ATO Interpretative Decision

ATO ID 2003/110

general

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does a balancing adjustment event occur for a depreciating asset under paragraph 40-295(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) on the theft of the asset?

Decision

No. The theft of a depreciating asset does not, of itself, constitute a balancing adjustment event occurring for the asset under paragraph 40-295(1)(a) of the ITAA 1997.

Facts

The taxpayer owned a depreciating asset at the time it was stolen.

The taxpayer used the asset wholly for a taxable purpose.

The asset was insured against the event of theft.

Reasons for Decision

Subsection 40-295(1) of the ITAA 1997 states that a balancing adjustment event occurs for a depreciating asset if:

a)

you stop holding the asset,

b)

you stop using it, or having it installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again, or

c)

you have not used it and:

i)

if you have had it installed ready for use - you stop having it so installed, and

ii)

you decide never to use it.

For a balancing adjustment event to occur for a depreciating asset under paragraph 40-295(1)(a) of the ITAA 1997, the taxpayer must stop holding the asset. The taxpayer is the legal owner of the asset and, therefore, a holder of it under Item 10 of the table in section 40-40 of the ITAA 1997. The taxpayer does not cease to be the asset's legal owner even though they have lost immediate physical possession of it. The taxpayer retains legal title to the asset while it remains stolen. This means that the theft of a depreciating asset does not, of itself, cause a balancing adjustment event to occur for the asset under paragraph 40-295(1)(a) of the ITAA 1997.

A balancing adjustment event would occur for a stolen depreciating asset under paragraph 40-295(1)(a) of the ITAA 1997 if, for example:

­

an insurance company took legal title to the asset on settling the taxpayer's claim for its theft,

­

the asset is recovered by the taxpayer who then disposes of it, or

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because, in each case, the taxpayer ceases to hold the asset.

Amendment History

Year of income:  Year ended 30 June 2002

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

Related ATO Interpretative Decisions
ATO ID 2002/782 ATO ID 2003/111 ATO ID 2003/112

Keywords
Losses from fraud, theft & embezzlement
Capital Allowances CoE
Balancing adjustment event
Hold a depreciating asset

Siebel/TDMS Reference Number:  3126004

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  15 March 2003

ISSN: 1445-2782