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ATO Interpretative Decision

ATO ID 2003/457 (Withdrawn)

Income Tax

Capital Allowances: balancing adjustment event for a depreciating asset never used
FOI status: may be released
  • This ATO ID is withdrawn and is replaced by ATO ID 2005/190
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) where a taxpayer purchases a depreciating asset, to be used in their business, that fails to operate from its inception?

Decision

Yes. A balancing adjustment event occurs for the depreciating asset under paragraph 40-95(1)(c) of the ITAA 1997 as taxpayer has decided never to use the depreciating asset and it has never been installed ready for use.

Facts

The taxpayer purchased a depreciating asset to be used in their business. The depreciating asset was to be used entirely for a taxable purpose.

The depreciating asset failed to work from its inception. Attempts to repair the depreciating asset were unsuccessful and the supplier refused to provide a replacement. The matter was then taken to Court and the taxpayer was successful, but the supplier went into liquidation before the taxpayer could enforce the Court's findings. The taxpayer then abandoned the depreciating asset.

Reasons for Decision

Paragraph 40-295 (1)(c) of the ITAA 1997 provides that a balancing adjustment event occurs for a depreciating asset if 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.

There is no requirement that the depreciating asset be sold or otherwise disposed of. It is sufficient that it will never be used.

When the depreciating asset was purchased by the taxpayer, it failed to operate from its inception. As the taxpayer has not used the asset and has decided never to use it, a balancing adjustment event occurs for the depreciating asset under paragraph 40-295(1)(c) of the ITAA 1997.

Date of decision:  11 April 2003

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Paragraph 40-295(1)(c)

Keywords
Balancing adjustment event
Depreciating assets
Start time
Uniform capital allowances system

Business Line:  Effective Life & Capital Allowances Centre of Expertise

Date of publication:  20 June 2003

ISSN: 1445-2782

history
  Date: Version:
  11 April 2003 Original statement
You are here 1 July 2005 Archived

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