Holder of depreciating assets under long term lease

In relation to a proposal by a taxpayer to enter into a long term lease with an option to purchase over certain depreciating assets ("the Plant Lease"), whether the taxpayer would be the "holder" of the Original Plant the subject of the Plant Lease under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997) .

In the particular circumstances proposed, the taxpayer would be the "holder" of the Original Plant under Item 6 of the hold table in section 40-40 of the ITAA 1997.

The essential features of the proposed arrangement are as follows: (1) The taxpayer enters into long term leases of various depreciating assets and land.. The term of the Plant Lease substantially exceeds the useful life of all of the relevant depreciating assets in existence at the commencement of the lease arrangements ("the Original Plant"). (2) The taxpayer prepays the total rent in respect of the leases by making upfront cash payments at the commencement of the lease arrangements. The amount of the rent prepayment in respect of the Plant Lease corresponds to the market value of the Original Plant. (3) As far as possible, the taxpayer bears all the risks and rewards incidental to ownership of the relevant depreciating assets. Generally, this includes the obligation to replace all assets that become obsolete or redundant during the term of the lease. The lease arrangements are intended to ensure that the taxpayer has rights which enable it to use the assets for their entire useful lives. (4) Under the Plant Lease, the taxpayer has a present right to acquire all of the Original Plant. This right is exercisable at the end of the Original Plant's remaining useful life or when the parties otherwise agree that the Original Plant has become obsolete, whichever is the earlier. (5) It is reasonable to expect that, within the term of the Plant Lease, all of the Original Plant will become obsolete, will be replaced and will be acquired by the taxpayer by exercising its right to do so.