ATO Interpretative Decision

ATO ID 2002/618

Income Tax

Uniform Capital Allowances - Depreciating asset passes from Legal Personal Representative (LPR) to a beneficiary
FOI status: may be released

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Status of this decision: Decision Current

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

What is the amount of the balancing adjustment under subsection 40-285(1) Income Tax Assessment Act 1997 (ITAA 1997), as a result of a depreciating asset of a deceased person passing from that person's LPR to a beneficiary?

Decision

The amount of the balancing adjustment, worked out under subsection 40-285(1) of the ITAA 1997, is $4,000.

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. Mr A used the asset solely for the purpose of producing assessable income. Mr A died on 28 February 2002 and the asset passed to the LPR. At the time of death its adjustable value was $17,000. The LPR passed the asset to a beneficiary of A's estate. The market value of the asset at the time was $21,000. The LPR did not use the asset, or have it installed ready for use, for any purpose.

Reasons for Decision

The LPR ceased to hold the asset at the time the asset passed to the beneficiary. 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 comparison of asset's termination value with its adjustable value just before the event occurred.

The LPR did not use the asset, or have it asset installed ready for use, for any purpose. Paragraph 40-85(1)(a) of the ITAA 1997 provides that the adjustable value of the depreciating asset in the hands of the LPR is its cost.

Where a depreciating asset of a deceased person passes to the person's LPR, item 12 of the table in subsection 40-180(2) of the ITAA 1997 specifies that the first element of the cost of the asset in the hands of the LPR is the asset's adjustable value at the time of death (i.e., $17,000).

This passing of the asset from the LPR to the beneficiary was not a dealing between persons at arm's length. Accordingly, item 6 of the termination value table in subsection 40-300(2) of the ITAA 1997 specifies that the termination value of the depreciating asset is its market value at the time (ie. $21,000). The difference between the termination value of $21,000 and the adjustable value of $17,000 (i.e., $4,000) is included in assessable income under subsection 40-285(1) of the ITAA 1997.

There are no capital gains tax implications for the asset as a result of its passing, 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, or would have been worked out under that Division had you used it.

•

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 event K7 (section 104-235 of the ITAA 1997) happening.

•

CGT event K7 (section 104-235 of the ITAA 1997) does not apply:

-: the legal personal representative did not use the asset, or have it installed ready for use, for any purpose;
-: Mr A had used the asset solely for the purpose of producing assessable income.

•

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: 05 April 2002

Year of income: 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Subdivision 40-B
   paragraph 40-85(1)(a)
   item 12, subsection 40-180(2)
   paragraph 40-195(1)(a)
   section 40-285
   subsection 40-285(1)
   subparagraph 40-285(1)(a)(ii)
   subsection 40-285(2)
   subparagraph 40-285(2)(a)(ii)
   paragraph 40-295(1)(a)
   item 2, subsection 40-300(2)
   section 104-235
   subsection 118-24(1)

Related ATO Interpretative Decisions
ATO ID 2002/617 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 2002	Original statement
	13 February 2015	Updated statement

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