ATO Interpretative Decision
ATO ID 2003/793 (Withdrawn)
Income Tax
Assessable recoupment on sale of a depreciating assetFOI status: may be released
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This ATO ID is withdrawn as the issue is now dealt with in the Guide to depreciating assets (NAT 1996).This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is an amount a taxpayer received for the sale of a depreciating asset for its market value an assessable recoupment under Subdivision 20-A of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The amount a taxpayer received for the sale of a depreciating asset for its market value is not an assessable recoupment under Subdivision 20-A of the ITAA 1997.
Facts
A taxpayer owned depreciating assets which it used in a business.
The taxpayer incurred expenditure on the initial construction or purchase of the assets. The taxpayer sold the assets to another taxpayer. The sale price was determined by an arm's-length negotiation between the seller and purchaser having regard to the state, condition and commercial value of the items at the time of sale.
Reasons for Decision
Subdivision 20-A of the ITAA 1997 only includes an amount in assessable income if the taxpayer receives the amount as an assessable recoupment. Section 20-20 of the ITAA 1997 provides that an assessable recoupment will arise if:
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- an amount is received as recoupment, and
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- the recoupment is of a loss or outgoing .
Subsection 20-25(1) of the ITAA 1997 generally defines recoupment of a loss or outgoing to include any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery (however described), and a grant in respect of the loss or outgoing.
Subsections 20-25(2), (3) and (4) of the ITAA 1997 extend this general definition to include certain amounts to be taken to have been received as recoupment of a loss or outgoing. To the extent that an amount forms part of the termination value of property, however, it is not recoupment of a loss or outgoing (subsection 20-25(5) of the ITAA 1997).
Subsection 20-30(1) of the ITAA 1997 provides a table of the deductions under the ITAA 1997 for which recoupments are generally assessable under Subdivision 20-A of the ITAA 1997. If the amount received is not a recoupment within the meaning of that term in section 20-25 of the ITAA 1997, or if the recoupment is not of a loss or outgoing, then the amount cannot be an assessable recoupment for the purposes of Subdivision 20-A of the ITAA 1997.
Whether an amount a taxpayer receives for the sale of a depreciating asset they held is recoupment of a loss or outgoing is to be determined by reference to the substance of the transaction between the parties.
In this case, the sale price was determined by an arm's-length negotiation between the seller and purchaser having regard to the state, condition and commercial value of the items at the time of the sale. The fact that it was calculated by reference to the value of what was sold rather than by reference to the owner's expenditure supports the conclusion that it is not in substance recoupment of the owner's expenditure. The sale price can be characterised as the proceeds of the sale of the asset rather than as recoupment of a loss or outgoing of the former owner. This recognises that while any amount received due to the sale of the asset effectively recovers losses or outgoings incurred on the asset, generally, the amount is not compensation for any underlying loss or outgoing. Furthermore, subsection 20-25(5) of the ITAA 1997 provides that to the extent that an amount forms part of the termination value of property it is not recoupment of a loss or outgoing.
The sale price of a depreciating asset that is the market value of the asset is not a grant, reimbursement, refund, indemnity or recovery within the ordinary meanings of those words, in respect of a loss or outgoing in acquiring the asset. Nor is it an amount received by way of a contract of insurance.
Date of decision: 25 August 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 20-20
section 20-25
subsection 20-25(1)
subsection 20-25(2)
subsection 20-25(3)
subsection 20-25(4)
subsection 20-25(5)
subsection 20-30(1)
subdivision 20-A
Related Public Rulings (including Determinations)
Taxation Ruling TR 95/35
Keywords
Recouped expenses
Disposal of assets
Uniform capital allowances system
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 23 June 2003 | Archived |
| 25 August 2003 | Original statement |