Issue
Does a balancing adjustment event occur, under paragraph 40-295(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997), for a depreciating asset when an incorporated association under the Associations Incorporation Act 1981 (AIA (Qld)) takes over an unincorporated association?
Decision
Yes. A balancing adjustment event occurs, under paragraph 40-295(1)(a) of the ITAA 1997, for a depreciating asset when the depreciating assets from an unincorporated association are transferred to an incorporated association.
Facts
A is an incorporated association under the AIA (Qld) and B is an unincorporated association.
The members of both A and B agreed to the takeover of B in their special general meetings.
A changed its name to adopt B's name. The amended constitution of A provides for A to take over B's assets and liabilities.
The voting members and board members of A and B are the same persons.
Paragraph 42-1(a) of the AIA (Qld) provides that a change of name of an incorporated association does not affect its legal personality or identity.
Reasons for Decision
Paragraph 40-295(1)(a) of the ITAA 1997 provides that a balancing adjustment event occurs for a depreciating asset if an entity stops holding the asset. A holder of an asset in any particular circumstance is set out in section 40-40 of the ITAA 1997. B owns the depreciating assets and is a holder of them pursuant to Item 10 of the table in section 40-40 of the ITAA 1997.
The amended constitution of A provides for A to take over B's assets and liabilities.
A's takeover of B results in a transfer of B's depreciating assets to A and this causes B to stop holding its assets because ownership (and, in this case holding) of the assets passes to A. Consequently, a balancing adjustment event occurs under paragraph 40-295(1)(a) of the ITAA 1997 for the depreciating assets held by B.