ATO Interpretative Decision

ATO ID 2002/1016

Income Tax

Capital Allowances - Termination value
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

What is the termination value of depreciating assets under Subdivision 40-D of the Income Tax Assessment Act 1997 (ITAA 1997) for assets transferred from Club A to Club B upon the amalgamation of two clubs, where a liability to repay an amount to the Club B is terminated.

Decision

The termination value of a depreciating asset under Subdivision 40-D of the ITAA 1997 is the amount taken to be received under item 2 in the table in subsection 40-305(1) of the ITAA 1997. The item specifies that where all or part of a liability to pay an amount is terminated, the termination value is the amount of the liability or part when it is terminated.

Facts

Club A and Club B are companies limited by guarantee and both are registered under the Registered Clubs Act 1976 (NSW).

Club A is amalgamating with Club B within the terms of paragraph 17AB(2)(b) of the Registered Clubs Act 1976 (NSW) which states that a reference to the amalgamation of 2 or more registered clubs is a reference to an amalgamation effected by the continuation of one of those clubs and the dissolution of the other club or clubs.

As a result of the amalgamation Club A is to be dissolved and Club B is to take over its assets.

Club B had previously loaned an amount to Club A. The loan was secured by mortgage and made on condition that Club A would repay the loan within a period of 12 months or amalgamate with Club B. The loan was not repayable if the clubs amalgamated.

The members of both clubs voted at a general meeting to amalgamate.

Club A was placed in voluntary liquidation.

The liquidator transferred the assets of Club A to Club B.

Reasons for Decision

Termination value is worked out as at the time when the balancing adjustment event occurs. It is the amount specified in either subsection 40-300(1) or section 40-305 of the ITAA 1997. Item 2 in the table in subsection 40-305(1) of the ITAA 1997 applies to the circumstances of the transfer of depreciating assets by Club A. The item specifies that the amount taken to have been received where all or part of a liability to pay an amount is terminated is the amount of the liability or part when it is terminated. The transfer of assets to B is a necessary step in the amalgamation that satisfies the condition for non repayment of the contribution.

The termination of the liability to repay the loan relates to more than the transfer of the depreciating assets. In the terms of Item 2 in the table in subsection 40-305(1) of the ITAA 1997 the termination value is the amount of the liability to which the transfer of the depreciating assets relates. That is, the amount of the loan, that no longer has to be repaid, that relates to the asset being transferred.

Taxation Determination TD 98/24 states that the market values of the various components the payment was made for will be an acceptable basis for apportionment where there is no specific allocation in the agreement.

Amendment History

Date of amendment	Part	Comment
8 August 2014	Facts	Removal of reference to repealed paragraph 17A(1)(b) of the Registered Clubs Act 1976 (NSW). Inserted paragraph 17AB(2)(b) of the Registered Clubs Act 1976 (NSW).
	Legislative reference	Included reference to paragraph 17AB(2)(b) of the Registered Clubs Act 1976 (NSW)
	Related ATO Interpretative Decisions	Removal of reference to withdrawn ATO ID 2002/1018

Date of decision: 30 August 2002

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
subsection 40-300(1)
section 40-305

Registered Clubs Act 1976 (NSW)
Paragraph 17AB(2)(b)

Related Public Rulings (including Determinations)
Taxation Determination TD 98/24

Related ATO Interpretative Decisions
ATO ID 2002/1017

Keywords
Balancing adjustment event
Termination value
Depreciating assets

Siebel/TDMS Reference Number: DW326590

Business Line: Private Groups and High Wealth Individuals

Date of publication: 30 October 2002

ISSN: 1445-2782

history

	Date:	Version:
	30 August 2002	Original statement
You are here	8 August 2014	Updated statement
	22 March 2017	Updated statement

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