| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012122222517
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Subject: Application of Division 58 of the Income Tax Assessment Act 1997 (ITAA 1997)
Question 1
Does Division 58 of the ITAA 1997 apply to the purchase of assets?
Answer
No.
This ruling applies for the following periods:
The scheme commences on:
Relevant facts and circumstances
Company X is a private company registered under the Corporations Act 2001.
Under a sale and purchase agreement Company X acquired assets from an exempt entity.
The business carried on by the exempt entity was not the same as the business being carried on by Company X at the time the assets were acquired.
GST was payable on the acquisition.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 58-5(1)
Income Tax Assessment Act 1997 subsection 58-5(4)
Income Tax Assessment Act 1997 section 58-10(1)
Income Tax Assessment Act 1997 paragraph 58-10(2)
Reasons for decision
Subsection 58-5(1) of the ITAA 1997 provides that Division 58 of the ITAA 1997 applies in two situations, one of which is an 'asset sale situation'. Subsection 58-5(4) of the ITAA 1997 provides that an asset sale situation is one where a taxable entity acquires from an exempt entity a depreciating asset; and the asset is acquired in connection with the acquisition of a business from the exempt entity. That is, by reason of these two subsections, there must be an acquisition from the exempt entity of a business, as well as an acquisition of the depreciating asset.
Section 58-10 of the ITAA 1997 provides the circumstance in which a depreciating asset is taken to have been acquired in connection with the acquisition of a business.
Subsection 58-10(1) of the ITAA 1997 provides as follows:
A *depreciating asset is taken to be acquired in connection with the acquisition of a *business from the Commonwealth, the State, the Territory or the *exempt entity if and only if:
(a) the asset was used by the Commonwealth, the State, the Territory or the exempt entity in carrying on a business and the purchaser or another entity uses the asset in carrying on the business; or
(b) subsection (2) applies.
Based on the facts provided paragraph 58-10(1)(a) of the ITAA 1997 does not apply in this case because the assets were used by the exempt entity in carrying on its business while Company X did not use the assets in carrying on that business.
As paragraph 58-10(1)(a) of the ITAA 1997 does not apply, it is necessary to examine whether paragraph 58-10(1)(b) of the ITAA 1997 (that is, subsection 58-10(2) of the ITAA 1997) applies.
Subsection 58-10(2) of the ITAA 1997 provides as follows:
This subsection applies if:
(a) the asset was used by the Commonwealth, the State, the Territory or the*exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a *business by the Commonwealth, the State, the Territory or the exempt entity and the asset is used by the purchaser or another entity in performing those functions or engaging in those activities as part of carrying on a business; or
(b) all of these subparagraphs apply:
Based on the facts provided, the exempt entity used the assets in performing functions but Company X did not use the assets in performing those same functions or engaging in those same activities as part of carrying on a business. Therefore, paragraph 58-10(2)(a) of the ITAA 1997 does not apply.
Accordingly, Company X did not acquire the assets in connection with the acquisition of a business from the exempt entity. Consequently, Division 58 of the ITAA 1997 does not apply to Company X in using the special rules to calculate deductions for the decline in value of the assets.