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ATO Interpretative Decision

ATO ID 2004/317 (Withdrawn)

Income Tax
Capital Allowances: involuntary disposal - two or more replacement assets

Attention This ATO ID is withdrawn. Guidance on this issue can be found in Guide to depreciating assets 2016 (NAT 1996) and Depreciating assets (QC 50168).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 17 November 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

If the taxpayer has two or more qualifying replacement assets, does subsection 40-365(6) of the Income Tax Assessment Act 1997 (ITAA 1997) require the taxpayer to apportion an assessable balancing adjustment amount among all the replacement assets in proportion to their cost?

Decision

Yes. Subsection 40-365(6) of the ITAA 1997 requires the taxpayer to apportion an assessable balancing adjustment amount among all the replacement assets in proportion to their cost.

Facts

The taxpayer was required to supply their own tools to be used in their employment. The tools were stolen from the place of employment where they were stored.

The taxpayer received an insurance payout for the loss of the tools. An amount has been included in assessable income as a result of the calculation of the balancing adjustment amount for the stolen tools.

The taxpayer purchased numerous tools to replace the stolen tools. The conditions set out in subsections 40-365(2), 40-365(3) and 40-365(4) of the ITAA 1997 have been satisfied.

Reasons for Decision

Section 40-365 of the ITAA 1997 allows a taxpayer to exclude some or all of a balancing adjustment amount from their assessable income where a depreciating asset is lost or destroyed. An amount may be excluded to the extent that the taxpayer chooses to apply the amount in reduction of:

·
  the cost of the replacement asset, for the income year in which its start time occurs; or
·
  the base value of the replacement asset, for a later year - that is, in reduction of the sum of its opening adjustable value for that year and any amount included in the second element of its cost for that year.

Subsection 40-365(6) of the ITAA 1997 provides that if the choice covers two or more replacement assets, the amount must also be apportioned between those items in proportion to their cost.

The Explanatory Memorandum for the New Business Tax System (Capital Allowances) Act 2001 states at paragraph 3.84:

   If a taxpayer is making the choice for 2 or more replacement assets, he or she must apportion the amount covered by the choice between those items in proportion to their cost. This limits arbitrage from, for instance, choosing replacement asset treatment for as much of the amount as can be allocated to very long effective life assets.

Subsection 40-365(6) of the ITAA 1997 effectively prevents the application of assessable balancing adjustment amount in reduction of the cost or opening adjustable value of selected replacement assets. The subsection requires the assessable balancing amount to be apportioned among all the qualifying replacement assets in proportion to their cost.

In this case, as the taxpayer is making the choice for two or more qualifying replacement assets, the assessable balancing adjustment amount must be apportioned among all of the qualifying replacement assets in proportion to their cost.

Date of decision: 17 February 2004

Year of income:Year ended 30 June 2003

Legislative references:
Income Tax Assessment Act 1997
   section 40-365
   subsection 40-365(2)
   subsection 40-365(3)
   subsection 40-365(4)
   subsection 40-365(6)

Related ATO Interpretative Decisions
ATO ID 2002/782
ATO ID 2003/110
ATO ID 2003/112

Keywords
Assessable balancing adjustment amount
Involuntary disposal

Siebel/TDMS reference number: 3846099

Business line: Small Business/Individual Taxpayers

Date of publication: 8 April 2004

ISSN: 1445-2782

ATOID 2004-317W history   Top  
   Date   Version 
   17 February 2004   Original statement   
 You are here ®  17 November 2017   Withdrawn   


 


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