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What happens if you no longer hold or use a depreciating asset?

Last updated 7 April 2020

If you cease to hold or to use a depreciating asset, a balancing adjustment event may occur. If there is a balancing adjustment event, you need to calculate a balancing adjustment amount to include in your assessable income or to claim as a deduction.

A balancing adjustment event occurs for a depreciating asset when:

  • you stop holding it - for example, if the asset is sold, lost or destroyed
  • you stop using it and expect never to use it again
  • you stop having it installed ready for use and you expect never to install it ready for use again
  • you have not used it and decide never to use it, or
  • a change occurs in the holding or interests in an asset which was or is to become a partnership asset.

A balancing adjustment event does not occur just because a depreciating asset is split or merged - see Split or merged depreciating assets.

However, a balancing adjustment event does occur if you stop holding part of a depreciating asset.

You work out the balancing adjustment amount by comparing the asset's termination value (such as the proceeds from the sale of an asset) and its adjustable value at the time of the balancing adjustment event. See Termination value for information about how to work out an asset's termination value.

If the termination value is greater than the adjustable value, you include the excess in your assessable income.

If the termination value is less than the adjustable value, you can deduct the difference.

Example: Working out an assessable balancing adjustment amount - ignoring any GST impact

Bridget purchased a cabinet on 1 July 2003. She used the cabinet from that date wholly for a taxable purpose. The cabinet was sold on 30 June 2005 for $1,300. Its adjustable value at that time was $1,200.

As the termination value of $1,300 is greater than the adjustable value of the cabinet at the time of its sale, the difference of $100 is included in Bridget's assessable income as an assessable balancing adjustment amount.

Example: Working out a deductible balancing adjustment amount - ignoring any GST impact

If Bridget sold the cabinet for $1,000, the termination value is less than the adjustable value of the cabinet at the time of its sale ($1,200). The difference of $200 is a deductible balancing adjustment amount.

There are situations where these general balancing adjustment rules do not apply:

There are special balancing adjustment rules for depreciating assets used in carrying on research and development activities - see the Research and development tax concession schedule instructions 2005 for more information.

A GST liability will generally occur when a depreciating asset is disposed of by a GST registered entity - see the fact sheet GST and the disposal of capital assets, available on our website, for more information.