Private ruling: Application of Division 58 of the Income Tax Assessment Act 1997 (ITAA 1997)
Published: March 2012
Date scheme commenced: Company X is a private company registered under the Corporations Act 2001 .

Ruling: Q1: Does Division 58 of the ITAA 1997 apply to the purchase of assets? | A1: No.

Relevant facts and circumstances: Company X is a private company registered under the Corporations Act 2001 . Under a sale and purchase agreement Company X acquired assets from an exempt entity. The business carried on by the exempt entity was not the same as the business being carried on by Company X at the time the assets were acquired. GST was payable on the acquisition.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 58-5(1) | Income Tax Assessment Act 1997 subsection 58-5(4) | Income Tax Assessment Act 1997 section 58-10(1) | Income Tax Assessment Act 1997 paragraph 58-10(2)

Reasons for decision: Summary: Subsection 58-5(1) of the ITAA 1997 provides that Division 58 of the ITAA 1997 applies in two situations, one of which is an 'asset sale situation'. Subsection 58-5(4) of the ITAA 1997 provides that an asset sale situation is one where a taxable entity acquires from an exempt entity a depreciating asset; and the asset is acquired in connection with the acquisition of a business from the exempt entity. That is, by reason of these two subsections, there must be an acquisition from the exempt entity of a business, as well as an acquisition of the depreciating asset. Section 58-10 of the ITAA 1997 provides the circumstance in which a depreciating asset is taken to have been acquired in connection with the acquisition of a business. Subsection 58-10(1) of the ITAA 1997 provides as follows: A *depreciating asset is taken to be acquired in connection with the acquisition of a *business from the Commonwealth, the State, the Territory or the *exempt entity if and only if: (a) the asset was used by the Commonwealth, the State, the Territory or the exempt entity in carrying on a business and the purchaser or another entity uses the asset in carrying on the business; or (b) subsection (2) applies. Based on the facts provided paragraph 58-10(1)(a) of the ITAA 1997 does not apply in this case because the assets were used by the exempt entity in carrying on its business while Company X did not use the assets in carrying on that business. As paragraph 58-10(1)(a) of the ITAA 1997 does not apply, it is necessary to examine whether paragraph 58-10(1)(b) of the ITAA 1997 (that is, subsection 58-10(2) of the ITAA 1997) applies. Subsection 58-10(2) of the ITAA 1997 provides as follows: This subsection applies if: (a) the asset was used by the Commonwealth, the State, the Territory or the*exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a *business by the Commonwealth, the State, the Territory or the exempt entity and the asset is used by the purchaser or another entity in performing those functions or engaging in those activities as part of carrying on a business; or (b) all of these subparagraphs apply: Based on the facts provided, the exempt entity used the assets in performing functions but Company X did not use the assets in performing those same functions or engaging in those same activities as part of carrying on a business. Therefore, paragraph 58-10(2)(a) of the ITAA 1997 does not apply. Accordingly, Company X did not acquire the assets in connection with the acquisition of a business from the exempt entity. Consequently, Division 58 of the ITAA 1997 does not apply to Company X in using the special rules to calculate deductions for the decline in value of the assets.

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