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The termination value is, generally, what you receive or are taken to receive for the asset when a balancing adjustment event occurs. It is made up of amounts received and the market value of non-cash benefits (such as goods or services) you receive for the asset.
The most common example of termination value is the proceeds from selling an asset. The termination value may also be an insurance payout for the loss or destruction of a depreciating asset.
The termination value is reduced by the GST payable if the balancing adjustment event is a taxable supply. It can be modified by increasing or decreasing adjustments.
If the termination value is taken to be the market value of the asset (for example, in the case of assets disposed of under a private or domestic arrangement), the market value is reduced by any input tax credit to which you would be entitled had you acquired the asset solely for a creditable purpose.
In most cases, the termination value can be reduced by any expenses of the balancing adjustment event - for example, advertising or commission expenses. The expenses must not be otherwise deductible.
An amount is not an assessable recoupment if it is included in the termination value of a depreciating asset - see Recoupment of cost.
There are special rules to work out the termination value of depreciating assets in certain circumstances. Some of the more common cases are covered below. If you are not sure of the termination value of a depreciating asset, contact your professional adviser or the Tax Office.
Non-arm's length and private or domestic arrangements
The termination value of a depreciating asset is its market value just before you stopped holding it if:
- the termination value would otherwise be less than market value and you do not deal at arm's length with another party to the transaction, or
- you stop holding the asset under a private or domestic arrangement (for instance, you give the asset to a family member).
Selling a depreciating asset with other property
If you receive an amount for the sale of several items that include a depreciating asset, you need to apportion the amount received between the termination value of the depreciating asset and the other items. The termination value is only that part of what you received that is reasonably attributable to the asset.
The Tax Office generally accepts independent valuations as a basis for this apportionment. However, if there is no independent valuation, you may need to demonstrate that your apportionment of the amount is reasonable. Apportionment on the basis of the market values of the various items for which the amount is received will generally be reasonable.
Depreciating asset sold with other property
(The impact of the GST is ignored in this example).
Ben receives $100,000 for the sale of both a chainsaw (a deprecating asset) and a block of land (not a deprecating asset). It would be reasonable to apportion the $100,000 between:
- the termination value of the chainsaw, and
- the proceeds of sale for the land
based on the relative market values of the chainsaw and the land.
Last modified: 31 Oct 2005QC 27521