ATO Interpretative Decision

ATO ID 2004/509

Income Tax

Simplified Tax System (STS): STS pools and legal personal representatives of a deceased STS taxpayer
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

For the purposes of subsection 328-220(1) of the Income Tax Assessment Act 1997 (ITAA 1997) can the legal personal representative (LPR) of a deceased STS taxpayer continue to calculate deductions for depreciating assets in relation to an STS pool formerly held by the STS taxpayer?

Decision

No. For the purposes of subsection 328-220(1) of the ITAA 1997, the legal personal representative of a deceased STS taxpayer does not continue to calculate deductions for depreciating assets in relation to the STS general or long life pool.

Facts

Taxpayer X (a sole trader) dies in an income year. Taxpayer X elects to be in the STS in the income year of death. The decline in value of assets used in the carrying on of the business in that year will be worked out under Subdivision 328-D of the ITAA 1997. The business assets were used solely for the purpose of producing assessable income. The assets are allocated to a general or long life pool. There is a positive closing balance in the pool when the STS taxpayer dies.

Reasons for Decision

The legal personal representative, as defined in section 995-1 of the ITAA 1997, starts to hold the asset at the time of the STS taxpayer's death. The death of the STS taxpayer means that the STS taxpayer ceases to hold the assets in the STS pool, which triggers a balancing adjustment event per 40-295 of the ITAA 1997. The continued application of Subdivision 328-D of the ITAA 1997 described in subsection 328-220(1) of the ITAA 1997 will only occur where the taxpayer continues to exist after they have stopped being an STS taxpayer.

As the LPR is a new entity, that begins to hold the asset in the pool at the time of death of the STS taxpayer, it is not able to continue calculating deductions for depreciating assets from the STS pool.

The LPR will calculate its deductions for the decline in value according to Division 40 of the ITAA 1997. Item 12 in the table in subsection 40-180(2) of the ITAA 1997 states that where a balancing adjustment event happens to a depreciating asset because a person dies and the asset devolves to you as the person's legal personal representative, the cost of the asset is the adjustable value of the depreciating asset on the day the person dies.

The adjustable values of the assets contained in the STS pool will be the same as the closing balance of the STS pool at the day of death of the STS taxpayer.

Section 40-195 of the ITAA 1997 states that where a taxpayer pays an amount for two or more things that include at least one depreciating asset, or that include a contribution to bringing a depreciating asset to its present condition and location, the taxpayer takes into account as part of its cost only that part of what was paid as is reasonably attributable to that asset.

This means that the LPR will be required to take into account that much of the closing value of the pool as is reasonably attributable to each asset in the STS pool.

Date of decision: 8 June 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 40-195
   section 40-180
   section 328-170

Related ATO Interpretative Decisions
ATO ID 2002/618
ATO ID 2002/818

Keywords
Capital allowances for STS taxpayers
Cost of a depreciating asset
First element of cost
Uniform capital allowances system

Business Line: Business and Personal Taxes Centre of Expertise

Date of publication: 25 June 2004

ISSN: 1445-2782

history

	Date:	Version:
You are here →	8 June 2004	Original statement
	30 November 2007	Archived

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