ATO ID 2002/1017: Capital Allowances - Balancing adjustment event
Date of decision: 29 August 2002
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Does a balancing adjustment event occur for a depreciating asset under section 40-295 of the Income Tax Assessment Act 1997 (ITAA 1997) where the asset is transferred from Club A to Club B upon the amalgamation of two clubs?

Decision
Yes. A balancing adjustment event occurs for a depreciating asset under paragraph 40-295(1)(a) of the ITAA 1997 as Club A has stopped holding the asset. Club A stops holding the asset when it is transferred to Club B.

Facts
Club A and Club B are companies limited by guarantee and both are registered under the Registered Clubs Act 1976 (NSW) . Club A is amalgamating with Club B within the terms of paragraph 17A(1)(b) of the Registered Clubs Act 1976 (NSW) which states that a reference to the amalgamation of 2 or more registered clubs is a reference to an amalgamation effected by the continuation of one of those clubs and the dissolution of the other club or clubs. As a result of the amalgamation Club A is to be dissolved and Club B is to take over its assets. Club B had previously loaned an amount to Club A. The loan was secured by mortgage and made on condition that Club A would repay the loan within a period of 12 months or amalgamate with Club B. The loan was not repayable if the clubs amalgamated. The members of both clubs voted at a general meeting to amalgamate. Club A was placed in voluntary liquidation. The liquidator transferred the assets of Club A to Club B.

Reasons for decision
Summary: Paragraph 40-295(1)(a) of the ITAA 1997 provides that a balancing adjustment event occurs when an asset stops being held by an entity. The table in section 40-40 of the ITAA 1997 sets out who holds a depreciating asset. Item 10 of that table provides that the owner, or if there is both a legal and equitable owner, the legal owner of a depreciating asset is the holder of the asset. When the depreciating asset is transferred from club A to club B by the liquidator, club A is no longer the owner of the asset and has therefore stopped holding the asset and a balancing adjustment event therefore occurs in terms of paragraph 40-295(1)(a) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 40-40 paragraph 40-295(1)(a)
Related ATO interpretative decisions: ATO ID 2002/1016 | ATO ID 2002/1018
Subject references: Balancing adjustment event Depreciating assets