Division 40: later year balancing adjustment relief for small business taxpayers

For a small business taxpayer, can section 40-295 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) provide continuing access to later year balancing adjustment relief if the replacement plant is acquired after 30 June 2001?

Yes. For a small business taxpayer, section 40-295 of the IT(TP)A 1997 provides continuing access to later year balancing adjustment relief if the balancing adjustment event occurred before 1 July 2001 and the conditions for the replacement plant are met.

Former section 42-290 of the Income Tax Assessment Act 1997 (ITAA 1997) allowed you to exclude an amount that had been included in your assessable income for plant as a result of a balancing adjustment calculation to the extent that you chose to treat that amount as an amount you have deducted for depreciation of replacement plant. The section was repealed from 1 July 2001 following the introduction of Division 40 of the ITAA 1997.

Later year relief, however, could be chosen for up to two income years after the end of the income year in which the balancing adjustment event occurred. This means that despite its repeal, section 42-290 of the ITAA 1997 provided the choice of later year relief until the 2002-03 income year if certain conditions are met.

Section 40-295 of the IT(TP)A 1997 was enacted to preserve the availability of the choice formerly allowed by section 42-290 of the ITAA 1997 by replicating the conditions for the replacement plant. It continues to allow you to exclude an amount that had been included in your assessable income as a result of a balancing adjustment event that occurred in the 1999-2000 or 2000-01 income year, to the extent the choice was provided under section 42-290 of the ITAA 1997.

For the relief to be available, the replacement plant must be used, or installed ready for use, wholly for the purpose of producing assessable income within 2 income years after the end of the income year in which the balancing adjustment event occurred, and you must be able to deduct an amount for the decline in value of that plant. Later year relief is not available if you have chosen same year or involuntary disposal relief for the same balancing adjustment event.

The amount covered by the choice is treated as an amount that you have deducted for the decline in value of replacement plant by reducing the adjustable value of the replacement plant as at the first day of the income year in which you acquired it.

The term 'small business taxpayer' is defined in section 960-335 of the ITAA 1997.