ATO Interpretative Decision
ATO ID 2003/791
Income Tax
Capital allowances: balancing adjustment - depreciating assets and capital expenditure of primary producersFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Do the balancing adjustment provisions of Subdivision 40-D of the Income Tax Assessment Act 1997 (ITAA 1997) apply to depreciating assets whose decline in value is worked out under Subdivision 40-F of the ITAA 1997 or to capital expenditure that is deductible under Subdivision 40-G of the ITAA 1997?
Decision
No. The sale of a depreciating asset does not require a balancing adjustment under section 40-285 of the ITAA 1997 where the decline in value of the asset is worked out under Subdivision 40-F of the ITAA 1997 or if an amount of capital expenditure is deductible under Subdivision 40-G of the ITAA 1997.
Facts
The taxpayer owned depreciating assets that it used in a primary production business on land in Australia. The taxpayer carried on a business of horticulture on land it owned. The taxpayer incurred qualifying expenditure on water facilities (subsections 40-525(1) and 40-555(2) of the ITAA 1997) and horticultural plants (subsection 40-525(2) and 40-555(3) of the ITAA 1997) and satisfied conditions for deductions.
In addition, the taxpayer incurred capital expenditure on landcare, a mains electricity connection and a telephone line that qualified for deductions under Subdivision 40-G of the ITAA 1997.
The taxpayer sold the land and the depreciating assets to another taxpayer.
Reasons for Decision
A taxpayer must make a balancing adjustment to their assessable income if a balancing event occurs for a depreciating asset that a taxpayer holds and the decline in value of the asset was worked out under Subdivision 40-B of the ITAA 1997.
Subsection 40-50(1) of the ITAA 1997 provides that Subdivision 40-B of the ITAA 1997 does not apply where a taxpayer can work out the decline in value of a depreciating asset under Subdivision 40-F of the ITAA 1997 (primary production depreciating assets) or deduct an amount for capital expenditure under Subdivision 40-G of the ITAA 1997 (capital expenditure for primary producers and other landholders). This is because subsection 40-50(1) of the ITAA 1997 gives precedence for the deduction to Subdivisions 40-F and 40-G of the ITAA 1997 over Subdivision 40-B of the ITAA 1997. Therefore, a balancing adjustment is not required under section 40-285 of the ITAA 1997 as the decline in value of these depreciating assets and the deduction for capital expenditure is not worked out under Subdivision 40-B of the ITAA 1997.
While the sale of the assets cannot result in a balancing adjustment, the sale may result in a capital gain or a capital loss under Part 3-1 of the ITAA 1997.
Date of decision: 25 August 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
subsection 40-50(1)
section 40-285
subsection 40-515(1)
subsection 40-515(2)
subsection 40-555(2)
subsection 40-555(3)
Subdivision 40-B
Subdivision 40-F
Subdivision 40-G
Part 3-1
ATO ID 2003/792
Keywords
Disposal of assets
Balancing adjustments
Balancing adjustment event
Uniform capital allowances system
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 25 August 2003 | Original statement |
| 23 December 2005 | Archived |