Where a depreciable asset is transferred between related entities and CGT rollover relief is available, the balancing adjustment can be deferred until the next balancing adjustment event occurs.
The conditions for automatic rollover relief are:
– there is a balancing adjustment event because an entity disposes of a depreciating asset in an income year to another entity
– the disposal involves a CGT event, and
– the conditions relating to the item in the following table are satisfied:
|Type of CGT rollover||Legislation|
|Disposal of asset by an individual or trustee to a wholly-owned company||The transferor is able to choose rollover under Subdivision 122-A|
|Disposal of asset by partners to a wholly-owned company||The transferors (the partners) are able to choose rollover relief under Subdivision 122-B.|
|Transfer of CGT asset of a trust to a company under a trust restructure||The transferor and transferee are able to choose a roll-over under Subdivision 124-N for the CGT event (applies to balancing adjustment events happening in 2008-09 or a later income year).|
|Transfer of CGT asset, depreciating asset, trading stock, revenue asset as part of the small business entity restructure||Rollover relief is provided under Subdivision 328-G|
|Marriage breakdown||Rollover relief is provided under Subdivision 126-A.|
|Disposal of asset to another member of the same wholly owned group||The transferor is able to choose a roll-over under Subdivision 126-B for the CGT event|
|Disposal of asset from one fixed trust to another fixed trust||The trustees of the trusts are able to choose to obtain a roll-over under Subdivision 126-G in relation to the disposal|
|Disposal of asset as part of merger of superannuation funds||The transferor is able to choose a roll-over under Subdivision 310-D in relation to the disposal|
|Disposal of asset as part of transfer to a MySuper product||The transferor is able to choose a roll-over under Subdivision 310-D in relation to the disposal|
The capital allowance rollover provisions do not apply if Subdivision 170-D (transactions by companies within linked groups) applies to the disposal of the depreciating asset or the change in interests in it (s40-340(8)).
In determining whether the CGT rollover provisions apply, you ignore the fact that Division 118 and s122-25(3) exclude certain depreciating assets from the CGT regime (s40-340(2)). Rollover relief is also available where there is a change in a business structure involving a partnership, the transferor retains an interest in the depreciating asset after the change in holding, and both the transferor and transferee agree in writing to rollover relief (s40-340(3)).
Where the rollover relief provisions apply, the transferor is not required to include any balancing adjustment in assessable income and the transferee will use the same method of calculating the decline in value and effective life that the transferor used.
Where the transferee had used the prime cost method, the transferee must use the remaining effective life of the asset when calculating its deduction. Further, the “cost” to the transferee will be the adjustable value of the depreciating asset when it was in the hands of the transferor just before the balancing adjustment event occurred (s40-345).
To enable the transferee to continue the depreciation method of the transferor, the transferor must provide the transferee with the necessary information in writing within six months after the end of the transferee’s income year within which the balancing adjustment event occurred, or within a longer period allowed by the Commissioner (s40-340(4)).
The transferor must keep this record for five years after the balancing adjustment event, while the transferee must keep the record until five years after the next balancing adjustment event for the depreciating asset.
If either the transferor or transferee dies before the end of the six months period, the trustee of the deceased’s estate may be a party to the choice (s40-340(5)).
In some cases, there are additional rollover consequences if the asset is leased (see s40-350).