Guide to depreciating assets 2005-06

Involuntary disposal of a depreciating asset

An involuntary disposal occurs if a depreciating asset is:

• lost or destroyed
• compulsorily acquired by an Australian government agency, or
• disposed of to an Australian government agency after negotiations after 11.45am (by legal time in the ACT) on 21 September 1999.

You may offset an assessable balancing adjustment amount arising from an involuntary disposal against the cost of one or more replacement assets. If you offset an amount against the cost of a replacement asset for an income year after the one in which the replacement asset's start time occurs, you must also reduce the sum of its opening adjustable value plus any second elements of its cost for that later year.

You must incur the expenditure on the replacement asset, or start to hold it, no earlier than one year before the involuntary disposal and no later than one year after the end of the income year in which that disposal occurred.

The Commissioner can agree to extend the time limit - for example, if it is unlikely that insurance claims in relation to the disposal of the original asset will be settled within the required timeframe even though you have taken all reasonable steps to have the insurance claims settled.

To offset the assessable balancing adjustment amount, the replacement asset must be wholly used, or installed ready for use, by you for a taxable purpose at the end of the income year in which you incurred the expenditure on the asset or you started to hold it and you must be able to deduct an amount for it.

Sections within What happens if you no longer hold or use a depreciating asset?

• Termination value
• Depreciating asset used for other than a taxable purpose
• Leisure facilities and boats
• Plant acquired before 21 September 1999 and other depreciating assets acquired before 1 July 2001
• Balancing adjustment rules for cars
• Involuntary disposal of a depreciating asset
• Rollover relief
• Limited recourse debt arrangements
• Split or merged depreciating assets
• Foreign currency gains and losses