ATO Interpretative Decision
ATO ID 2004/750 (Withdrawn)
Income Tax
Capital Allowances: balancing adjustment event - incorporation of an unincorporated associationFOI status: may be released
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ATO ID 2004/750 is withdrawn as it is a straightforward application of the law.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the depreciating assets of an unincorporated association upon its incorporation under the Associations Incorporation Act 1981 (Qld) (AIA (Qld))?
Decision
Yes. A balancing adjustment event occurs under paragraph 40-295(1)(a) of the ITAA 1997 for the depreciating assets as the unincorporated association stops holding the assets when they are transferred to the incorporated successor upon its incorporation.
Facts
An unincorporated association is the owner of depreciating assets for income tax purposes.
The constitution of the unincorporated association prevents it from making any distribution to members.
The unincorporated association converts to an incorporated association under the AIA (Qld).
Reasons for Decision
Paragraph 40-295(1)(a) of the ITAA 1997 provides that a balancing adjustment event occurs when an entity stops holding an asset. The table in section 40-40 of the ITAA 1997 sets out who is the holder of an asset in any particular circumstances. 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. Therefore, prior to incorporation, the unincorporated association is the holder of the depreciating assets pursuant to item 10 of the table in section 40-40 of the ITAA 1997.
It is considered that a new entity comes into existence on incorporation because the AIA (Qld) has no provision preserving the existence of an unincorporated association in the new incorporated association, nor does it provide that on incorporation the new incorporated association is a continuation of the unincorporated association.
Subsection 23(1) of the AIA (Qld) provides that 'on incorporation of an association, the association's assets, rights and liabilities become the incorporated association's assets, rights and liabilities'.
On the transfer of the depreciating assets to the incorporated association a change of ownership of the assets occurs (that is, a disposal). Consequently, a balancing adjustment event occurs under paragraph 40-295(1)(a) of the ITAA 1997 as the unincorporated association no longer holds the depreciating assets.
Date of decision: 29 July 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 40-40
paragraph 40-295(1)(a)
subsection 23(1) Related ATO Interpretative Decisions
ATO ID 2002/808
ATO ID 2002/809
ATO ID 2003/218
ATO ID 2004/751
Keywords
Balancing adjustment event
Balancing adjustments
Legal owner
Taxable purpose
ISSN: 1445-2782
| Date: | Version: | |
| 29 July 2004 | Original statement | |
| You are here | 31 October 2014 | Archived |