Any assessable balancing adjustment amount or capital gain (if the asset was used for non-taxable purposes) may be reduced if a balancing adjustment event occurs to:
- an item of plant that was acquired before 11.45am (by legal time in the ACT) on 21 September 1999, or
- a depreciating asset acquired before 1 July 2001 that is not plant.
The amount of the reduction is the cost base of the asset for capital gains tax purposes less its cost. The purpose of this reduction is to preserve capital gains tax cost base advantages for assets acquired before these dates.
One reason that the cost base might exceed the cost is indexation of the cost base. There is indexation of the cost base to 30 September 1999.
Indexation is not available for assets for which capital gains and capital losses are disregarded see Depreciating asset used for non-taxable purpose for a list of such assets. However, the balancing adjustment amount is reduced if the asset is:
- a car that is designed to carry a load of less than one tonne and less than nine passengers
- a motor cycle
- a valour decoration
- a collectable (such as a painting or an antique) if the first element of its cost is $500 or less
- an asset acquired before 20 September 1985, or
- an asset used solely to produce exempt income
In these cases, the balancing adjustment amount is reduced by the difference between the asset's termination value and its cost which is attributable to the use of the asset for a taxable purpose.
See the Guide to capital gains tax (NAT 4151-6.2003) for more information about indexation of a cost base and the impact of indexation on discount capital gains.