ATO Interpretative Decision

ATO ID 2003/226

Income Tax

Capital Allowances: balancing adjustment event for common property depreciating assets - Australian Capital Territory
FOI status: may be released
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Status of this decision: Decision Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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, under paragraph 40-295(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997), for a depreciating asset forming part of the common property of an existing residential unit complex located in the Australian Capital Territory (ACT) as a result of the enactment of the Unit Titles Act 2001 (ACT) (UTA 2001)?

Decision

Yes. A balancing adjustment event does occur, under paragraph 40-295(1)(a) of the ITAA 1997, for a depreciating asset forming part of the common property of an existing residential unit complex located in the ACT as a result of the enactment of the UTA 2001.

Facts

A taxpayer acquired a unit in a residential complex located in the ACT prior to 6 October 2001. The unit has been used to produce rental income since its acquisition.

Under this type of strata title development, the owners corporation becomes the holder of an estate of leasehold in the common property on registration of the units plan. The unit owners are members of the owners corporation which is a separate legal entity with specified powers, authorities, duties and functions.

Common property is that part of a strata plan not comprised in any owner's lot and includes both fixed and moveable property and facilities intended for common use. The common property may include depreciating assets and buildings and other structures.

The enactment of the UTA 2001, with effect from 6 October 2001, resulted in the estate of leasehold in the common property, including existing common property, in strata title developments in the ACT being held by the owners corporation as agent for the unit owners as tenants in common. Under the former act, Unit Titles Act 1970 (ACT) (UTA 1970), common property was held by the owners corporation (formerly body corporate) as trustee for the unit owners as tenants in common.

Reason for Decision

Paragraph 40-295(1)(a) of the ITAA 1997 provides that a balancing adjustment event occurs for a depreciating asset if an entity stops holding the asset.

Under the UTA 1970, depreciating assets forming part of common property were held by the owners corporation as trustee for the unit owners. In that capacity, the owners corporation was a holder of the common property under item 2 of the table in section 40-40 of the ITAA 1997.

Under the UTA 2001, the owners corporation holds the estate of leasehold in common property as agent for the unit owners. In this case, the unit owners as tenants in common and not the owners corporation hold the depreciating assets forming part of the common property. Each unit owner is a holder under item 2 of the table in section 40-40 of the ITAA 1997.

For existing strata title developments, the owners corporation stopped holding the depreciating assets forming part of the common property as a result of the enactment, from 6 October 2001, of the UTA 2001. The effect of this is that a balancing adjustment event occurred, under paragraph 40-295(1)(a) of the ITAA 1997, for those depreciating assets forming part of existing common property.

Date of decision:  12 March 2003

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-40
   paragraph 40-295(1)(a)

Related Public Rulings (including Determinations)
Taxation Ruling IT 2505

Related ATO Interpretative Decisions
ATO ID 2003/224
ATO ID 2003/225
ATO ID 2003/227
ATO ID 2003/228
ATO ID 2003/229

Other References:
Unit Titles Act 2001 (ACT)
Unit Titles Act 1970 (ACT)

Keywords
Balancing adjustment event
Balancing adjustments
Balancing adjustments on disposal of plant
Capital allowances CoE
Holder of an item of plant
Uniform capital allowance system

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  4 April 2003

ISSN: 1445-2782

history
  Date: Version:
You are here 12 March 2003 Original statement
  25 March 2015 Withdrawn