lack a predominant economic interest in an asset at a particular time if, at that time: (a) the arrangement under which the asset is put to the tax preferred use (either alone or together with any other arrangement in relation to the tax preferred use of the asset or the provision of financial benefits in relation to the tax preferred use of the asset) is a debt interest; or (b) the sum of the present values of the expected financial benefits that members of the tax preferred sector have provided, or are reasonably likely to provide, to you (or a connected entity) in relation to the tax preferred use of the asset exceeds 70% of: (i) the market value of the asset if subparagraph 250-15(d)(i) applies; or (ii) so much of the market value of the asset as is attributable to the expenditure referred to in subparagraph 250-15(d)(ii) if that subparagraph applies. | Detailed Reasoning - Application of the exclusions to Division 250: Division 250 contains four exclusions that may apply even when the five requirements of the general test in section 250-15 are satisfied. First Exclusion - small business entities (section 250-20) Subsection 250-20 specifically contains the first exclusion for small business entities. The section provides: 250-20 This Division does not apply to you and an asset if: (a) you are a small business entity for the income year in which the arrangement period for the tax preferred use of the asset starts; and (b) you choose to deduct amounts under Subdivision 328-D for the asset for that income year. Small business entity is defined in subsection 995-1(1) as having the meaning given by section 328-110. Subsection 328-110(1) states you are a small business entity for an income year (the current year ) if: (a) you carry on a business in the current year; and (b) one or both of the following applies: (i) you carried on a business in the income year (the previous year ) before the current year and your aggregated turnover for the previous year was less than $2 million; (ii) your aggregated turnover for the current year is likely to be less than $2 million. The test is of each particular lease arrangement. That is, where a lease over the depreciating assets and capital works assets are held by a small business entity as defined above, the first exclusion will apply. In those cases, Division 250 would not apply to leases that were entered into post 1 July 2007. Second Exclusion - financial benefits under minimum value (section 250-25) Subsections 250-25(1) and 250-25(2) specifically contains the second exclusion for financial benefits under a minimum value. These sections state: (1) This Division does not apply to you and an asset that is being put to a tax preferred use under a particular arrangement if, at the start of the arrangement period, the total of the nominal values of all the financial benefits that have been, or will be or can reasonably be expected to be, provided to you (or a connected entity): (a) by members of the tax preferred sector; and (b) in relation to the tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed $5 million. (2) The amount referred to in subsection (1) is indexed annually. The test is of each particular lease arrangement. That is, where a lease over the depreciating assets and capital works assets contain financial benefits that do not exceed $5 million dollars, the second exclusion will apply. In those cases, Division 250 would not apply to leases that were entered into post 1 July 2007. Third exclusion - certain short term or low value arrangements (section 250-30) Subsections 250-30(1) and 250-30(2) specifically contains the third exclusion for certain short term or low value arrangements. These sections relevantly provide: (1) This Division does not apply to you and an asset that is being put to a tax preferred us under a particular arrangement if: (a) the arrangement period for the tax preferred use of the asset does not exceed: (i) 5 years if the asset is real property and the tax preferred use of the asset is a lease; (ii) … ; or (b) at the start of the arrangement period, the total of the nominal values of all the financial benefits that have been, will be or can reasonably be expected to be, provided to you (or a connected entity): (i) by members of the tax preferred sector; and (ii) in relation to the tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed: (iii) $50 million if the asset is real property and the tax preferred use of the asset is a lease; or (iv) … ; or (c) at the start of the arrangement period, the total of the values of all the assets that are put to a tax preferred use under the arrangement does not exceed; (i) $40 million if the asset is real property and the tax preferred use of the asset is a lease; or (ii) $20 million in any other case. This subsection has no effect subject to the exceptions in section 250-35. (2) the amounts referred to in paragraphs (1)(b) and (c) are indexed annually. • Subparagraph 250-30(1)(a)(i) Pursuant to subparagraph 250-30(1)(a)(i), Division 250 would not apply if the arrangement period for the tax preferred use of the asset does not exceed 5 years