ATO Interpretative Decision
ATO ID 2008/53 (Withdrawn)
Capital Allowances: hold - fixtures on land subject to sale contract
FOI status: may be released
||This ATO ID is withdrawn. Guidance on this issue can be found in Guide to depreciating assets 2016 (NAT 1996, PDF 623KB) and in TR 2006/13 Income tax: sale and leasebacks. The Ruling explains the taxation consequences of sale and leaseback arrangements which involve depreciating assets subject to Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) and also includes a discussion on transactions involving fixtures having regard to the legal rights and obligations conferred on the parties to such transactions.
||This document has changed over time. View its history.
Status of this decision: Decision withdrawn 31 March 2017.
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Did the taxpayer, who contracted to purchase depreciating assets that were fixtures attached to the vendor's land, start to hold them under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997) before they were detached and removed from the vendor's land?
Yes, the taxpayer who contracted to purchase depreciating assets that were fixtures attached to the vendor's land, started to hold them under Item 6 of the table in section 40-40 of the ITAA 1997 from the contract settlement date until they were detached and removed from the vendor's land.
The taxpayer entered a contract to purchase depreciating assets from another entity.
The depreciating assets were fixtures attached to the vendor's land. They were generally contained in and affixed to the floor, walls and roof of buildings on the vendor's land and connected to services such as gas, water and electricity.
The taxpayer was required to detach and remove the depreciating assets within a specified period and, for that purpose, was granted a right to access the vendor's land. The taxpayer's right to detach and remove the depreciating assets did not include the obligation (although it may have chosen to) to detach and remove all the elements of the depreciating assets' affixation and connection other than ensuring those elements left behind were left safe, to a specified statutory standard, and the buildings and site secure.
The vendor retained legal title to the land to which the depreciating assets were attached at all times.
The taxpayer held the depreciating assets once they were detached and removed from the land as legal owner (Item 10 of the table in section 40-40 of the ITAA 1997).
Reasons for Decision
At law, a fixture forms part of the land to which it is attached and, as a consequence, the legal owner of the land is the legal owner of the fixture.
'There is no doubt that the general maxim of the law is, that what is annexed to the land becomes part of the land...' ( Eon Metals NL v Commissioner of State Taxation (WA) 91 ATC 4841; (1991) 22 ATR 601) ( Eon Metals ).
This position does not change even when a contract (or a series of contracts) is entered for the sale of the fixtures to another party.
'The mere intention to sever items from land does not transform the items into chattels; physical severance must occur...' ( Eon Metals ).
Under a contract to purchase fixtures on another's land, the purchaser acquires a right (possibly subject to conditions) to remove the fixtures; they do not obtain legal title until the fixtures are detached and removed from the vendor's land.
'A right to remove a fixture would not, in any event, alter the status of a fixture as part of the land and thus in the legal ownership of the owner of the freehold until the right is exercised.' ( Eastern Nitrogen Ltd v. Commissioner of Taxation  FCA 1536; 99 ATC 5163; (1999) 43 ATR 112)
In the present case, the condition to detach and remove the assets was payment of the purchase price on the settlement date.
Therefore the taxpayer did not hold the depreciating assets as legal owner under Item 10 of the table in section 40-40 of the ITAA 1997 prior to their detachment and removal from the land.
However, Item 6 of the table in section 40-40 of the ITAA 1997 can apply to make a taxpayer the holder of a depreciating asset, to the exclusion of the legal owner, where the taxpayer is not the legal owner of the depreciating asset, but:
- has possession of or an immediate right to possess the asset
- has a right against the legal owner that, when exercised, makes the taxpayer a holder of the asset under an item in the table in section 40-40 of the ITAA 1997; and
- it is reasonable to expect that the taxpayer will exercise the right to become the asset's holder, or that the asset will be disposed of for the taxpayer's benefit.
Under the terms of the contract, the taxpayer was required to detach and remove the depreciating assets from the vendor's land within a specified period commencing from the settlement date. Thus the taxpayer had the right to remove the depreciating assets from the vendor's land during this period. In exercising this right, the taxpayer detached and removed the assets from the vendor's land and in so doing obtained legal title to the assets at that time. At that time, the taxpayer started to hold them under Item 10 of the table in section 40-40 of the ITAA 1997. In this case, it was clearly reasonable, prior to the detachment and removal, to have expected that the taxpayer would exercise the right and become the holder of the assets under Item 10 because it had entered a contract for that very purpose.
As the taxpayer satisfied all of the conditions of Item 6 of the table in section 40-40 of the ITAA 1997 for the depreciating assets from the contract settlement date, it held them under that provision from that date until they were detached and removed from the land to the exclusion of the vendor who was the legal owner of the assets. (Note: the conditions for Item 2 of the table in section 40-40 of the ITAA 1997 were also nominally satisfied in this case however Item 6 is preferred as more precisely matching the specific facts of the case.)
Date of decision: 22 November 2007
|Year of income:||Year ended 30 June 2004|
Income Tax Assessment Act 1997
Eastern Nitrogen Ltd v. Commissioner of Taxation
(2001) 108 FCR 27
 FCA 366
2001 ATC 4164
(2000) 46 ATR 474
Eon Metals NL v. Commissioner of State Taxation (WA)
(1991) 91 ATC 4841
(1991) 22 ATR 601
Related ATO Interpretative Decisions
ATO ID 2008/54
Hold a depreciating asset
Fixtures on land
Plant attached to land
Siebel/TDMS Reference Number: 5942329; 1-AVX21NF
Business Line: Small Business/Individual Taxpayers
Date of publication: 11 April 2008