Issue
For the purposes of subsection 328-220(1) of the Income Tax Assessment Act 1997 (ITAA 1997) can the legal personal representative (LPR) of a deceased STS taxpayer continue to calculate deductions for depreciating assets in relation to an STS pool formerly held by the STS taxpayer?
Decision
No. For the purposes of subsection 328-220(1) of the ITAA 1997, the legal personal representative of a deceased STS taxpayer does not continue to calculate deductions for depreciating assets in relation to the STS general or long life pool.
Facts
Taxpayer X (a sole trader) dies in an income year. Taxpayer X elects to be in the STS in the income year of death. The decline in value of assets used in the carrying on of the business in that year will be worked out under Subdivision 328-D of the 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. There is a positive closing balance in the pool when the STS taxpayer dies.
Reasons for Decision
The legal personal representative, as defined in section 995-1 of the ITAA 1997, starts to hold the asset at the time of the STS taxpayer's death. The death of the STS taxpayer means that the STS taxpayer ceases to hold the assets in the STS pool, which triggers a balancing adjustment event per 40-295 of the ITAA 1997. The continued application of Subdivision 328-D of the ITAA 1997 described in subsection 328-220(1) of the ITAA 1997 will only occur where the taxpayer continues to exist after they have stopped being an STS taxpayer.
As the LPR is a new entity, that begins to hold the asset in the pool at the time of death of the STS taxpayer, it is not able to continue calculating deductions for depreciating assets from the STS pool.
The LPR will calculate its deductions for the decline in value according to Division 40 of the ITAA 1997. Item 12 in the table in subsection 40-180(2) of the ITAA 1997 states that where a balancing adjustment event happens to a depreciating asset because a person dies and the asset devolves to you as the person's legal personal representative, the cost of the asset is the adjustable value of the depreciating asset on the day the person dies.
The adjustable values of the assets contained in the STS pool will be the same as the closing balance of the STS pool at the day of death of the STS taxpayer.
Section 40-195 of the ITAA 1997 states that where a taxpayer pays an amount for two or more things that include at least one depreciating asset, or that include a contribution to bringing a depreciating asset to its present condition and location, the taxpayer takes into account as part of its cost only that part of what was paid as is reasonably attributable to that asset.
This means that the LPR will be required to take into account that much of the closing value of the pool as is reasonably attributable to each asset in the STS pool.