If a depreciating asset is used for both taxable and non-taxable purposes, the balancing adjustment amount must be reduced by the amount that is attributable to the non-taxable use. In addition, a capital gain or capital loss may arise under the capital gain and capital loss provisions. The amount of the capital gain or capital loss is the difference between the asset's cost and its termination value that is attributable to the non-taxable use.
For depreciating assets that are used wholly for non-taxable purposes, the balancing adjustment amount is reduced to zero. The difference between the asset's termination value and its cost can be a capital gain or capital loss.
For some depreciating assets, any capital gain or capital loss arising will be disregarded even though the asset is used for non-taxable purposes. These assets include:
- cars that are designed to carry a load of less than one tonne and less than nine passengers
- motor cycles
- valour or brave conduct decorations awarded
- a collectable (such as a painting or an antique) if the first element of its cost is $500 or less
- assets for which you can deduct an amount for the decline in value under the STS rules for the income year in which the balancing adjustment event occurred
- assets acquired before 20 September 1985
- assets used solely to produce exempt income.
In addition, a capital gain arising from the disposal of a personal use asset (such as an asset used or kept mainly for personal use or enjoyment) of which the first element of cost is $10,000 or less and a capital loss arising from the disposal of any personal use asset are disregarded for capital gains tax purposes.
Example: Sale of a depreciating asset used partly for a taxable purpose (ignoring any GST impact)
Andrew sells a computer for $600. The computer's cost is $1,000. It has been used 40% of the time for private purposes. At the time of its sale, the computer's adjustable value is $700.
Andrew can claim a deduction for the balancing adjustment amount of $60. This is 60% (the proportion of use for a taxable purpose) of the balancing adjustment amount (the difference between the computer's termination value and its adjustable value at the time of its sale).
In addition, a capital loss of $160 arises. This is 40% (the proportion of use for a non-taxable purpose) of the difference between the computer's termination value and its cost.End of example