Capital Allowances: Division 42 - concessional rate

Does section 42-295 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to allow a taxpayer to request the Commissioner to determine a notional income under section 42-300 of the ITAA 1997 that is less than their taxable income if Division 392 of the ITAA 1997 applies to their assessment?

No. Paragraph 42-295(3)(da) of the ITAA 1997 provides that section 42-295 of the ITAA 1997 does not apply for the income year in which the balancing adjustment event occurs where Division 392 of the ITAA 1997 applies to the income tax assessment. Division 392 of the ITAA 1997 provides for long-term averaging of primary producers' tax liability.

A taxpayer conducted a primary production business as a partner in a partnership. When the partnership dissolved a balancing adjustment event occurred for the items of plant simultaneously and an amount was included in the assessable income of the partnership. The taxpayer has not elected to withdraw from the averaging system as they have continued to carry on a business of primary production in a new partnership.

Section 42-295 of the ITAA 1997 allows a taxpayer to request the Commissioner to determine a notional income under section 42-300 of the ITAA 1997 if a balancing adjustment event causes the cessation of a business and as a result of the balancing adjustment calculation an amount is included in assessable income under sections 42-190 and 42-192 of the ITAA 1997.

It is considered that where items of plant which form an integral part of a business are disposed of simultaneously with the disposal of the business in which the plant is employed, the disposal of the plant is sufficiently proximate to the cessation of the business to attract the application of section 42-295 of the ITAA 1997.

Subsection 42-295(3) of the ITAA 1997 provides that section 42-295 of the ITAA 1997 does not apply in a number of circumstances. In particular, paragraph 42-295(3)(da) of the ITAA 1997 provides that section 42-295 of the ITAA 1997 does not apply in the income year in which the balancing adjustment event occurs where Division 392 of the ITAA 1997 applies to the income tax assessment. Division 392 of the ITAA 1997 provides for long-term averaging of primary producers' tax liability.

Therefore, as the taxpayer has not elected out of the primary production averaging process provided by Division 392 of the ITAA 1997, section 42-295 of the ITAA 1997 will not apply.