where the asset is real property and the tax preferred use of the asset is a lease. • Subparagraph 250-30(1)(b)(iii) Pursuant to paragraph 250-30(1)(b), Division 250 does not apply if, at the start of the arrangement period, the total of the nominal values of all the financial benefits that have been, will be or can reasonably be expected to be, provided to the taxpayer: (i) by members of the tax preferred sector; and (ii) in relation to the tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed: (iii) $50 million if the asset is real property and the tax preferred use of the asset is a lease. • Subparagraph 250-30(1)(c)(i) Pursuant to subparagraph 250-30(1)(c)(i), Division 250 does not apply if at the start of the arrangement period, the total values of all the assets that are put to a tax preferred use under the arrangement does not exceed $40 million if the asset is real property and the tax preferred use of the asset is a lease. That is, for the leases where the total value of all assets that are put to a tax preferred use under the lease arrangement that do not exceed $40 million, the exclusion will be satisfied for those leases and Division 250 will not apply. • Exceptions to the third exclusion in section 250-30 (section 250-35) Section 250-35 outlines seven exceptions to the third exclusion for certain short term or low value arrangements. If one (or more) of these exceptions apply, then the taxpayer cannot rely on the third exclusion in section 250-30. For completeness the application of the exceptions in 250-35 are considered below: • Debt interests (1) section 250-30 does not apply if the arrangement (either alone or together with any arrangement in relation to the tax preferred use of the asset or the provision of financial benefits in relation to the tax preferred use of the asset) is a debt interest. (2) in applying subsection (1), disregard subsection 974-130(4). • Member of tax preferred sector having certain rights in relation to the asset (3) section 250-30 does not apply if: (a) a member of the tax preferred sector has: (i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or (ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; or (iii) a residual or reversionary interest in the asset that will arise or become exercisable at or after the end of the arrangement period; and (b) the consideration for the purchase, acquisition or transfer of the right, obligation or interest is not fixed as the market value of the asset at the time of the purchase, acquisition or transfer. To avoid doubt, this subsection does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time. • Member of a tax preferred sector providing financing (4) section 250-30 does not apply if a member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide financial benefits in the event of the termination of an arrangement). • Finance leases, non-cancellable operating leases, service concessions and similar arrangements (5) Section 250-30 does not apply if an arrangement in relation to the tax preferred use of the asset, or the provision of financial benefits in relation to the tax preferred use of the asset, is or involves: (a) a finance lease; or (b) a non-cancellable operating lease; or (c) a service concession or similar arrangement; that generally accepted the accounting principles, as in force at the start of the arrangement period, require to be included as an asset or a liability in your balance sheet. • Financial benefits irregular, not based on comparable market-based rates or not reflecting value of tax preferred use of asset (6) Section 25-30 does not apply if the financial benefits that have been, or are to be provided, to you (or a connected entity) by members of the tax preferred sector in relation to the tax preferred use of the asset: (a) are not provided on a regular periodic basis (and at least annually); or (b) are not based on comparable market-based rates, or (c) do not reflect the value of the tax preferred use of the asset. • Special rules if tax preferred use is a lease or hire of the asset (7) if the tax preferred use of the asset is a lease or hire or the asset (or the use of the asset under a lease or hire arrangement), section 250-30 does not apply if: (a) the asset is so specialised that the end user could not carry out one or more of its functions effectively without the asset; and (b) you would be unlikely to be able to re-lease, re-hire, or resell the asset to another person who is not a member of the tax preferred end user group. • Special rules if tax preferred use is not a lease or hire of the asset (8) If the tax preferred use of the asset is not the lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250-30 does not apply if: (a) a member of the tax preferred sector has a right, if particular circumstances occur, to manage, or to assume control over, the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); or (b) the asset is so specialised that it is unlikely that it could effectively be put to any use other than the tax preferred use; or (c) neither you (nor a connected entity) has effective day to day control and physical