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Does automatic roll-over relief under subsection 40-340(1) of the Income Tax Assessment Act 1997 (ITAA 1997) apply if the asset the taxpayer disposed of was allocated to a low-value pool?

No. Automatic roll-over relief under subsection 40-340(1) of the ITAA 1997 only applies where the general balancing adjustment rules of Subdivision 40-D apply to the asset.

The taxpayer is a common law partnership. The partnership holds, pursuant to item 7 of the table in section 40-40 of the ITAA 1997, a number of low-cost depreciating assets that it allocated to a low-value pool for the 2002 income year.

During the 2003 income year, all of the partnership's assets were transferred to a company wholly-owned by the partners. The transfer of assets by the partnership to the company constituted a balancing adjustment event for the partnership assets in accordance with paragraph 40-295(1)(a) of the ITAA 1997.

The transfer satisfied all of the conditions for automatic roll-over relief in item 2 of the table in subsection 40-340(1) of the ITAA 1997.

Subdivision 40-D of the ITAA 1997 contains the general balancing adjustment rules that apply to depreciating assets whose decline in value is worked out under the general provisions of Subdivision 40-B of the ITAA 1997. Under these balancing adjustment rules, the difference between the asset's termination value and its adjustable value is either included in, or deducted from, the holder's assessable income for the income year in which the balancing adjustment event occurs (section 40-285 of the ITAA 1997). However, subsection 40-345(1) of the ITAA 1997 prevents section 40-285 from applying so that no balancing adjustment arises if the taxpayer meets the conditions for automatic roll-over relief set out in subsection 40-340(1) of the ITAA 1997.

Subdivision 40-E of ITAA 1997 contains a number of provisions that specifically apply for depreciating assets allocated to a low-value pool. Section 40-440 of the ITAA 1997 sets out how to work out the decline in value of pooled assets. Section 40-445 of the ITAA 1997 sets out the balancing adjustment rules for pooled assets. Under these balancing adjustment rules, the taxable use percentage of the asset's termination value is applied to reduce the closing pool balance and, if the termination value exceeds the closing pool balance, the excess is included in assessable income.

The specific balancing adjustment rules in Subdivision 40-E of the ITAA 1997 apply for depreciating assets allocated to a low-value pool, in preference to the general balancing adjustment rules in Subdivision 40-D of the ITAA 1997 that apply for most other depreciating assets. This means roll-over relief under subsection 40-340(1) of the ITAA 1997 does not apply for depreciating assets allocated to a low-value pool.

In this case, the transfer of the assets by the partnership to the company is a balancing adjustment event in accordance with paragraph 40-295(1)(a) of the ITAA 1997. However, as the assets were allocated to a low-value pool, the specific balancing adjustment rules in Subdivision 40-E of the ITAA 1997 apply. This means automatic roll-over relief under subsection 40-340(1) of the ITAA 1997 does not apply.

Date of Amendment Part Comment 19 April 2017 Legislative references section Include reference to Subdivision 40-B 29 August 2014 Decision Correct grammatical error Facts Correct grammatical error Legislative References Include reference to section section 40-40 Include reference to Subdivision 40-D Remove reference to section 40-340 Remove reference to subsection 40-345(2) Remove reference to subsection 40-345(2) Include reference to Subdivision 40-E Remove reference to subsection 40-440(1) Related ATO Interpretative Decisions Add '(withdrawn)' after ATO ID 2003/911

Date of Amendment | Part | Comment

19 April 2017 | Legislative references section | Include reference to Subdivision 40-B

29 August 2014 | Decision | Correct grammatical error

Facts | Correct grammatical error

Legislative References | Include reference to section section 40-40 Include reference to Subdivision 40-D Remove reference to section 40-340 Remove reference to subsection 40-345(2) Remove reference to subsection 40-345(2) Include reference to Subdivision 40-E Remove reference to subsection 40-440(1)

Related ATO Interpretative Decisions | Add '(withdrawn)' after ATO ID 2003/911