ATO Interpretative Decision
ATO ID 2004/751 (Withdrawn)
Income Tax
Capital Allowances: termination value - incorporation of an unincorporated associationFOI status: may be released
-
ATO ID 2004/751 is withdrawn as it is a straightforward application of the law.This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
What is the termination value of a depreciating asset under Subdivision 40-D of the Income Tax Assessment Act 1997 (ITAA 1997) for an unincorporated association when the asset is transferred upon its incorporation?
Decision
The termination value of a depreciating asset being transferred is the sum of the amounts specified in items 1 and 2 in the table in paragraph 40-305(1)(b) of the ITAA 1997.
Facts
An unincorporated association converts to an incorporated association under the Associations Incorporation Act 1981 (Qld) (AIA (Qld)).
Before its incorporation, the unincorporated association had a liability to pay an amount related to some of the depreciating assets it held.
The constitution of the unincorporated association prevents it from making any distribution to members.
Reasons for Decision
When an unincorporated association incorporates under the AIA (Qld) a new entity comes into existence 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.
The incorporation causes a balancing adjustment event to occur, under paragraph 40-295(1)(a) of the ITAA 1997, for the depreciating assets held by the unincorporated association as the ownership of the assets is passed to the incorporated association under subsection 23(1) of the AIA (Qld) (that is, a disposal has occurred).
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'.
The termination value of a depreciating asset under a balancing adjustment event is worked out as at the time when the balancing adjustment event occurs. It is the amount specified in either subsection 40-300(2) or section 40-305 of the ITAA 1997 (subsection 40-300(1) of the ITAA 1997).
Items 1 and 2 of the table in paragraph 40-305(1)(b) of the ITAA 1997 apply in this case. Item 1 includes in the termination value an amount received under a balancing adjustment event while item 2 includes in the termination value the amount of a liability or part of a liability that is terminated under a balancing adjustment event.
The operation of subsection 23(1) of the AIA (Qld) means that no amount is received by the unincorporated association for the transfer of their depreciating assets to the incorporated association. As no amount is received under the balancing adjustment event the amount under item 1 of paragraph 40-305(1)(b) of the ITAA 1997 is nil.
The operation of subsection 23(1) of the AIA (Qld) also means that upon incorporation the incorporated association assumes the liabilities of the unincorporated association and the liabilities of the unincorporated association to pay an amount are terminated. In terms of item 2 of the table in paragraph 40-305(1)(b) of the ITAA 1997, the unincorporated association is taken to have received the amount of any liability or part of a liability that is terminated and that is related to the transfer of the depreciating assets.
Date of decision: 29 July 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subdivision 40-D
paragraph 40-295(1)(a)
subsection 40-300(1)
subsection 40-300(2)
section 40-305
paragraph 40-305(1)(b)
subsection 23(1) Related ATO Interpretative Decisions
ATO ID 2002/808
ATO ID 2002/1016
ATO ID 2003/219
ATO ID 2004/750
Keywords
Balancing adjustment event
Balancing adjustments
Termination value
ISSN: 1445-2782
| Date: | Version: | |
| 29 July 2004 | Original statement | |
| You are here | 31 October 2014 | Archived |