Taxation Ruling

IT 241

Loss on disposal of plant used only partly for income-producing purposes

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FOI status:

May be releasedFOI number: I 1101994

PREAMBLE

1. Consideration has been given to the application of CITCM 784 in cases where a taxpayer disposes of plant which has been used only partly for income-producing purposes and the plant is disposed of part way through the year of income.

RULING

2. In applying either sub-section (1) or (2) of section 59 on the disposal, loss or destruction of plant, the relevant factor is the depreciated value of the plant at the time of disposal, loss or destruction. Where plant is disposed of during an income year, a strict application of the law would require the ascertainment of the depreciated value at the date of disposal by allowing under section 54 normal depreciation as calculated under section 56 from the commencment of the income year up to that date. Then the loss on disposal (section 59(1)) or the balancing charge (section 59(2)) would be determined by reference to the depreciated value so calculated and the sale price of the plant.

Example:

	Pounds
Depreciated value at 01.07.60	1,000
Depreciation calculated under section 56 - say, 6 months @ 20% pa	100
Depreciated value at date of disposal (31.12.60)	900
Sale Price	700
Deduction allowable under section 59(1)	200

3. The total deductions allowable in the above example would thus be:-

In this case, it would make no practical difference if, instead of strictly following the law, the deduction allowable had been calculated as 300 pounds by the short-cut method of deducting the sale price (700 pounds) from the depreciated value at 01.07.60 (1,000 pounds).

4. In some instances where plant is used only partly for income-producing purposes, however, the short-cut method gives an incorrect result. This possibility is not apparent from CITCM 784, as, in the interests of simplification, the sales of plant envisaged in paragraphs 7 to 14 therein were all assumed (though not expressed) to have taken place on 1 July 1954, the date at which the last depreciated value had been calculated.

Example:

Where the sale price exceeds both the notional depreciated value and the actual depreciated value. Plant, five sixths of the use of which is for income-producing purposes purchased for 1,075 pounds on 20 May 1959 and sold on 23 June 1960 for 905 pounds.

Example:

Where the sale price is less than both the notional depreciated value and the actual depreciated value. Plant, three quarters of the use of which is for income-producing purposes purchased for 1,500 pounds on 1 July 1957 and sold on 31 December 1959 for 740 pounds.

As the plant was sold for 740 pounds, the deduction allowable under sections 59(1) and 61 would be, as calculated in accordance with CITCM 784, paragraph 9:- The example is one of the cases in which the total deductions allowable are the same whether the law is strictly applied or whether the short-cut method is followed.

COMMISSIONER OF TAXATION
8 August 1961

References

ATO references:
NO J63/4 P8 F194

Date original memo issued:
08.08.61

Related Rulings/Determinations:

CITCM 784
IT 241W

Subject References:
PLANT - LOSS ON DISPOSAL
BALANCING CHARGES

Legislative References:
54
56
59
61