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Edited version of your private ruling
Authorisation Number: 1012486496808
Ruling
Subject: Termination value of depreciable asset
Question
Do you have to use the market value of a depreciated vehicle as the termination value, to calculate the balancing adjustment amount when you transfer the vehicle into an associate?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
A vehicle is registered to the business entity.
The vehicle has been used 100% for business use and has been treated as a small business entity depreciating asset, in a general pool.
The vehicle will no longer be used in the business and is being transferred to an individual who is an associate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 328-D
Income Tax Assessment Act 1997 Section 328-185
Income Tax Assessment Act 1997 Section 328-200
Income Tax Assessment Act 1997 Section 328-215
Income Tax Assessment Act 1997 Section 40-300
Reasons for decision
The rules regarding the disposal of a depreciating asset that was depreciated by a business under the specific small business entity laws are set out in Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997).
In effect when a depreciable item is disposed of there is a balancing adjustment event and the effect is to take into account the amount that was received on disposal. Previously you have been claiming deductions for depreciation in a general pool for this item. When the item is disposed of, we have to work out what the 'termination value' is and this amount is then deducted from the pool balance as the adjustment.
The termination value is defined within the legislation for different situations, at section 40-300 of the ITAA 1997. Where the disposal is a non-arms length arrangement, the termination value is defined as the market value.
Therefore when you transfer the vehicle to an associate you will have to reduce your small business entity general pool value by this market value amount (sections 328-200 and 328-215 of the ITAA 1997.
If the depreciable asset was not in a small business entity general pool, the market value would have to be included in the assessable income of the entity.
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