Product Ruling PR 2018/9
Date of effect: 22 August 2018

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme involves entry into a concurrent lease with Future Rent Pty Ltd (Future Rent) or a subsidiary of Future Rent [1] over a property (the Property) that is subject to a current residential tenancy agreement. 3. This Product Ruling does not address: Class of entities 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Owners. 5. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities that enter into the scheme described in paragraphs 16 to 20 of this Product Ruling on or after the date this Product Ruling is made and on or before 30 June 2021. 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: Superannuation Industry (Supervision) Act 1993 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. Trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. Qualifications 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:

Class of entities or scheme: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Owners. 5. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities that enter into the scheme described in paragraphs 16 to 20 of this Product Ruling on or after the date this Product Ruling is made and on or before 30 June 2021. 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. Trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 10. This Product Ruling applies prospectively from 22 August 2018, the date it is published. It therefore applies only to the specified class of entities that enter into the scheme from 22 August 2018 until 30 June 2021, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into during the period of application. 11. However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 12. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. 13. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 14. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. 15. Subject to paragraph 3 of this Product Ruling and the assumptions in paragraph 20 of this Ruling: 16. The scheme that is the subject of this Product Ruling is identified and described in the following: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 17. For the purposes of describing the scheme to which this Product Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Owner or an associate of an Owner, will be a party to, which are a part of the scheme. Unless otherwise defined, capitalised terms in this Product Ruling take their meaning as per the Concurrent Lease referred to in paragraph 16 of this Product Ruling. 18. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 19. Following is a summary of the scheme: the Owner must refund to Future Rent a portion of the Rental Prepayment (if any) referred to as the Rental Refund Amount. The Rental Refund Amount amortises to nil over the term of the Concurrent Lease. | Assumptions: 20. This Product Ruling is made on the basis of the following assumptions: Commissioner of Taxation 22 August 2018 | Assessability of Concurrent Lease Rent: 21. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. Rental income is regarded as ordinary assessable income. 22. Pursuant to subsection 6-5(2) ordinary income is included in the assessable income of an Owner when it is derived by that Owner. The word 'derived' is not defined under the Income Tax Assessment Act 1997 but is equivalent to 'arising or accruing' (Harding v. Federal Commissioner of Taxation (1917) 23 CLR 119 per Isaacs J at 133). Income is taken to be derived when it has 'come home' to the Owner, that is to say it has been earned and, depending on the nature of the source of the income, there is sufficient certainty as to its being realised (Commissioner of Taxes (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd (1938) 63 CLR 108 (Carden's case) per Dixon J at 155-159). Such certainty is determined by reference to not only legal rights and obligations but also business and commercial realities (Arthur Murray (NSW) Pty Ltd v. Commissioner of Taxation (1965) 114 CLR 314 at 318-319). 23. The time at which an amount represents 'income derived' by an Owner depends on the nature of the income and the circumstances in which it is derived. Further, the accounting method to be used in determining when income is derived depends on its 'actual appropriateness' and in particular on 'whether in the circumstances of the case it is calculated to give a substantially correct reflex of the taxpayer's true income' (Carden's case per Dixon J at 155). 24. The appropriate accounting method to be used to account for a prepayment of rent as ordinary income has been considered by the Taxation Board of Review. In Case B47 70 ATC 236, the Taxation Board of Review, by majority, found that the prepaid rent under the lease in question, which provided for the repayment by the lessor to the lessee of any unexpired proportion of rent calculated at a weekly rate where the lease was terminated other than in the case of the lessee's default or breach, did not come home to the lessor when received by them so as to constitute income derived at the time of receipt, and should be apportioned over the term of the lease. 