Simplified Tax System: termination value of a depreciating asset upon the death of the owner, an STS taxpayer.

Where an STS taxpayer dies during an income year, how does the legal personal representative of a deceased STS taxpayer work out the termination value for assets that are contained in an STS pool?

The legal personal representative of the deceased taxpayer must use the adjustable value of assets that are in STS pools as termination values in calculating a balancing adjustment for these depreciating assets.

X, a sole trader, dies during an income year. X's Legal Personal Representative elects the deceased taxpayer into the STS for the income year in which X died. In previous years the decline in value of assets used in carrying on the business was worked out under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997). The business assets were used solely for the purpose of producing assessable income.

The assets are allocated to a general or long life pool at the start of the income year at a value equal to the opening adjustable value of the assets at the end of the previous income year. There are no balancing adjustment events from the beginning of the income year to the date of X's death.

Subsection 328-175 (1) of the ITAA 1997 states that an STS taxpayer will calculate deductions and some amounts of assessable income under Subdivision 328 of the ITAA 1997 instead of under Division 40 of the ITAA 1997 for an income year for a depreciating asset that the STS taxpayer holds.

Decline in value for STS taxpayers is measured and calculated by a percentage that is applied to a pool balance (subsection 328-190(1) of the ITAA 1997). Subsection 328-185(1) of the ITAA 1997 outlines that an STS pool is treated like a single asset. Therefore the deduction calculated at subsection 328-190(1) of the ITAA 1997 is the decline in value for the assets in the pool.

As the STS taxpayer ceases to hold the assets at the time of death, a balancing adjustment event occurs for the assets pursuant to paragraph 40-295(1)(a) of the ITAA 1997.

The termination value is worked out under section 40-300 of the ITAA 1997.

In this case the termination value of the assets will be the adjustable value of the assets. This means that the closing pool balance as defined in section 328-200 of the ITAA 1997 will be the same as the adjustable value of the assets in the pool.

Once the termination value has been worked out, the balancing adjustment is accounted for under step 2(a) of the method statement of section 328-200 of the ITAA 1997.