ATO Interpretative Decision
ATO ID 2002/818
Income Tax
Depreciating assets - reasonable attribution of costFOI status: may be released
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Amended to comply with ATO ID guidelines
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
If a number of depreciating assets are purchased for a single undissected amount, would a reasonable method of attribution of cost to each asset, under section 40-195 of the Income Tax Assessment Act 1997 (ITAA 1997), be to apportion the single purchase amount among each of the depreciating assets in proportion to their market value at the time of purchase?
Decision
Yes, to apportion the single purchase amount among each of the depreciating assets in proportion to their market value at the time of purchase would be a reasonable method of attribution cost to each asset under section 40-195 of the ITAA 1997.
Facts
The taxpayer purchased, in an arm's length transaction, an existing business. The business comprised different classes of assets, including depreciating assets. While the parties to the transaction allocated the contract price to each class of assets, the amount allocated to each class was not further allocated to each asset in the class.
Reasons for Decision
If you pay a single undissected amount for 2 or more things that include at least one depreciating asset, section 40-195 of the ITAA 1997 requires you to take into account as part of the asset's cost only that part of what you paid that is reasonably attributable to the asset. What is reasonable will often depend on the particular circumstances.
If property, including depreciating assets, is acquired under a contract and parties dealing with each other at arm's length allocate the overall contract price to the separate assets in the contract, the Commissioner will accept such an allocation for the purpose of working out the cost of the depreciating assets under Subdivision 40-C of the ITAA 1997. An allocation in these circumstances to only a class of assets will also be acceptable but, in the case of depreciating assets, the purchaser will then need to make their own reasonable apportionment of the amount so allocated to the class of assets to each of the assets in that class.
In making their apportionment, it is expected that the purchaser will generally have regard to and be able to justify their reasonable apportionment based on the relevant market values of the separate depreciating assets at the time of the making of the contract.
The Commissioner does not accept that the adjustable value of a depreciating asset necessarily represents the market value of the asset.
Date of decision: 19 April 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
Section 40-195
Subdivision 40-C
Related Public Rulings (including Determinations)
Taxation Determination TD 98/24
Keywords
Depreciating assets
Cost of a depreciating asset
Apportionment of cost
ISSN: 1445-2782