Theft of a depreciating asset - involuntary disposal

Is the theft of a computer and printer an involuntary disposal under section 40-365 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Yes. The theft of a computer and printer is an involuntary disposal under section 40-365 of the ITAA 1997.

The taxpayer's computer and printer were stolen in May 2002. The assets were insured and a claim was made with the insurance company.

The insurance company provided a replacement computer and printer.

The replacement assets were used wholly for a taxable purpose.

Section 40-365 of the ITAA 1997 allows a taxpayer to exclude some or all of a balancing adjustment amount from their assessable income where a depreciating asset is lost or destroyed. A taxpayer can make this choice to the extent that the amount is applied in reduction of the cost or opening adjustable value of one or more replacement assets.

It is considered that the theft of a depreciating asset falls within the meaning of the words lost or destroyed because the taxpayer is deprived of the use of the asset and no longer possesses the asset. The taxpayer may therefore exclude some or all of the amount that would otherwise be included in assessable income to the extent that the amount is applied in reduction of the cost of one or more replacement assets. Note: To be able to make this choice the taxpayer must also satisfy the following conditions as contained in subsections 40-365(3) and 40-365(4) of the ITAA 1997: - The taxpayer must incur the expenditure on the replacement asset, or start to hold it, no earlier than one year before the involuntary disposal and no later than one year after the end of the income year in which the disposal occurred. - The replacement asset must be used wholly for a taxable purpose and the taxpayer must be able to deduct an amount for it.