ATO Interpretative Decision
ATO ID 2003/439
Income Tax
Capital Allowances: allocating jointly held depreciating assets to a low-value poolFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can the taxpayer choose, under subsection 40-425(1) of the Income Tax Assessment Act 1997 (ITAA 1997), to allocate to a low-value pool their interest in a depreciating asset they start to hold jointly if the cost of their interest in the asset is less than $1,000 even though the cost of the asset exceeds $1,000?
Decision
Yes. The taxpayer can allocate their interest in the depreciating asset to a low-value pool because section 40-35 of the ITAA 1997 treats their interest in the asset as the asset for the purposes of Division 40 of the ITAA 1997.
Facts
The taxpayer jointly owns a rental property to the extent of 50%. In the 2001-02 income year, they jointly purchased for the property a new hot water system costing $1200. In accordance with their ownership interest in the rental property, the taxpayer contributed $600 to the purchase of the new hot water system.
Reasons for Decision
For a depreciating asset that is a 'partnership asset', the asset is held by the partnership and not by any particular partner (item 7 of the table in section 40-40 of the ITAA 1997). In this context, the words 'partnership asset' carry their common law meaning. That is, they refer to assets of a partnership that are used for the purpose of the business carried on by the partnership. The words 'partnership asset' do not extend to assets that are merely co-owned even though their co-ownership and their employment for the purpose of receiving income jointly may be enough to recognise a partnership for income tax purposes (see definition of partnership in subsection 995-1(1) of the ITAA 1997). In the circumstances of this case, the taxpayer is not carrying on a business in partnership (Cripps v FC of T 99 ATC 2428; (1999) 43 ATR 1202) but is merely undertaking a passive investment (Taxation Ruling IT 2423).
For depreciating assets that are co-owned but are not partnership assets, section 40-35 of the ITAA 1997 applies to the asset as if your interest in the asset is the relevant asset for the purposes of Division 40 of the ITAA 1997. This leads to the result that each co-owner must treat their depreciating asset (their interest in the underlying asset) in accordance with their own tax profile. In the present case, the taxpayer must work out the cost, effective life and choose a method to work out the decline in value of the depreciating asset that is their interest and to claim, in their own income tax return, the appropriate deduction for that decline in value. Provided the other requirements of the low-value pool provisions in Subdivision 40-E of the ITAA 1997 are satisfied, the taxpayer also may allocate their asset to a low-value pool because their interest in the underlying asset cost less than $1,000.
Date of decision: 6 June 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
Section 40-35
Section 40-40
Subsection 40-425(1)
Subsection 995-1(1)
Case References:
Cripps v FC of T
99 ATC 2428
43 ATR 1202
Related Public Rulings (including Determinations)
Taxation Ruling IT 2423
ATO ID 2009/135
Keywords
Capital allowances CoE
Deduction for depreciating assets
Jointly held depreciating asset
Low value pool
Partnership asset
Pooling
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 6 June 2003 | Original statement |
| 23 September 2015 | Archived |