ATO ID 2003/112: Capital Allowances: balancing adjustment event on the theft of a depreciating asset
Date of decision: 26 November 2002
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Does a balancing adjustment event occur for a depreciating asset under paragraph 40-295(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) on the theft of the asset?

Decision
No. The theft of a depreciating asset does not, of itself, constitute a balancing adjustment event occurring for the asset under paragraph 40-295(1)(b) of the ITAA 1997.

Facts
The taxpayer owned a depreciating asset at the time it was stolen. The taxpayer used the asset wholly for a taxable purpose. The asset was insured against the event of theft.

Reasons for decision
Summary: Subsection 40-295(1) states that a balancing adjustment event occurs for a depreciating asset if: For a balancing adjustment event to occur for a depreciating asset under paragraph 40-295(1)(b) of the ITAA 1997, the taxpayer must stop using the asset (or having it installed ready for use) for any purpose and expect never to use it (or have it installed ready for use) again. While the theft of a depreciating asset would prevent immediate use of the asset by the taxpayer, there must also be an expectation that the asset will never be used (or installed ready for use) again. This requires an assessment of the prospects of recovery of the asset and of the asset being in a state capable of being used (or installed ready for use) again. The assessment must be carried out on a case by case basis. This means that the theft of a depreciating asset does not, of itself, immediately cause a balancing adjustment event to occur for the asset under paragraph 40-295(1)(b) of the ITAA 1997. Even though a balancing adjustment may occur for a stolen asset under paragraph 40-295(1)(b) of the ITAA 1997 the taxpayer may remain the legal owner of the asset and, therefore, a holder of it under Item 10 of the table in section 40-40 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 40-40 subsection 40-295(1) paragraph 40-295(1)(b)
Related ATO interpretative decisions: ATO ID 2002/782 | ATO ID 2003/110 | ATO ID 2003/111
Subject references: Losses from fraud, theft & embezzlement Capital Allowances CoE Balancing adjustment event Hold a depreciating asset