ATO Interpretative Decision

ATO ID 2002/617

Income Tax

Uniform Capital Allowances - Balancing adjustment on the death of the owner of a depreciable asset.
FOI status: may be released

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Status of this decision: Decision Current

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

What is the amount of the balancing adjustment under section 40-285 of the Income Tax Assessment Act 1997 (ITAA 1997) for a depreciating asset as a result of the death of the asset's owner?

Decision

The amount of the balancing adjustment worked out under section 40-285 of the ITAA 1997 is nil.

Facts

Mr A (a sole trader) purchased a depreciating asset costing $20,000 on 28 August 2001. The decline in value of the asset was worked out under Subdivision 40-B of the ITAA 1997. The asset was used solely for the purpose of producing assessable income. Mr A died on 28 February 2002 and the asset passed to the legal personal representative. The asset's adjustable value was $17,000.

Reasons for Decision

Mr A ceased to hold the asset at the time of death. Accordingly, a balancing adjustment event occurred for the asset under paragraph 40-295(1)(a) of the ITAA 1997. Section 40-285 of the ITAA 1997 requires a comparison of the asset's termination value with its adjustable value just before the time of death.

In the case of the death of a taxpayer, item 9 of the termination value table in subsection 40-300(2) of the ITAA 1997 provides that the termination value of the depreciating asset is its adjustable value at the time (i.e., $17,000). As the termination value and the adjustable value are the same, there is no amount to be either included in assessable income under subsection 40-285(1) of the ITAA 1997 or deducted under subsection 40-285(2) of the ITAA 1997.

There are no capital gains tax implications for the asset, as follows:

•: Subsection 118-24(1) of the ITAA 1997 provides that any capital gain or loss that you make from a CGT event, that is also a balancing adjustment event that happens to a depreciating asset you held, is to be disregarded if the decline in value of the asset was worked out under Division 40 of the ITAA 1997.
•: Subsection 118-24(2) of the ITAA 1997 provides exclusions to the rules in subsection 118-24(1), including where a taxpayer makes a capital gain or capital loss from CGT even K7 (section 104-235 of the ITAA 1997) happening. CGT event K7 does not apply, as A used the asset solely for a taxable purpose. The other exclusions in subsection 118-24(2) of the ITAA 1997 also do not apply.

Notation:

This ATO ID has been amended by rewording the last two paragraphs in order to clarify the meaning.

Date of decision: 5 April 2002

Year of income: 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Division 40
   section 40-285
   subsection 40-285(1)
   subsection 40-285(2)
   paragraph 40-295(1)(a)
   item 9, subsection 40-300(2)
   section 104-235

Related ATO Interpretative Decisions
ATO ID 2002/618 ATO ID 2002/619

Keywords
Uniform capital allowances system
Balancing adjustment event
Termination value

Siebel/TDMS Reference Number: DW367697

Business Line: Small Business/Individual Taxpayers

Date of publication: 31 May 2002

ISSN: 1445-2782

history

	Date:	Version:
You are here →	5 April 2001	Original statement
	13 February 2015	Updated statement

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