Issue
Does a balancing adjustment event occur for a depreciating asset under paragraph 40-295(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) on the theft of the asset?
Decision
No. The theft of a depreciating asset does not, of itself, constitute a balancing adjustment event occurring for the asset under paragraph 40-295(1)(a) of the ITAA 1997.
Facts
The taxpayer owned a depreciating asset at the time it was stolen.
The taxpayer used the asset wholly for a taxable purpose.
The asset was insured against the event of theft.
Reasons for Decision
Subsection 40-295(1) of the ITAA 1997 states that a balancing adjustment event occurs for a depreciating asset if: a) you stop holding the asset, b) you stop using it, or having it installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again, or c) you have not used it and: i) if you have had it installed ready for use - you stop having it so installed, and ii) you decide never to use it.
For a balancing adjustment event to occur for a depreciating asset under paragraph 40-295(1)(a) of the ITAA 1997, the taxpayer must stop holding the asset. The taxpayer is the legal owner of the asset and, therefore, a holder of it under Item 10 of the table in section 40-40 of the ITAA 1997. The taxpayer does not cease to be the asset's legal owner even though they have lost immediate physical possession of it. The taxpayer retains legal title to the asset while it remains stolen. This means that the theft of a depreciating asset does not, of itself, cause a balancing adjustment event to occur for the asset under paragraph 40-295(1)(a) of the ITAA 1997.
A balancing adjustment event would occur for a stolen depreciating asset under paragraph 40-295(1)(a) of the ITAA 1997 if, for example: an insurance company took legal title to the asset on settling the taxpayer's claim for its theft, the asset is recovered by the taxpayer who then disposes of it, or because, in each case, the taxpayer ceases to hold the asset.
Amendment History
Date of amendment Part Comment 21 December 2016 Tax type in heading General updated to Income tax 6 June 2014 Related ATOIDs Add related ATOIDs.
Date of amendment | Part | Comment
21 December 2016 | Tax type in heading | General updated to Income tax
6 June 2014 | Related ATOIDs | Add related ATOIDs.