This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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The termination value is, generally, what you receive or are taken to receive for the asset when a balancing adjustment event occurs. It is made up of amounts you receive and the market value of non-cash benefits (such as goods or services) you receive for the asset.
The most common example of termination value is the proceeds from selling an asset. The termination value may also be an insurance payout for the loss or destruction of a depreciating asset.
The termination value is reduced by the GST payable if the balancing adjustment event is a taxable supply. It can be modified by increasing or decreasing adjustments.
If the termination value is taken to be the market value of the asset (for example, in the case of assets disposed of under a private or domestic arrangement), the market value is reduced by any input tax credit to which you would be entitled had you acquired the asset solely for a creditable purpose.
An amount is not an assessable recoupment if it is included in the termination value of a depreciating asset - see Recoupment of cost.
There are special rules to work out the termination value of depreciating assets in certain circumstances. Some of the more common cases are covered below. If you are not sure of the termination value of a depreciating asset, contact the Tax Office or your recognised tax adviser.
Non-arm's length and private or domestic arrangements
The termination value of a depreciating asset is its market value just before you stopped holding it where:
- the termination value would otherwise be less than market value and you did not deal at arm's length with another party to the transaction, or
- you stopped holding the asset as a result of a private or domestic arrangement (for instance, you gave the asset to a family member).
Selling a depreciating asset with other property
If you received an amount for the sale of several items that include a depreciating asset, you need to apportion the amount received between the termination value of the depreciating asset and the other items. The termination value is only that part of what you received that is reasonably attributable to the asset.
The Tax Office generally accepts independent valuations as a basis for this apportionment. However, if there is no independent valuation, you may need to demonstrate that your apportionment of the amount is reasonable. Apportionment on the basis of the market values of the various items for which the amount is received will generally be reasonable.
Example: Depreciating asset sold with other property - ignoring any GST impact
Ben receives $100,000 for the sale of both a chainsaw (a depreciating asset) and a block of land (not a depreciating asset). It would be reasonable to apportion the $100,000 between:
- the termination value of the chainsaw, and
- the proceeds of sale for the land based on the relative market values of the chainsaw and the land.
Depreciating asset you stop using or never use
The termination value of a unit of in-house software you still hold but stop using and expect never to use again, or decide never to use, is zero - see In-house software.
For any other asset, if you stop using it and expect never to use it again but still hold it, the termination value is the market value when you stop using it. For a depreciating asset you decide never to use but still hold, the termination value is the market value when you make the decision.
Death of the holder
If a person dies and a depreciating asset starts to be held by their legal personal representative (such as the executor of their estate), a balancing adjustment event occurs. The termination value of the asset is its adjustable value on the day they died. If they had allocated the asset to a low-value pool, the termination value is so much of the closing balance of the pool for the income year in which they died that is reasonably attributable to the asset - see Low-value pools for information about a low-value pool.
If the asset passes directly to a beneficiary of their estate or to a surviving joint tenant, the termination value is the asset's market value on the day they died.
Last modified: 27 Aug 2007QC 27892