Guide to depreciating assets 2013 - Australian Taxation Office

There are situations where these general balancing adjustmentrules do not apply:n If a depreciating asset has been partly used for a non‐taxablepurpose, the balancing adjustment amount is reduced toreflect only the taxable use. Additionally, a capital gain orcapital loss can arise to the extent that the depreciating assetwas used for a non-taxable purpose; see Depreciatingasset used for a non-taxable purpose on the next page.n Similarly, if the depreciating asset is a leisure facility ora boat and your deductions for the decline in value of theasset have been reduced, the balancing adjustment amountis reduced and a capital gain or capital loss can arise; seeLeisure facilities and boats on page 20.n There are special balancing adjustment rules for cars;see Balancing adjustment rules for cars on page 20.n A balancing adjustment event for a depreciating asset ina low-value or common-rate pool or for which expenditurehas been allocated to a software development pool is dealtwith under specific rules for those pools; see Balancingadjustment event for a depreciating asset in a low-valuepool on page 24, Common-rate pools on page 25 andSoftware development pools on page 25.n If the disposal of a depreciating asset is involuntary, youmay be able to offset an assessable balancing adjustmentamount; see Involuntary disposal of a depreciating asseton page 21.n The assessment of a balancing adjustment amount foran eligible vessel may be deferred for two years wherea certificate obtained under the Shipping Reform (TaxIncentives) Act 2012 applied to that vessel on the day of thebalancing adjustment event. Additionally, rollover relief onthe deferred amount may be available.n Rollover relief may apply to the disposal of a depreciating assetin certain circumstances, such as where an asset is transferredbetween spouses pursuant to a court order following amarriage breakdown; see Rollover relief on page 21.n There are no specific balancing adjustment rules for someprimary production depreciating assets (see Primaryproduction depreciating assets on page 25) or certaindepreciating assets used for landcare operations, electricityconnections or phone lines (see Landcare operations onpage 28 and Electricity connections and phone lines onpage 29). However, such assets may be considered part ofland for capital gains tax (CGT) purposes.n There are special balancing adjustment rules for depreciatingassets used in carrying on research and developmentactivities; see the Research and development tax incentiveschedule instructions 2013 for more information.A GST liability will generally occur when a depreciating asset isdisposed of by a GST registered entity. For more information,see the fact sheet GST and the disposal of capital assets(NAT 7682), at ato.gov.auTermination valueThe termination value is, generally, what you receive or aretaken to receive for the asset when a balancing adjustmentevent occurs. It is made up of amounts you receive and themarket value of non-cash benefits (such as goods or services)you receive for the asset.The most common example of termination value is theproceeds from selling an asset. The termination value mayalso be an insurance payout for the loss or destruction ofa depreciating asset.The termination value is reduced by the GST payable if thebalancing adjustment event is a taxable supply. It can bemodified by increasing or decreasing adjustments.If the termination value is taken to be the market value of theasset (for example, in the case of assets disposed of under aprivate or domestic arrangement), the market value is reducedby any input tax credit to which you would be entitled had youacquired the asset solely for a creditable purpose.An amount is not an assessable recoupment if it is includedin the termination value of a depreciating asset; seeRecoupment of cost on page 16.There are special rules to work out the termination valueof depreciating assets in certain circumstances. Some of themore common cases are covered from pages 18–22. If youare not sure of the termination value of a depreciating asset,contact us or your recognised tax adviser.Non-arm’s length and private or domesticarrangementsThe termination value of a depreciating asset is its marketvalue just before you stopped holding it where:n the termination value would otherwise be less than marketvalue and you did not deal at arm’s length with another partyto the transaction, orn you stopped holding the asset as a result of a private ordomestic arrangement (for instance, you gave the asset toa family member).Selling a depreciating asset with other propertyIf you received an amount for the sale of several itemsthat include a depreciating asset, you need to apportionthe amount received between the termination value of thedepreciating asset and the other items. The terminationvalue is only that part of what you received that is reasonablyattributable to the asset.Apportionment on the basis of the market values of the variousitems for which the amount is received will be acceptable.EXAMPLE: Depreciating asset sold with other property,ignoring any GST impactBen receives $100,000 for the sale of both a chainsaw (adepreciating asset) and a block of land (not a depreciatingasset). It would be reasonable to apportion the $100,000between:n the termination value of the chainsaw, andn the proceeds of sale for the landbased on the relative market values of the chainsaw andthe land.18 ato.gov.au GUIDE TO DEPRECIATING ASSETS 2013