Capital Allowances: hold - assets attached to land by licensee

Is the taxpayer a 'holder', under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997), of depreciating assets they attached to land they occupied under a non-exclusive licence?

Yes. The taxpayer is a 'holder' of the depreciating assets for the duration of the licence under item 3 of the table in section 40-40 of the ITAA 1997 because they attached the assets for their own use and did not have any right to remove them.

The taxpayer entered into an arrangement with an unrelated party to construct and operate a facility on land owned by the other party. The facility included a variety of depreciating assets that constituted improvements (including fixtures) to the land. Under the arrangement, the taxpayer occupied the land under a licence but had no right to remove any of the assets they constructed on the land.

Broadly speaking, section 40-25 of the ITAA 1997 allows to a holder of a depreciating asset an annual deduction for the decline in value of the asset.

The table in section 40-40 of the ITAA 1997 identifies a holder of a depreciating asset in any particular circumstance. Item 3 of that table specifies that where there is: An improvement to land (whether a fixture or not) subject to a *quasi-ownership right (including any extension or renewal of such a right) made, or itself improved, by any owner of the right for the owner's own use where the owner of the right has no right to remove the asset *denotes a term defined in subsection 995-1(1) of the ITAA 1997

the owner of the quasi-ownership right (while it exists) will be a holder of the depreciating asset.

'Quasi-ownership right over land' is defined in subsection 995-1(1) of the ITAA 1997 to mean: (a) a lease of the land; or (b) an easement in connection with the land; or (c) any other right, power or privilege over the land, or in connection with the land.

The taxpayer's licence over the land satisfies this definition because it confers all of the rights of use over the land that are necessary to undertake the arrangement.

The depreciating assets the taxpayer constructed constitute improvements they made to the land and they use those assets during the term of the licence for the purpose of the arrangement. In addition, under the terms of the arrangement, the taxpayer has no right to remove the constructed assets during or at the termination or expiry of the licence. In the event of termination or expiry of the arrangement, all constructed assets revert to the grantor of the licence.

Accordingly, the taxpayer is a holder of the depreciating assets pursuant to item 3 of the table in section 40-40 of the ITAA 1997.