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Edited version of private advice
Authorisation Number: 1012652545927
Ruling
Subject: Balancing adjustment
Question 1
Are you entitled to a deduction for the balancing adjustment amount of your car?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You were involved in a car accident and the car was written off.
You were not insured and only received an amount from selling parts from the car.
The closing written down value in the depreciation schedule was greater than the amount you received from selling parts.
Car expenses had been claimed using the log book method and there was some private use of the car.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 40-D
Income Tax Assessment Act 1997 Subsection 40-285(2)
Reasons for decision
Subdivision 40-D of the Income Tax Assessment Act 1997 (ITAA 1997) states that you may have to make an adjustment to your taxable income if you stop holding or using a depreciating asset. This adjustment is known as a balancing adjustment. The adjustment is generally based on the difference between the actual value of the asset when you stop holding it and its adjustable value.
Subsection 40-285(2) of the ITAA 1997 provides that you can deduct an amount if the assets termination value (which is usually the proceeds from the sale of the asset) is less than its adjustable value at the time of the balancing event.
However, you are only eligible for a deduction for the income producing portion of that loss. If you use the logbook method when claiming car expenses, your balancing adjustment amount needs to be reduced by the amount that is attributable to the use of the car for other than a taxable purpose.
In your case, you acquired a car that was used partly for work purposes. You were involved in an accident and the car was written off. You received an amount from selling the parts, incurring a loss.
As the termination value of the car was less than its adjustable value when you stopped holding the vehicle, you are entitled to claim a deduction under Division 40 of the ITAA 1997 for the balancing adjustment amount, reduced by any amount that is attributable to the private use of the car.