• Disposing of a depreciating asset

    When you dispose of a depreciating asset (that is, it's sold, lost or destroyed), you may need to make a balancing adjustment to take into account the difference between its adjustable value (written-down value) and its termination value. The balancing adjustment will either be included in your assessable income or claimed as a deduction.

    Balancing adjustments are not made for:

    • depreciating assets in a low-value pool – the proceeds from the sale are instead used to reduce the value of the pool, which in turn reduces future depreciation deductions (unless the pool balance has been reduced to zero, in which case a balancing adjustment is made)
    • buildings and other capital works, which are dealt with separately under the capital works provisions.

    Balancing adjustments

    You calculate the balancing adjustment by comparing the asset's termination value (for example, the sale proceeds) with its adjustable value (the cost of the asset less depreciation deductions).

    • If the asset’s termination value is more than its adjustable value, you include the difference in your assessable income.
    • If the asset’s termination value is less than its adjustable value, you're entitled to a deduction for the difference.

    Non-taxable use

    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.

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

    Example

    John receives $600 for a computer for which he originally paid $1,000. The computer has been used 40% for private purposes. At the time of sale, the computer's written-down value is $700. John can claim a $60 deduction for the reduced balancing adjustment amount (60%, the taxable use proportion, of $700 less $600). A capital loss of $160 also arises (40%, the non-taxable use proportion, of $1,000 less $600).

    End of example

    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.

    Replacing an asset

    Replacing an asset will generally not affect the calculations set out above. However, if you dispose of an asset involuntarily – for example, if it was destroyed by fire – you may be able to offset the assessable balancing adjustment amount against the cost of a replacement asset.

    See also:

     

    Last modified: 24 Jun 2015QC 45987