25. That decision was distinguishable from that held by the Taxation Board of Review in Case 51 70 ATC 253 where the lessor, having received the rent in advance per the terms of the lease agreement in question, was under no obligation to refund any part of it. In this case, the Taxation Board of Review concluded that there was no ground for a view that the lessor did not derive the whole of the rent when it was paid to them. 26. The existence (or otherwise) of the lessee's right to a pro-rata refund for the unexpired portion of the term was emphasised as the critical feature in both cases. The Commissioner similarly confirmed in Taxation Ruling TR 2002/14 Income tax: taxation of retirement village operators that rent, paid by a resident granted a lease in a retirement village, in advance and subject to a pro-rata refund upon early termination of the lease, should be brought to account over the period for which the payment is made. 27. As per paragraph 19(u) of this Product Ruling, the Concurrent Lease requires the Owner to refund the Rental Refund Amount (being a portion of the Rental Prepayment) on early surrender or termination of the Concurrent Lease (other than a surrender under the circumstances set out in paragraph 19(o)(i) of this Product Ruling). The Rental Refund Amount lessens over the term of the Concurrent Lease as rent is collected by Future Rent under the Residential Lease. 28. The existence of this broad right of refund under the Concurrent Lease means that the Rental Prepayment paid by Future Rent to the Owner in advance for the Permitted Use over the fixed Lease Term does not 'come home' to the Owner in a realised or immediately realisable form (that is, is not derived) at the time of receipt. Accounting for the Rental Prepayment as assessable ordinary income on an accruals basis over the term of the Concurrent Lease, as and when it periodically and proportionately ceases to be subject to the refund right, will provide the most substantially correct reflex of that income for the Owner. 29. The Additional Rent paid to the Managing Agent on behalf of the Owner by Future Rent on a monthly basis is not refundable, and will have come home to the Owner in a realised or immediately realisable form (i.e. be derived) at that time. | Deductibility of amounts incurred by the Owner: 30. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 31. Any Management and Administration Fee incurred by the Owner under the Concurrent Lease is paid for Future Rent's time and resources in assessing, processing and managing the Owner's Concurrent Lease application. It has a sufficient connection with the gaining of assessable income or, where applicable, with the carrying on of a business for the purpose of gaining assessable income, being the Concurrent Lease Rent, to be deductible under section 8-1 in the income year in which it is incurred. The Management and Administration Fee is not a payment by the Owner for the surrender or termination of the Concurrent Lease and is therefore not of a capital nature. 32. Any amounts paid by the Owner to reimburse Future Rent for any Rectification Costs incurred by Future Rent under the Concurrent Lease are, pursuant to the assumption at paragraph 20(b) of this Product Ruling, in respect of repairs to the Property (or part of the Property) from which the Owner is deriving assessable Concurrent Lease Rent, and therefore have a sufficient connection with the gaining of assessable income or, where applicable, with the carrying on of a business for the purpose of gaining assessable income, to be deductible under section 8-1 in the income year incurred. | Grant of the Concurrent Lease: 33. The granting of the Concurrent Lease by the Owner to Future Rent gives rise to a CGT event F1 under section 104-110 in respect of the Owner. 34. A capital gain from this CGT event may be made if the capital proceeds from the grant of the lease exceed the expenditure incurred to grant it or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the expenditure incurred to grant it (subsection 104-110(3)). 35. The capital proceeds from CGT event F1 are any premium paid or payable for the grant of the lease (subsection 116-20(2)). 36. The Rental Prepayment payable to the Owner is, as described in the Concurrent Lease, a prepayment of rent (i.e. a prepayment for the ongoing use of the Property to collect rent from the Residential Lease during the Lease Term), and not a premium (i.e. consideration paid for the grant of the Concurrent Lease). Factors supporting this conclusion include: 37. On the basis that the Owner will not be paid a premium (capital proceeds) for the grant of the Concurrent Lease to Future Rent, they will not make a capital gain under subsection 104-110(3) from the CGT Event F1. | Assignment of Owner Rights: 38. Contractual rights under a lease or other agreement (such as the Existing Lease and the Existing Management Agreement) are legally enforceable rights and therefore a CGT asset according to the definition in subsection 108-5(1). 39. An assignment by the Owner of their Owner Rights to Future Rent gives rise to CGT event A1 under section 104-10. A capital gain from this CGT event may be made if the capital proceeds from the disposal of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 40. Generally, where no capital proceeds are received from a CGT event the market value substitution rule in subsection 116-30(1) will apply to include the market value of the CGT asset that is the subject of the event (as at the time of the event) as the amount received. 