Issue
Do the balancing adjustment provisions of Subdivision 40-D of the Income Tax Assessment Act 1997 (ITAA 1997) apply to capital works to which Division 43 of the ITAA 1997 applies if a taxpayer can deduct an amount under Division 43 of the ITAA 1997?
Decision
No. The sale of capital works for which an amount can be deducted under Division 43 of the ITAA 1997 does not require a balancing adjustment under section 40-285 of the ITAA 1997.
Facts
The taxpayer owned buildings that it used in a business. The buildings were qualifying capital works for which an amount was deducted under Division 43 of the ITAA 1997.
The taxpayer sold the buildings to another taxpayer.
Reasons for Decision
A taxpayer must make a balancing adjustment to assessable income if a balancing adjustment event occurs for a depreciating asset that they hold and the decline in value of the asset was worked out under Subdivision 40-B of the ITAA 1997.
Subsection 40-45(2) of the ITAA 1997 provides that Division 40 of the ITAA 1997 does not apply to depreciating assets that are capital works for which you can deduct an amount under Division 43 of the ITAA 1997. Therefore, a balancing adjustment is not required under section 40-285 of the ITAA 1997 for capital works because the decline in value of the capital works is not worked out under Subdivision 40-B of the ITAA 1997.
While the sale of the assets cannot result in a balancing adjustment, the sale may result in a capital gain or a capital loss under Part 3-1 of the ITAA 1997.