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1 Does the xx Asset constitute a capital improvement to the Land that is taken to be a separate CGT asset from the Land pursuant to subsection 108-70(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. Question 2 Does the xx Asset constitute a depreciating asset pursuant to section 40-30 of the ITAA 1997? Answer Yes. Question 3 Is Company Z considered the holder of the xx Asset for the purposes of section 40-40 of the ITAA 1997? Answer Yes. This ruling applies for the following period : 1 July 20xx to 30 June 20xx The scheme commenced: During year ended 30 June 20xx

Company Z is the head company of the Company Z Income Tax Consolidated Group (Company Z ITCG), consisting of Company Z and its wholly owned Australian resident entities including Company A, Company C and Unit Trust. Prior to the arrangement Company B owned the Land. The xx Asset is a single xx mine situated upon the Land. Under the arrangement, Company A acquired the issued shares of Company B. As a result of the acquisition, Company B joined the Company Z ITCG. As part of the same arrangement, Company C, as trustee for Unit Trust, acquired the Land. At the time of the acquisition, the xx Asset was independently valued at market value using a replacement cost method. At the time of the acquisition, Company Z estimated the approximate amount of resource remaining within the xx Asset and that it had an estimated remaining life/effective life of y years calculated based on the forecasted annual extraction rates.

Income Tax Assessment Act 1997 Section 40-30 Income Tax Assessment Act 1997 Section 40-40 Income Tax Assessment Act 1997 Subsection 108-70(1)

Questions 1 and 2 Subsection 108-70(1) provides that a capital improvement to land is taken to be a separate CGT asset from the land if one of the balancing adjustment provisions set out in subsection 108-55(1) applies to the improvement (whether or not there is a balancing adjustment). In the present case, the relevant balancing adjustment provision under subsection 108-55(1) is Subdivision 40-D. Broadly, Subdivision 40-D applies where the capital improvement to land is a depreciating asset. The term 'depreciating asset' is defined in subsection 995-1(1) to have the meaning given by section 40-30. Subsection 40-30(1) provides that a depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used and excludes land, trading stock or an intangible asset unless the intangible asset is mentioned in subsection 40-30(2). However, subsection 40-30(3) provides that an improvement to land or a fixture on land, whether the improvement or fixture is removable or not, is treated as separate from the land for the purposes of Division 40. Taxation Ruling 2012/7

Income Tax: capital allowances: treatment of xx mine site improvements (TR 2012/7) considers the capital allowance rules in Division 40 as they apply to an xx mine site improvement that comes into being through the conduct of an xx mining operation. TR 2012/7 provides that an xx mine site improvement: •                 encompasses all structural elements of a typical xx, being a changed configuration of land from its natural state that comes into being through an xx mining operation, as they exist from time to time (paragraph 11). •                 is considered an asset for Division 40 purposes as it is something recognised in the mining industry as having commercial and economic value (paragraph 16). •                 has a limited effective life, being a finite income producing life, and is expected to decline in value over the period it is used (paragraphs 17 and 18). •                 is treated as a separate asset from the land under subsection 40-30(3) (paragraph 16). •                 is a single improvement to land that meets the conditions to be a depreciating asset (paragraph 20).

Having regard to TR 2012/7 the xx Asset is a depreciating asset under section 40-30 because: •                 it is a single xx mine situated on the Land that is an asset separate from the Land in accordance with subsection 40-30(3) •                 Company Z has estimated the effective life of y years for the asset from the date of its acquisition, and •                 it is expected to decline in value over the time it is used. As the xx Asset is a depreciating asset under section 40-30, it is subject to the balancing adjustment provisions in Subdivision 40-D. Accordingly, the xx Asset is a capital improvement to the Land that is treated as a separate CGT asset under subsection 108-70(1). Question 3 Section 40-40 provides a table to identify who holdsa depreciating asset. Relevantly, item 10 of the table provides that it is the owner, or the legal owner if there is both a legal and equitable owner, that holds the depreciating asset.

Company C, as trustee for Unit Trust, is the legal owner of the Land, which includes all improvements and fixtures to the Land. However, Company Z, being the head company of the Company Z ITCG, which includes Unit Trust and Company C as subsidiary members, is treated as the holder of the xx Asset per item 10 of the table in section 40-40 by the application of the single entity rule in section 701-1.