41. As the Owner will not receive any capital proceeds for the assignment of their Owner Rights, the Owner will be taken to have received the market value of the Owner Rights as at the time of the assignment pursuant to the market value substitution rule. 42. On the basis that the Owner Rights have a market value of nil (in accordance with the assumption at paragraph 20(e) of this Product Ruling), the Owner's capital proceeds from their assignment will be nil and the Owner will not make a capital gain under subsection 104-10(4) from the CGT event A1. | Surrender or termination of the Concurrent Lease: 43. The rights of the Owner under the Concurrent Lease are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 44. Where the Concurrent Lease is surrendered or terminated, the Owner's ownership of the contractual rights under the Concurrent Lease is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 under paragraph 104-25(1)(b). 45. A capital gain from this CGT event may be made if the capital proceeds from the ending of the ownership of the asset are more than the asset's cost base or, alternatively, a capital loss may be made from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 46. As the Owner will not receive any capital proceeds for the discharge or satisfaction of their rights under the Concurrent Lease on surrender or termination of the Concurrent Lease, as the case may be, the Owner will be taken to have received the market value of those rights as at the time of their discharge or satisfaction, and as if the event hadn't occurred and was never proposed to occur, pursuant to the market value substitution rule in subsections 116-30(1) and 116-30(3A). 47. On the basis that the Owner's rights under the Concurrent Lease will have a negligible market value at the time of their discharge or satisfaction (in accordance with the assumption at paragraph 20(f) of this Product Ruling), the Owner is likely to make a capital loss to the extent to which the reduced cost base of the rights under the Concurrent Lease exceed their market value. | Application of GST provisions to the Owner: 48. GST is not payable on a supply that is input taxed (section 40-1 of the GST Act). A supply is input taxed if it is input taxed under Division 40 of the GST Act (paragraph 9-30(2)(a) of the GST Act). 49. Section 40-35 of the GST Act provides that a supply of premises that is by way of lease (other than a long-term lease, as defined in section 195-1 of the GST Act) is input taxed: 50. Pursuant to the assumptions at paragraphs 20(c) and 20(d) of this Product Ruling, the supply of the Property by the Owner to Future Rent by way of the Concurrent Lease is input-taxed in accordance with section 40-35 of the GST Act and therefore not one on which GST is payable by the Owner, nor one that gives rise to an entitlement to an input tax credit for anything acquired to make the supply. | Part IVA - anti-avoidance: 51. Provided that the scheme ruled on is entered into and carried out as described in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply. 52. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: This Product Ruling has been given on the basis that the entity(s) that applied for the Product Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Product Ruling. 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme involves entry into a concurrent lease with Future Rent Pty Ltd (Future Rent) or a subsidiary of Future Rent [1] over a property (the Property) that is subject to a current residential tenancy agreement. 3. This Product Ruling does not address: | Class of entities: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Owners. 5. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities that enter into the scheme described in paragraphs 16 to 20 of this Product Ruling on or after the date this Product Ruling is made and on or before 30 June 2021. 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. Trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:


Appendix: Assessability of Concurrent Lease Rent: 21. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. Rental income is regarded as ordinary assessable income. 22. Pursuant to subsection 6-5(2) ordinary income is included in the assessable income of an Owner when it is derived by that Owner. The word 'derived' is not defined under the Income Tax Assessment Act 1997 but is equivalent to 'arising or accruing' (Harding v. Federal Commissioner of Taxation (1917) 23 CLR 119 per Isaacs J at 133). Income is taken to be derived when it has 'come home' to the Owner, that is to say it has been earned and, depending on the nature of the source of the income, there is sufficient certainty as to its being realised (Commissioner of Taxes (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd (1938) 63 CLR 108 (Carden's case) per Dixon J at 155-159). Such certainty is determined by reference to not only legal rights and obligations but also business and commercial realities (Arthur Murray (NSW) Pty Ltd v. Commissioner of Taxation (1965) 114 CLR 314 at 318-319). 