ATO Interpretative Decision
ATO ID 2002/1038 (Withdrawn)
Income Tax
Division 40: balancing adjustment amount - partnership assetFOI status: may be released
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This ATO ID is a straight application of the law and does not contain an interpretative decision.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will a balancing adjustment amount, as worked out under section 40-285 of the Income Tax Assessment Act 1997 (ITAA 1997), that arises on the disposal of a depreciating asset held by the leasing partnership be taken into account in calculating the net income or loss (as the case may be) of the partnership?
Decision
Yes, any balancing adjustment amount (as worked out under section 40-285 of the ITAA 1997) that arises on the disposal of an asset held by the partnership will be taken into account by the partnership.
Facts
A partnership purchased various depreciating assets under a manufacture and supply agreement. The partnership immediately leased the assets on commercial terms to an unrelated entity that had been awarded a franchise by another unrelated party to operate a business in which the assets are used. As part of an arrangement with the partnership, the franchisor was granted a call option over the leased assets so that, on exercising the option in certain circumstances to purchase the assets, the franchisor can make the assets available to a subsequent franchisee.
Reasons for Decision
A disposal by sale of the depreciating assets held by the leasing partnership to the franchisor pursuant to the franchisor's exercise of the call option constitutes a balancing adjustment event occurring for the assets. A balancing adjustment event will occur because the holder of the depreciating asset, the leasing partnership, will stop holding the asset (paragraph 40-295(1)(a) of the ITAA 1997). Any balancing adjustment amount that arises from such an event occurring will, consequently, need to be dealt with by the partnership as the holder of the assets.
A balancing adjustment amount is included in the assessable income of the leasing partnership (the former holder of the depreciating assets) if the termination value of an asset is more than its adjustable value just before the balancing adjustment event occurred (subsection 40-285(1) of the ITAA 1997). A balancing adjustment amount is allowed as a deduction from the assessable income of the leasing partnership if an asset's termination value is less than its adjustable value just before the balancing adjustment event occurred (subsection 40-285(2) of the ITAA 1997). The termination value of a depreciating asset is worked out as at the time the balancing adjustment event occurs (subsection 40-300(1) of the ITAA 1997).
Date of decision: 12 July 2002Year of income: 2000
Legislative References:
Income Tax Assessment Act 1997
section 40-285
subsection 40-285(1)
subsection 40-285(2)
paragraph 40-295(1)(a)
subsection 40-300(1)
Keywords
Balancing adjustment amount
Balancing adjustment event
Depreciating asset
Division 40
Partnership asset
ISSN: 1445-2782
| Date: | Version: | |
| 12 July 2002 | Original statement | |
| You are here | 26 August 2005 | Archived |