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Split or merged depreciating assets

Last updated 7 April 2020

If a depreciating asset you hold is split into two or more assets, or if a depreciating asset or assets you hold is or are merged into another depreciating asset, you are taken to have stopped holding the original depreciating asset(s) and to have started holding the split or merged asset(s). However, a balancing adjustment event does not occur just because depreciating assets are split or merged.

An example of splitting a depreciating asset is removing a CB radio from a truck. If you install the radio in another truck you may be merging the two assets (radio and truck).

After depreciating assets are split or merged, each new asset must satisfy the definition of a depreciating asset if the UCA rules are to apply to it. For each depreciating asset you have started to hold, you need to establish the effective life and cost.

The first element of cost for each of the split or merged depreciating assets is a reasonable proportion of the adjustable values of the original asset(s) just before the split or merger and the same proportion of any costs of the split or merger.

If a balancing adjustment event occurs to a merged or split depreciating asset - for example, if it is sold - the balancing adjustment amount is reduced:

  • to the extent the asset has been used for other than a taxable purpose
  • by any amount that is reasonably attributable to use for other than a taxable purpose of the original depreciating asset(s) before the split or merger.

This reduction is not required if the depreciating asset is mining, quarrying or prospecting information.

Foreign currency gains and losses

Under the forex provisions, if you sell a depreciating asset in foreign currency, the termination value of the asset is translated to Australian currency at the exchange rate applicable when you receive the foreign currency. Any realised foreign currency gain or loss on the transaction is included in assessable income or allowed as a deduction, respectively.