ATO ID 2003/218: Capital Allowances: balancing adjustment event - amalgamation of incorporated associations
Date of decision: 20 December 2002
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Did a balancing adjustment event occur, under paragraph 40-295(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997), for a depreciating asset on the amalgamation of two incorporated associations under the Associations Incorporation Act 1981 (Qld) (AIA (Qld))?

Decision
Yes. A balancing adjustment event did occur, under paragraph 40-295(1)(a) of the ITAA 1997, for a depreciating asset on the amalgamation of two incorporated associations under the AIA (Qld).

Facts
A and B are unrelated incorporated associations under the AIA (Qld). A and B amalgamated under Part 9, Division 2 of the AIA (Qld) to form C, a new and legally separate incorporated association. A certificate of incorporation issued to C as a result of the amalgamation. The members of both A and B agreed to amalgamate from a certain date and to adopt their respective associations' existing common rules and constitution for C. The members of A and B also agreed to transfer or donate their respective associations' assets to C.

Reasons for decision
Summary: Paragraph 40-295(1)(a) of the ITAA 1997 provides that a balancing adjustment event occurs for a depreciating asset if an entity stops holding the asset. A holder of an asset in any particular circumstance is set out in section 40-40 of the ITAA 1997. In the present case, A and B own their respective depreciating assets and are holders of them pursuant to Item 10 of the table in section 40-40 of the ITAA 1997. Section 79 of the AIA (Qld) defines an 'old association' to be an incorporated association that with one or other incorporated associations apply to form a new association. A 'new association' is defined in section 79 of the AIA (Qld) to be an incorporated association that is incorporated as a result of an application to amalgamate by at least two old associations. The legislation governing the amalgamation of associations does not provide for the continuation of the amalgamating entities (that is, A and B) within the form of the new entity (that is, C). The amalgamation is effected by the incorporation of a new association. Section 86 of the AIA (Qld) provides that upon the incorporation of a new association as a result of an amalgamation of old associations, the assets and liabilities of the old associations become the assets and liabilities of the new association. The transfer of A's and B's depreciating assets to the newly incorporated C causes A and B to stop holding their respective assets because ownership (and, in this case holding) of the assets passes to C. Consequently, a balancing adjustment event occurs under paragraph 40-295(1)(a) of the ITAA 1997 for the depreciating assets held by A and B.

Legislative references: Income Tax Assessment Act 1997 Section 40-40 Paragraph 40-295(1)(a)
Related ATO interpretative decisions: ATO ID 2003/219 | ATO ID 2003/220 | ATO ID 2003/221
Subject references: Balancing adjustments Balancing adjustment event Capital allowances CoE Depreciating assets Uniform capital allowance system