| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1012460953322
Ruling
Subject: Capital gains tax
Question 1
Will the proceeds from the sale of you ownership interest in machinery, vehicles and trading stock be subject to capital gains tax?
Answer
No.
Question 2
Will the proceeds from the sale of you ownership interest in machinery, vehicles and trading stock qualify for the 50% CGT discount?
Answer
No.
Question 3
Will the proceeds from the sale of you ownership interest in machinery, vehicles and trading stock qualify for the small business capital gains tax concessions?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You are a partner in a primary production business.
You own a property used by the partnership.
The primary production partnership business is a small business for the purposes of the CGT small business concessions.
The partnership owns machinery and vehicles which have been held as depreciating assets. These assets have a business use percentage of 100%.
The partnership also owns trading stock.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 70-90(1)
Income Tax Assessment Act 1997 section 115-10.
Reasons for decision
Question 1
An entity will make a capital gain or capital loss if a CGT event happens to a CGT asset you own. The most common CGT event happens if you dispose of a CGT asset to anther entity.
Machinery and vehicles
Under the uniform capital allowance (UCA) system, a capital gain or capital loss from the disposal of a depreciating asset will only arise to the extent that you have used the asset for a non-taxable purpose (for example, used for private purposes).
In this case, the machinery and vehicles were held as depreciating assets and used wholly for taxable purposes. Therefore, upon disposing of these depreciating assets there will be no capital gain or loss.
Trading stock
Subsection 70-90(1) of the ITAA 1997 states that if you dispose of an item of your trading stock outside the ordinary course of a business that you are carrying on; and of which the item is an asset; your assessable income includes the market value of the item on the day of the disposal.
In this case, you intend to dispose of the trading stock upon the cessation of the primary production business. As the proceeds are assessable as income, the CGT provisions do not apply.
Additional information
The disposal of a depreciating asset is a balancing adjustment event. You must compare the asset's termination value with its adjustable value at that time. If the two figures are different, the difference is the balancing adjustment amount.
Generally, the termination value is the amount you receive for the asset on its disposal. It also includes the market value of any non-cash benefits such as goods or services you receive for the asset. The termination value is reduced to exclude GST payable if the disposal is a taxable supply.
A depreciating asset's adjustable value at a particular time is generally its cost less its decline in value up to that time.
The balancing adjustment amount is applied as follows:
o if the termination value of a depreciating asset is more than its adjustable value, the difference is included in your assessable income
o if the termination value is less than its adjustable value, the difference is an allowable deduction.
The balancing adjustment amount is applied in the year the balancing adjustment event occurs.
As discussed in question 1, if the depreciating asset is used wholly for a taxable purpose, the full balancing adjustment amount is applied. No capital gain or capital loss arises.
Example:
John operates a small printing business and decides to sell an old photocopier for $2,750. Assuming the sale is a taxable supply, the termination value is reduced by the $250 GST payable. This means that the reduced termination value of the photocopier is $2,500 ($2,750 less $250).
If at the time of sale the adjustable value of the photocopier is $2,000, John must include $500 in his assessable income ($2,500 less $2,000).
If at the time of sale the adjustable value of the photocopier is $2,700, John would claim a deduction of $200 ($2,700 less $2,500).
For more information on balancing adjustments, please refer to www.ato.gov.au.
Question 2
Under section 115-10 of the Income Tax Assessment Act 1997 (ITAA 1997), to qualify for the 50% general discount a capital gain must be made by an individual, a complying superannuation entity, a trust or a life insurance company. The capital gain must result from a capital gains tax (CGT) event happening after 11:45am on 21 September 1999 and must not have an indexed cost base. Also, the gain must result from a CGT event happening to an asset that was acquired at least 12 months before the CGT event.
As discussed in question 1, the CGT provisions do not apply to the disposal of machinery, vehicles and trading stock. Therefore, you are not entitled to the 50% general discount.
Question 3
As discussed in question 1, the CGT provisions do not apply to the disposal of machinery, vehicles and trading stock. Therefore, you are not entitled to the small business concessions.