Capital allowances: depreciating asset - hold - fixtures on land

Does the taxpayer hold, under item 10 of the table in section 40-40 of the Income Tax Assessment 1997 (ITAA 1997), a depreciating asset they affix to land they lease if an unrelated statutory provision provides that the taxpayer retains legal ownership of the asset?

No. The taxpayer does not hold the depreciating asset under item 10 of the table in section 40-40 of the ITAA 1997 because they hold the asset under item 2 of that table.

The taxpayer affixed to land they lease from an unrelated entity a depreciating asset they own. The taxpayer uses the asset in carrying on their business. The terms of the lease provide the taxpayer with the right to remove the depreciating asset.

A statutory provision which applies to the taxpayer's particular circumstances provides that the taxpayer retains legal ownership of the asset even though it is affixed to another entity's land.

Subsection 40-25(1) of the ITAA 1997 allows a taxpayer to deduct an amount for the decline in value of a depreciating asset they hold. To be a holder of a depreciating asset, one of the 10 items in the table in section 40-40 of the ITAA 1997 must apply.

The first nine items in the table apply to specific kinds of depreciating assets. Item 10 applies to any depreciating asset. Because the specific items apply in preference to the general item, item 10 applies as a default rule. That is, item 10 may apply if none of the other nine items apply.

The legal owner of a depreciating asset is a holder of the asset under item 10 of the table in section 40-40 of the ITAA 1997 unless another item in the table specifically prevents them from being a holder. The taxpayer is the legal owner of the asset because of the application of the statutory provision and, therefore, may be a holder of the asset under this item.

Item 2 of the table in section 40-40 of the ITAA 1997 provides that if a depreciating asset is fixed to land over which there is a quasi-ownership right and the owner of the right has a right to remove the asset, then the asset is held by the owner of the quasi-ownership right for as long as the right to remove the asset exists. The taxpayer is a holder of the depreciating asset under this item because their lease constitutes a quasi-ownership right over the land and they have a right to remove the asset. For the purposes of Division 40 of the ITAA 1997, this item effectively displaces the common law presumption that ownership of assets affixed to land rests with the owner of the land. The statutory provision also displaces that common law presumption.

For the purposes of identifying a holder of a depreciating asset under Division 40 of the ITAA 1997, however, the taxpayer is a holder of the depreciating asset under item 2 of the table in section 40-40 of the ITAA 1997 because it applies in preference to item 10 of that table.