ATO Interpretative Decision

ATO ID 2003/556

Income Tax

Capital Allowances: cost of a partnership depreciating asset after a change of interests in the partnership
FOI status: may be released

This version is no longer current. Please follow this link to view the current version.

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

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does item 5 of the table in subsection 40-180(2) of the Income Tax Assessment Act 1997 (ITAA 1997) apply in working out the first element of cost of a depreciating asset when it begins to be held by a new partnership under item 7 of the table in section 40-40 of the ITAA 1997 following a balancing adjustment event under subsection 40-295(2) of the ITAA 1997?

Decision

Yes. Item 5 of the table in subsection 40-180(2) of the ITAA 1997 provides that the first element of cost of the depreciating asset that a new partnership starts to hold is its market value at the time the change referred to in subsection 40-295(2) of the ITAA 1997 occurred.

Facts

Partnership ABC carries on a business. The partnership holds a depreciating asset, which was acquired after 1 July 2001 and is used exclusively for a taxable purpose. In the 2001-02 income year, Partner A decides to leave the partnership. Partner A sells their interest in the partnership to D on 30 June 2002. A new partnership is formed on the same date. Partners B and C each retain their existing interest. Partners B, C and D will continue to use the depreciating asset in their new business.

As there has been a variation in the partnership, rollover relief is available under subsection 40-340(3) of the ITAA 1997 where the transferor (partners A, B and C in partnership ABC) and transferee (partners D, B and C in partnership BCD) jointly choose the rollover. In this case the entities concerned have not elected to choose roll over relief that is available under section 40-340 of the ITAA 1997.

Reasons for Decision

A depreciating asset that is a partnership asset is held by the partnership and not by any particular partner, either alone or jointly with the other partners (item 7 of the table in section 40-40 of the ITAA 1997).

When A sold their interest in the partnership asset to D a balancing adjustment event occurred under 40-295(2) of the ITAA 1997 for partnership ABC, which is taken to have disposed of the asset to partnership BCD.

The first element of cost of a depreciating asset is worked out at the same time when the asset starts to be held. In certain circumstances, the cost is the amount specified in section 40-180 of the ITAA 1997. Otherwise, the cost is worked out under section 40-185 of the ITAA 1997.

As a particular item in the table in subsection 40-180(2) of the ITAA 1997 applies that item will determine the first element of cost of a depreciating asset now held by partnership BCD.

Item 5 of the table in subsection 40-180(2) of the ITAA 1997 provides that the cost of the depreciating asset is its market value at the time the change referred to in subsection 40-295(2) of the ITAA 1997 occurred.

In this case when partnership BCD starts to hold the asset, the first element of cost will be the market value of the depreciating asset on 30 June 2002 under item 5 of the table in subsection 40-180(2) of the ITAA 1997.

Furthermore, as partnership BCD (and not each partner) is the holder of the asset, only the partnership is entitled to determine a cost and effective life and choose a method in order to work out a deduction for the decline in value of the asset under section 40-25 of the ITAA 1997.

Date of decision: 25 June 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-180
   subsection 40-180(2)
   section 40-185
   subsection 40 -295(2)
   section 40-40
   section 40-25
   section 40-340
   subsection 40-340(3)

Related Public Rulings (including Determinations)
Taxation Ruling TR 94/8

Related ATO Interpretative Decisions
ATO ID 2003/555

Keywords
Assessable balancing adjustment amount
Balancing adjustment calculation
Balancing adjustment event
Cost of a depreciating asset
Disposal of assets
Hold a depreciating asset
Partnership asset
Termination value

Business Line: Effective Life and Capital Allowances Centre of Expertise

Date of publication: 11 July 2003

ISSN: 1445-2782

history

	Date:	Version:
You are here →	25 June 2003	Original statement
	26 August 2005	Archived

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).