23. The time at which an amount represents 'income derived' by an Owner depends on the nature of the income and the circumstances in which it is derived. Further, the accounting method to be used in determining when income is derived depends on its 'actual appropriateness' and in particular on 'whether in the circumstances of the case it is calculated to give a substantially correct reflex of the taxpayer's true income' (Carden's case per Dixon J at 155). 24. The appropriate accounting method to be used to account for a prepayment of rent as ordinary income has been considered by the Taxation Board of Review. In Case B47 70 ATC 236, the Taxation Board of Review, by majority, found that the prepaid rent under the lease in question, which provided for the repayment by the lessor to the lessee of any unexpired proportion of rent calculated at a weekly rate where the lease was terminated other than in the case of the lessee's default or breach, did not come home to the lessor when received by them so as to constitute income derived at the time of receipt, and should be apportioned over the term of the lease. 25. That decision was distinguishable from that held by the Taxation Board of Review in Case 51 70 ATC 253 where the lessor, having received the rent in advance per the terms of the lease agreement in question, was under no obligation to refund any part of it. In this case, the Taxation Board of Review concluded that there was no ground for a view that the lessor did not derive the whole of the rent when it was paid to them. 26. The existence (or otherwise) of the lessee's right to a pro-rata refund for the unexpired portion of the term was emphasised as the critical feature in both cases. The Commissioner similarly confirmed in Taxation Ruling TR 2002/14 Income tax: taxation of retirement village operators that rent, paid by a resident granted a lease in a retirement village, in advance and subject to a pro-rata refund upon early termination of the lease, should be brought to account over the period for which the payment is made. 27. As per paragraph 19(u) of this Product Ruling, the Concurrent Lease requires the Owner to refund the Rental Refund Amount (being a portion of the Rental Prepayment) on early surrender or termination of the Concurrent Lease (other than a surrender under the circumstances set out in paragraph 19(o)(i) of this Product Ruling). The Rental Refund Amount lessens over the term of the Concurrent Lease as rent is collected by Future Rent under the Residential Lease. 28. The existence of this broad right of refund under the Concurrent Lease means that the Rental Prepayment paid by Future Rent to the Owner in advance for the Permitted Use over the fixed Lease Term does not 'come home' to the Owner in a realised or immediately realisable form (that is, is not derived) at the time of receipt. Accounting for the Rental Prepayment as assessable ordinary income on an accruals basis over the term of the Concurrent Lease, as and when it periodically and proportionately ceases to be subject to the refund right, will provide the most substantially correct reflex of that income for the Owner. 29. The Additional Rent paid to the Managing Agent on behalf of the Owner by Future Rent on a monthly basis is not refundable, and will have come home to the Owner in a realised or immediately realisable form (i.e. be derived) at that time. | Deductibility of amounts incurred by the Owner: 30. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 31. Any Management and Administration Fee incurred by the Owner under the Concurrent Lease is paid for Future Rent's time and resources in assessing, processing and managing the Owner's Concurrent Lease application. It has a sufficient connection with the gaining of assessable income or, where applicable, with the carrying on of a business for the purpose of gaining assessable income, being the Concurrent Lease Rent, to be deductible under section 8-1 in the income year in which it is incurred. The Management and Administration Fee is not a payment by the Owner for the surrender or termination of the Concurrent Lease and is therefore not of a capital nature. 32. Any amounts paid by the Owner to reimburse Future Rent for any Rectification Costs incurred by Future Rent under the Concurrent Lease are, pursuant to the assumption at paragraph 20(b) of this Product Ruling, in respect of repairs to the Property (or part of the Property) from which the Owner is deriving assessable Concurrent Lease Rent, and therefore have a sufficient connection with the gaining of assessable income or, where applicable, with the carrying on of a business for the purpose of gaining assessable income, to be deductible under section 8-1 in the income year incurred. | Grant of the Concurrent Lease: 33. The granting of the Concurrent Lease by the Owner to Future Rent gives rise to a CGT event F1 under section 104-110 in respect of the Owner. 34. A capital gain from this CGT event may be made if the capital proceeds from the grant of the lease exceed the expenditure incurred to grant it or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the expenditure incurred to grant it (subsection 104-110(3)). 35. The capital proceeds from CGT event F1 are any premium paid or payable for the grant of the lease (subsection 116-20(2)). 