ATO Interpretative Decision

ATO ID 2003/112

Income Tax

Capital Allowances: balancing adjustment event on the theft of a depreciating asset
FOI status: may be released

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does a balancing adjustment event occur for a depreciating asset under paragraph 40-295(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) on the theft of the asset?

Decision

No. The theft of a depreciating asset does not, of itself, constitute a balancing adjustment event occurring for the asset under paragraph 40-295(1)(b) of the ITAA 1997.

Facts

The taxpayer owned a depreciating asset at the time it was stolen. The taxpayer used the asset wholly for a taxable purpose. The asset was insured against the event of theft.

Reasons for Decision

Subsection 40-295(1) states that a balancing adjustment event occurs for a depreciating asset if:

a)

you stop holding the asset,

b)

you stop using it, or having it installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again, or

c)

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.

For a balancing adjustment event to occur for a depreciating asset under paragraph 40-295(1)(b) of the ITAA 1997, the taxpayer must stop using the asset (or having it installed ready for use) for any purpose and expect never to use it (or have it installed ready for use) again. While the theft of a depreciating asset would prevent immediate use of the asset by the taxpayer, there must also be an expectation that the asset will never be used (or installed ready for use) again. This requires an assessment of the prospects of recovery of the asset and of the asset being in a state capable of being used (or installed ready for use) again. The assessment must be carried out on a case by case basis. This means that the theft of a depreciating asset does not, of itself, immediately cause a balancing adjustment event to occur for the asset under paragraph 40-295(1)(b) of the ITAA 1997.

Even though a balancing adjustment may occur for a stolen asset under paragraph 40-295(1)(b) of the ITAA 1997 the taxpayer may remain the legal owner of the asset and, therefore, a holder of it under Item 10 of the table in section 40-40 of the ITAA 1997.

Amendment History

Date of amendment	Part	Comment
13 June 2014	Related ATO Interpretative Decisions	Updated.

Date of decision: 26 November 2002

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-40
   subsection 40-295(1)
   paragraph 40-295(1)(b)

Related ATO Interpretative Decisions
ATO ID 2002/782
ATO ID 2003/110
ATO ID 2003/111

Keywords
Losses from fraud, theft & embezzlement
Capital Allowances CoE
Balancing adjustment event
Hold a depreciating asset

Siebel/TDMS Reference Number: 3126004; 1-B2ONJIR

Business Line: Private Groups and High Wealth Individuals

Date of publication: 15 March 2003
Date reviewed: 19 April 2017

ISSN: 1445-2782

history

	Date:	Version:
	26 November 2002	Original statement
You are here	13 June 2014	Updated statement

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