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

    If a depreciating asset is used wholly for a non-taxable purpose, the balancing adjustment amount is reduced to nil.

    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.

    How to account for the costs of selling a depreciating asset

    Generally, you reduce the termination value of a depreciating asset by any costs of disposal, such as advertising costs. You can only reduce the termination value if the costs are not deductible.

    Can you offset any balancing adjustment amount against a replacement depreciating asset?

    If the disposal of the asset was involuntary, you can offset the balancing adjustment amount that would otherwise be included in your assessable income against the cost of a new replacement asset (or against the adjustable value of an asset already held). An involuntary disposal of a depreciating asset occurs if an asset you own is:

    • lost or destroyed
    • compulsorily acquired by an entity (other than a foreign government agency)
    • disposed of to an entity (other than a foreign government agency) after they serve a notice on you inviting you to negotiate a sale agreement. They must have informed you that, if the negotiations are unsuccessful, the asset will be compulsorily acquired
    • land or an asset affixed to land which is disposed of to an entity (other than a foreign government agency) where a mining lease was compulsorily granted over the land (or would have been compulsorily granted over the land), the lease significantly affected (or would have significantly affected) your use of the land and the entity to which you disposed of the land is the lessee.

    See also:

    For the offset to be available, the replacement asset must be used wholly for a taxable purpose. It must have been acquired in the period starting a year before the disposal and ending a year after the income year in which the disposal happened. The Commissioner of Taxation can agree to extend this time limit.

    The rules in relation to compulsory acquisition of assets were amended on 22 June 2006 to extend to cover compulsory acquisitions by private acquirers.

    These amendments apply to events that happen after 1.00pm (by legal time in the ACT), 11 November 1999 and include a provision that allows more time for taxpayers to obtain an amended assessment to benefit from the rules.

    Last modified: 25 Jan 2017QC 16294