ATO ID 2003/219: Capital Allowances: termination value - 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
Is the amount taken to have been received under Item 1 of the table in paragraph 40-305(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) nil if, on the amalgamation of two existing incorporated associations into one new incorporated association under the Associations Incorporation Act 1981 (Qld) (AIA (Qld)), no amount is received by the existing associations for transferring their assets to the new association?

Decision
Yes. The amount taken to have been received under Item 1 of the table in paragraph 40-305(1)(b) of the ITAA 1997 on the amalgamation of the existing associations is nil if no amount is received by them for the transfer of their depreciating assets. However, other items in the table in paragraph 40-305(1)(b) of the ITAA 1997 may also apply.

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: 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. The amalgamation of A and B to form C causes a balancing adjustment event to occur, under paragraph 40-295(1)(a) of the ITAA 1997, for the depreciating assets held by A and B. The termination value of a depreciating asset under a balancing adjustment event is worked out as at the time when the balancing adjustment event occurs. In certain circumstances, the termination value is the amount specified in section 40-300 of the ITAA 1997. Otherwise, the termination value is an amount worked out under section 40-305 of the ITAA 1997 (subsection 40-300(1) of the ITAA 1997). As no item in the table in subsection 40-300(2) of the ITAA 1997 applies, the termination value is worked out under section 40-305 of the ITAA 1997. The termination value under section 40-305 of the ITAA 1997 is taken to be the greater of the sum of the applicable amounts set out in paragraphs 40-305(1)(a) or (b) of the ITAA 1997. Item 1 of the table in paragraph 40-305(1)(b) of the ITAA 1997 includes in termination value an amount received under a balancing adjustment event. 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. This means that no amount is received by A and B for the transfer of their depreciating assets to C. As no amount is received under the balancing adjustment event, the termination value under Item 1 of paragraph 40-305(1)(b) of the ITAA 1997 is nil. However, Item 2 of the table in paragraph 40-305(1)(b) of the ITAA 1997 may also apply.

Legislative references: Income Tax Assessment Act 1997 paragraph 40-295(1)(a) section 40-300 subsection 40-300(1) subsection 40-300(2) section 40-305 paragraph 40-305(1)(a) paragraph 40-305(1)(b)
Related ATO interpretative decisions: ATO ID 2002/1016 | ATO ID 2003/218 | ATO ID 2003/220 | ATO ID 2003/221
Subject references: Balancing adjustment event Capital allowances CoE Depreciating assets Termination value Uniform capital allowance system