Issue
Does a balancing adjustment event occur for a depreciating asset under paragraph 40-295(1)(b) 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)(b) 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) 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)(b) of the ITAA 1997, the taxpayer must stop using the asset (or having it installed ready for use) for any purpose and expect never to use it (or have it installed ready for use) again. While the theft of a depreciating asset would prevent immediate use of the asset by the taxpayer, there must also be an expectation that the asset will never be used (or installed ready for use) again. This requires an assessment of the prospects of recovery of the asset and of the asset being in a state capable of being used (or installed ready for use) again. The assessment must be carried out on a case by case basis. This means that the theft of a depreciating asset does not, of itself, immediately cause a balancing adjustment event to occur for the asset under paragraph 40-295(1)(b) of the ITAA 1997.
Even though a balancing adjustment may occur for a stolen asset under paragraph 40-295(1)(b) of the ITAA 1997 the taxpayer may remain 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.
Amendment History
Date of amendment Part Comment 13 June 2014 Related ATO Interpretative Decisions Updated.
Date of amendment | Part | Comment
13 June 2014 | Related ATO Interpretative Decisions | Updated.