ATO Interpretative Decision
ATO ID 2002/1017
Income Tax
Capital Allowances - Balancing adjustment eventFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does a balancing adjustment event occur for a depreciating asset under section 40-295 of the Income Tax Assessment Act 1997 (ITAA 1997) where the asset is transferred from Club A to Club B upon the amalgamation of two clubs?
Decision
Yes. A balancing adjustment event occurs for a depreciating asset under paragraph 40-295(1)(a) of the ITAA 1997 as Club A has stopped holding the asset. Club A stops holding the asset when it is transferred to Club B.
Facts
Club A and Club B are companies limited by guarantee and both are registered under the Registered Clubs Act 1976 (NSW).
Club A is amalgamating with Club B within the terms of paragraph 17A(1)(b) of the Registered Clubs Act 1976 (NSW) which states that a reference to the amalgamation of 2 or more registered clubs is a reference to an amalgamation effected by the continuation of one of those clubs and the dissolution of the other club or clubs.
As a result of the amalgamation Club A is to be dissolved and Club B is to take over its assets.
Club B had previously loaned an amount to Club A. The loan was secured by mortgage and made on condition that Club A would repay the loan within a period of 12 months or amalgamate with Club B. The loan was not repayable if the clubs amalgamated.
The members of both clubs voted at a general meeting to amalgamate.
Club A was placed in voluntary liquidation.
The liquidator transferred the assets of Club A to Club B.
Reasons for Decision
Paragraph 40-295(1)(a) of the ITAA 1997 provides that a balancing adjustment event occurs when an asset stops being held by an entity. The table in section 40-40 of the ITAA 1997 sets out who holds a depreciating asset. Item 10 of that table provides that the owner, or if there is both a legal and equitable owner, the legal owner of a depreciating asset is the holder of the asset.
When the depreciating asset is transferred from club A to club B by the liquidator, club A is no longer the owner of the asset and has therefore stopped holding the asset and a balancing adjustment event therefore occurs in terms of paragraph 40-295(1)(a) of the ITAA 1997.
Date of decision: 29 August 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 40-40
paragraph 40-295(1)(a)
Paragraph 17A(1)(b) Related ATO Interpretative Decisions
ATO ID 2002/1016
ATO ID 2002/1018
Keywords
Balancing adjustment event
Depreciating assets
ISSN: 1445-2782