36. The Rental Prepayment payable to the Owner is, as described in the Concurrent Lease, a prepayment of rent (i.e. a prepayment for the ongoing use of the Property to collect rent from the Residential Lease during the Lease Term), and not a premium (i.e. consideration paid for the grant of the Concurrent Lease). Factors supporting this conclusion include: 37. On the basis that the Owner will not be paid a premium (capital proceeds) for the grant of the Concurrent Lease to Future Rent, they will not make a capital gain under subsection 104-110(3) from the CGT Event F1. | Assignment of Owner Rights: 38. Contractual rights under a lease or other agreement (such as the Existing Lease and the Existing Management Agreement) are legally enforceable rights and therefore a CGT asset according to the definition in subsection 108-5(1). 39. An assignment by the Owner of their Owner Rights to Future Rent gives rise to CGT event A1 under section 104-10. A capital gain from this CGT event may be made if the capital proceeds from the disposal of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event may be made if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 40. Generally, where no capital proceeds are received from a CGT event the market value substitution rule in subsection 116-30(1) will apply to include the market value of the CGT asset that is the subject of the event (as at the time of the event) as the amount received. 41. As the Owner will not receive any capital proceeds for the assignment of their Owner Rights, the Owner will be taken to have received the market value of the Owner Rights as at the time of the assignment pursuant to the market value substitution rule. 42. On the basis that the Owner Rights have a market value of nil (in accordance with the assumption at paragraph 20(e) of this Product Ruling), the Owner's capital proceeds from their assignment will be nil and the Owner will not make a capital gain under subsection 104-10(4) from the CGT event A1. | Surrender or termination of the Concurrent Lease: 43. The rights of the Owner under the Concurrent Lease are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 44. Where the Concurrent Lease is surrendered or terminated, the Owner's ownership of the contractual rights under the Concurrent Lease is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 under paragraph 104-25(1)(b). 45. A capital gain from this CGT event may be made if the capital proceeds from the ending of the ownership of the asset are more than the asset's cost base or, alternatively, a capital loss may be made from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 46. As the Owner will not receive any capital proceeds for the discharge or satisfaction of their rights under the Concurrent Lease on surrender or termination of the Concurrent Lease, as the case may be, the Owner will be taken to have received the market value of those rights as at the time of their discharge or satisfaction, and as if the event hadn't occurred and was never proposed to occur, pursuant to the market value substitution rule in subsections 116-30(1) and 116-30(3A). 47. On the basis that the Owner's rights under the Concurrent Lease will have a negligible market value at the time of their discharge or satisfaction (in accordance with the assumption at paragraph 20(f) of this Product Ruling), the Owner is likely to make a capital loss to the extent to which the reduced cost base of the rights under the Concurrent Lease exceed their market value. | Application of GST provisions to the Owner: 48. GST is not payable on a supply that is input taxed (section 40-1 of the GST Act). A supply is input taxed if it is input taxed under Division 40 of the GST Act (paragraph 9-30(2)(a) of the GST Act). 49. Section 40-35 of the GST Act provides that a supply of premises that is by way of lease (other than a long-term lease, as defined in section 195-1 of the GST Act) is input taxed: 50. Pursuant to the assumptions at paragraphs 20(c) and 20(d) of this Product Ruling, the supply of the Property by the Owner to Future Rent by way of the Concurrent Lease is input-taxed in accordance with section 40-35 of the GST Act and therefore not one on which GST is payable by the Owner, nor one that gives rise to an entitlement to an input tax credit for anything acquired to make the supply. | Part IVA - anti-avoidance: 51. Provided that the scheme ruled on is entered into and carried out as described in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | [Note: This is a consolidated version of this document. Refer to the Legal Database (https://www.ato.gov.au/law) to check its currency and to view the details of all changes.] | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | Application of the CGT provisions to the Owner | Appendix 2 - Detailed contents list


Related rulings: TR 2002/14
Legislative references: ITAA 1936 ITAA 1936 Pt IVA ITAA 1997 ITAA 1997 6-5 ITAA 1997 6-5(2) ITAA 1997 8-1 ITAA 1997 25-10 ITAA 1997 104-10 ITAA 1997 104-10(4) ITAA 1997 104-25 ITAA 1997 104-25(1)(b) ITAA 1997 104-25(3) ITAA 1997 104-110 ITAA 1997 104-110(3) ITAA 1997 108-5(1) ITAA 1997 116-20(2) ITAA 1997 116-30(1) ITAA 1997 116-30(3A) ITAA 1997 Div 230 ITAA 1997 230-460(2)(d) ANTS(GST)A 1999 ANTS(GST)A 1999 9-30(2)(a) ANTS(GST)A 1999 Div 40 ANTS(GST)A 1999 40-1 ANTS(GST)A 1999 40-35 ANTS(GST)A 1999 195-1 SISA 1993 TAA 1953
Case references: Arthur Murray (NSW) Pty Ltd v. Commissioner of Taxation (1965) 114 CLR 314 [1965] HCA 58