ATO ID 2002/617: Uniform Capital Allowances - Balancing adjustment on the death of the owner of a depreciating asset.
Date of decision: 5 April 2002
Year of income: 30 June 2002
Business line: Small Business/Individual Taxpayers

Issue
What is the balancing adjustment amount under section 40-285 of the Income Tax Assessment Act 1997 (ITAA 1997) for the owner of a depreciating asset when the asset passes to the legal personal representative on the death of the owner?

Decision
The balancing adjustment amount worked out under section 40-285 of the ITAA 1997 is nil.

Facts
The taxpayer, a sole trader, purchased a depreciating asset costing $20,000 on 28 August 2001. The decline in value of the asset was worked out under Subdivision 40-B of the ITAA 1997. The taxpayer used the asset solely for the purpose of producing assessable income. The taxpayer died on 28 February 2002 and the asset passed to the legal personal representative. At the time of death, the asset's adjustable value was $17,000.

Reasons for decision
Summary: The taxpayer stopped holding the asset at the time of their death. Accordingly, a balancing adjustment event occurred for the asset under paragraph 40-295(1)(a) of the ITAA 1997. To work out the balancing adjustment amount, section 40-285 of the ITAA 1997 requires a comparison of the asset's termination value and its adjustable value just before the balancing adjustment event occurred. If the termination value is more than the adjustable value, the excess is included in the assessable income under subsection 40-285(1) of the ITAA 1997 as an assessable balancing adjustment amount. If the termination value is less than the adjustable value, the difference can be deducted under subsection 40-285(2) of the ITAA 1997 as a deductible balancing adjustment amount. When the taxpayer stopped holding the asset and the asset passed to the legal personal representative, item 9 of the termination value table in subsection 40-300(2) of the ITAA 1997 provides that the termination value of the asset is its adjustable value at the time of death (ie $17,000). As the termination value and the adjustable value are the same, the balancing adjustment amount is nil. Consequently, there is no amount to be either included in assessable income under subsection 40-285(1) of the ITAA 1997 or deducted under subsection 40-285(2) of the ITAA 1997. There are no capital gains tax implications for the asset because:

Legislative references: Income Tax Assessment Act 1997 Division 40 Subdivision 40-B section 40-285 subsection 40-285(1) subsection 40-285(2) paragraph 40-295(1)(a) item 9, subsection 40-300(2) section 104-235 subsection 118-24(1) subsection 118-24(2)
Related ATO interpretative decisions: ATO ID 2002/618 | ATO ID 2002/619
Subject references: Balancing adjustment event Termination value Uniform capital allowances system