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Will Division 116 of the Income Tax Assessment Act 1997 (ITAA 1997) deem that the taxpayer has received capital proceeds upon acquiring the right to sell the leased plant on behalf of the lessor?

No. Division 116 of the ITAA 1997 will not deem that the taxpayer has received capital proceeds upon acquiring the right to sell the leased plant.

The taxpayer entered into an agreement with the lessor in respect of leased plant. Under the terms of the agreement, the taxpayer will provide all reasonable assistance in finding a purchaser of the leased plant upon the termination of the lease.

There is no up-front fee payable to the taxpayer under the agreement. Instead, the taxpayer may be entitled to a fee upon receipt of the proceeds from the sale of the plant.

CGT event D1 happens if a taxpayer creates a contractual right or other legal or equitable right over another entity (subsection 104-35(1) of the ITAA 1997). The grant of the right to find a buyer of the plant for the lessor under the agreement is a CGT event D1.

Since there is no up-front fee payable to the taxpayer under the agreement in consideration of the creation of the right, the capital proceeds from this event are nil. However, any one of four modifications under sections 116-30 to 116-50 of the ITAA 1997 may apply to modify the actual capital proceeds (section 116-25 of the ITAA 1997) arose from CGT event D1. They are: • Market value substitution rule: Modification 1 (section 116-30); • Apportionment rule: Modification 2 (section 116-40); • Non-receipt rule: Modification 3 (section 116-45); and • Repaid rule: Modification 4 (section 116-50).

In this case, the market value substitution rule will not apply as paragraph 116-30(3)(b) of the ITAA 1997 operates to exclude CGT event D1 from the market value substitution rule.

The apportionment rule will not apply as the capital proceeds are nil. Therefore there is no amount to apportion.

The non-receipt rule will not apply as the capital proceeds are nil and there is no amount to be received for the grant of the right under the agreement.

The repaid rule will not apply as the capital proceeds are nil and there is no amount to be repaid.

Accordingly, none of these four modifications under Division 116 of the ITAA 1997 will apply to the nil capital proceeds received under section 104-35 of the ITAA 1997. The taxpayer will not be treated as having received any capital proceeds for the grant of this right.