• Sale of a depreciating asset used wholly for a taxable purpose

    If the depreciating asset is used wholly fora taxable purpose, the full balancing adjustment amount is applied. No capital gain or capital loss arises.

    Example

    John operates a small printing business and decides to sell an old photocopier for $2,750. Assuming the sale is a taxable supply, the termination value is reduced by the $250 GST payable. This means that the reduced termination value of the photocopier is $2,500 ($2,750 less $250).

    If at the time of sale the adjustable value of the photocopier is $2,000, John must include $500 in his assessable income ($2,500 less $2,000).

    If at the time of sale the adjustable value of the photocopier is $2,700, John would claim a deduction of $200 ($2,700 less $2,500).

    End of example

    Sale of a depreciating asset used only partly for a taxable purpose

    If a depreciating asset is used only partly for a taxable purpose, you reduce the balancing adjustment amount to reflect that non-taxable use. The reduced balancing adjustment amount is included in, or deducted from, your assessable income under the UCA provisions.

    The non-taxable purpose proportion of the difference between the asset's termination value and its cost can constitute a capital gain or a capital loss under the capital gains provisions.

    Example

    John also sells a computer. The termination value of the computer is $600 and its cost is $1,000. The computer has been used 40% for private purposes. At the time of sale, the computer's adjustable value is $700. John can claim a $60 deduction for the reduced balancing adjustment amount (60%, the taxable purpose proportion, of $700 less $600). A capital loss of $160 also arises (40%, the non-taxable purpose proportion, of $1,000 less $600).

    End of example
      Last modified: 25 Jan 2017QC 16294