ATO ID 2004/261: Capital Allowances: balancing adjustment event - demolition of depreciating asset
Date of decision: 24 December 2003
Year of income: Year ended 31 December 2003 Year ended 31 December 2004 Year ended 31 December 2005 Year ended 31 December 2006
Business line: Public Groups and International

Issue
Does a balancing adjustment event occur for the taxpayer's depreciating asset under paragraph 40-295(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) if the taxpayer demolishes the asset?

Decision
Yes. The demolition of the taxpayer's depreciating asset constitutes a balancing adjustment event occurring for the asset under paragraph 40-295(1)(a) of the ITAA 1997 because the taxpayer stops holding the asset.

Facts
The taxpayer affixed to their land a new depreciating asset to replace an older model of the asset. The new asset was installed at a different site on the land to the old asset. The old asset continued to be used until the new one was fully operational. Once replaced, it was necessary for safety reasons to remove the old depreciating asset. Removal of the old asset commenced almost immediately after the new asset became fully operational. Removing the old asset involved some dismantling by the taxpayer and some demolition by an external contractor.

Reasons for decision
Summary: Subsection 40-295(1) of the ITAA 1997 states that a balancing adjustment event occurs for a depreciating asset if: In this case, the taxpayer is the legal owner of the old depreciating asset and a holder of it under item 10 of the table in section 40-40 of the ITAA 1997. The old asset ceased to exist once it was dismantled, demolished and removed in the circumstances described. That is, at the completion of this process, there is no depreciating asset for the taxpayer to hold. In these circumstances, the taxpayer stops holding the old depreciating asset causing a balancing adjustment event to occur for the asset under paragraph 40-295(1)(a) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 40-40 subsection 40-295(1) paragraph 40-295(1)(a)
Related ATO interpretative decisions: ATO ID 2004/259 | ATO ID 2004/260
Subject references: Balancing adjustments Balancing adjustments on disposal of plant Capital Allowances CoE Termination value Uniform capital allowance system