• Involuntary disposal of a depreciating asset

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    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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    An involuntary disposal occurs if a depreciating asset is:

    • lost or destroyed
    • compulsorily acquired by an entity (other than a foreign government agency)
    • disposed of to an entity (other than a foreign government agency) after they served a notice on you inviting you to negotiate a sale agreement. They must have informed you that, if negotiations are unsuccessful, the asset will be compulsorily acquired, or
    • fixed to land which is disposed of to an entity (other than a foreign government agency) where a mining lease was compulsorily granted over the land and the lease significantly affected (or would have significantly affected) your use of the land and the entity to which you disposed of the land is the lessee.

    You may offset an assessable balancing adjustment amount arising from an involuntary disposal against the cost of one or more replacement assets. If you offset an amount against the cost of a replacement asset for an income year after the one in which the replacement asset's start time occurs, you must also reduce the sum of its opening adjustable value plus any second elements of its cost for that later year.

    You must incur the expenditure on the replacement asset, or start to hold it, no earlier than one year before the involuntary disposal and no later than one year after the end of the income year in which that disposal occurred.

    The Commissioner can agree to extend the time limit - for example, if it is unlikely that insurance claims in relation to the disposal of the original asset will be settled within the required timeframe even though you have taken all reasonable steps to have the insurance claims settled.

    To offset the assessable balancing adjustment amount, the replacement asset must be wholly used, or installed ready for use, by you for a taxable purpose at the end of the income year in which you incurred the expenditure on the asset or you started to hold it and you must be able to deduct an amount for it.

    Last modified: 27 Aug 2007QC 27892