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Council claims gearing success

HERE’S the latest Ralph report sleeper for those with property interests to consider.

Buried on page 388 of A Tax System Redesigned, Ralph proposes lessors should hand their depreciation benefits to lessees.

Ralph wants ordinary leases of commercial property to be treated as a sale and a loan.

That would mean the renting of space will be considered a sale of property to lessees, tied to a loan repaid to the lessor in equal portions.

The proposal aims to eliminate front and rear end payments (balloon payments) and the transfer of tax benefits which are virtually non-existent in our sector.

Handing over depreciation benefits to tenants sounds crazy but to Treasury it’s logical.

To Treasury, the building notionally belongs to the tenant by the end of its effective life – at which point it has a written down value of zero.

So the tenant should get the depreciation benefits as they accrue.

The proposal for so-called ‘non routine’ leases applies to leases with a value:

• Greater than $0.5 million if the contract is for a period longer than five years

• Greater than $1 million if the contract period is for a period longer than three years.

The Property Council is lobbying for all real estate leases to be classified as routine contracts. Indications so far are that we will win this one.

• Joe Lenzo is chief executive of the WA branch of the

Property Council of Australia.

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