Under the UCA rules, if you cease to hold or to use a depreciating asset, a balancing adjustment event will occur. If there is a balancing adjustment event, you need to work out 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 if:
- 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.
The balancing adjustment amount is worked out by comparing the asset's termination value (such as the proceeds from the sale of the asset) and its adjustable value at the time of the balancing adjustment event. If the termination value is greater than the adjustable value, the excess is included in your assessable income. (If you are an individual who owns or has co-ownership of a rental property, you show such assessable amounts at TaxPack supplement question 22 Other income – not question 20.)
If the termination value is less than the adjustable value, you can deduct the difference.
Refer to the Guide to depreciating assets for further information about balancing adjustments.