possession of the asset. Fourth exclusion - sum of present values of financial benefits less than amount otherwise assessable (section 250-40) Subsections 250-40(1) to 240-40(5) specifically contain the fourth exclusion. (1) This Division does not apply to you and an asset that is being put to a tax preferred use under a particular arrangement if, when that tax preferred use of the asset starts, the Division 250 assessable mount is less than the alternative assessable amount. (2) For the purposes of subsection (1), the Division 250 assessable amount is the sum of the present values of all the amounts that would be likely to be included in your assessable income under this Division in relation to the tax preferred use of the asset if this Division applied to you and the asset. (3) This is how to work out the alternative assessable amount for the purposes of subsection (1): | Detailed Reasoning - Step 1.: Add up the present values of the amounts that would be included in your assessable income in relation to the financial benefits provided in relation to the tax preferred use of the asset during the arrangement period if this Division did not apply to you and the asset. | Detailed Reasoning - Step 2.: Add up the present values of the amounts that you would be able to deduct in relation to the asset, or expenditure in relation to the asset, under Division 40 or Division 43 in relation to the arrangement period if this Division did not apply to you and the asset. | Detailed Reasoning - Step 3.: Deduct the amount obtained in Step 2 from the amount obtained in Step 1. The result is the alternative assessable amount. (4) To avoid doubt, the amounts referred to in subsections (2) and (3) are all the amounts that would be likely to be included in your assessable income, or deducted, for all the income years during the whole, or a part, of which the asset is put to the tax preferred use. (5) The point in time to be used in determining, for the purposes of this section: (a) the present value of an amount that is included in your assessable income for an income year; or (b) the present value of an amount that you would be able to deduct for an income year; is the end of the income year. Fifth exclusion - Commissioner determination (section 250-45) To the extent that Division 250 is applicable to the lease arrangements (i.e. where the general test in section 250-15 applies but neither of the first four exclusions are applicable), the Commissioner may make a determination under section 250-45 that Division 250 does not apply to the 5 Properties and the relevant assets leased to tax preferred tenants on the basis that it is unreasonable for Division 250 to apply having regard to the circumstances because of which Division 250 prima facie applies, and any other relevant circumstances. Section 250-45 contains the fifth exclusion for where Division 250 will not apply. It states that: This Division does not apply to you and an asset at a particular time if: (a) you request the Commissioner to make a determination under this subsection; and (b) the Commissioner determines that it is unreasonable that the Division should apply to you and the asset at that time, having regard to: (i) the circumstances because of which this Division would apply to you and the asset; and (ii) any other relevant circumstances. The EM provides the following guidance at paragraphs 1.136 and 1.137 on when the Commissioner may make a determination pursuant to section 250-45: " In making the determination, the Commissioner should give consideration to the objects of the Division set out in section 250-5. It is expected that the Commissioner would consider applying the discretion, for example, to prevent an arrangement from coming within the scope of Division 250 due to: An unintended or marginal breach of one of the safe harbour tests; or An unintentional or marginal breach of one of the tests that need to be satisfied to qualify for the specific exclusion for certain operating and service arrangements". In considering if a determination should be made, the factors considered include whether a predominant economic interest is held in the asset and any other relevant circumstances specific to the facts regarding the first four exclusions. Where the Commissioner is satisfied that it is unreasonable that Division 250 should apply to the assets subject to the relevant lease or leases, then he will exercise his discretion to make a determination for the purposes of section 250-45 that Division 250 does not apply to the relevant lease or leases. | Detailed Reasoning - Conclusion: Entity A and other tax preferred entities that hold a lease/s in the property will fall under the scope of Division 250. Each lease will need to be considered to determine if their use of the asset will satisfy the general test under section 250-15. If so, a thorough examination will need to be undertaken to determine whether they satisfy any of the exclusions to the application of Division 250 (sections 250-20, 250-25, 250-30, 250-40 and 250-45).

This advice applies for the following period: Income year ending xx June 20xx