Register card 04Leaving
When an asset leaves the business
An asset leaves the register through a balancing adjustment event: the ATO’s examples include a sale, a loss or destruction, and a decision never to use the asset again. The register then compares what was received for the asset with its adjustable value, and the difference is either assessable income or a deduction. Pooled assets and assets already written off follow rules of their own, set out below.
This is general information, not tax advice. The ATO is the official place to check how a sale or loss is treated in your own return.
The eventWhen the card closes
Section 40-295 of the Income Tax Assessment Act 1997 says a balancing adjustment event occurs for a depreciating asset if, among other cases, “you stop holding the asset”, or if “you stop using it, or having it installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again”. The ATO’s own page lists five cases.
- Balancing adjustment events, in the ATO’s words
- “you stop holding the asset – for example, it is sold, lost or destroyed”
- “you stop using it for any purpose and expect never to use it again”
- “you stop having it installed ready for use and you expect never to install it ready for use”
- “you have not used it and decide never to use it”
- “a change occurs in the holding or interests in an asset which was, or is to become, a partnership asset”
Two kinds of asset are left out of the calculation below. For assets in a low-value pool, sale proceeds reduce the pool instead, unless the pool balance has been reduced to zero, when a balancing adjustment is made. Buildings and other capital works have provisions of their own.
The sumTermination value against adjustable value
- Work out the termination value: generally what is received, or taken to be received, for the asset, including the market value of any non-cash benefits. The ATO’s common examples are the proceeds of a sale and an insurance payout for loss or destruction.
- Reduce it by the GST payable if the event is a taxable supply.
- Compare it with the adjustable value: the asset’s cost less its depreciation deductions.
- If the termination value is more, the difference is included in assessable income; if it is less, the difference is claimed as a deduction.
- Reduce the result for private use: where an asset was used only partly for a taxable purpose, the balancing adjustment amount is reduced to reflect that.
Two cases have a set termination value. An asset the business still holds but expects never to use again takes its market value at the time of that decision; in-house software in that position has a termination value of zero.
A business owner receives $16,000 for a truck used 40% of the time for private purposes. At the time of sale its adjustable value is $20,000, a difference of $4,000. The business share of that, 60%, gives a deduction of $2,400.
Pooled or written offWhen the asset sat in a pool, or was written off
For an asset in the small business pool, the sale works through the pool. The ATO says the pool balance is reduced by the asset’s termination value multiplied by its taxable use proportion, or by the whole termination value if it was used only for business. If that leaves a negative balance, the negative amount is included in assessable income and the pool closes at zero. The ATO adds that there is no capital gains liability on disposing of a depreciating asset depreciated under the simplified rules.
An asset that was written off straight away is different: the taxable purpose portion of the amount received for it is included in assessable income for the year it is sold or disposed of.
If business use changed while the asset was in the pool, the taxable purpose proportion of its termination value is the average for the income years it was there. The Act that set the 2026 threshold carries its own example.
A minivan joins a child care business’s pool in 2023–24 at 50% business use. The estimate rises to 70% for 2024–25 and 90% for 2025–26, and the minivan is sold for $20,000 at the start of 2026–27. Averaging 50%, 70%, 90% and 90% (no change in the last year) gives 75%, so the taxable purpose proportion of the termination value is $15,000.
The last entryWhat the register records when an asset goes
When a balancing adjustment event happens in the year, the ATO’s record list asks for the date of the event, the termination value, the adjustable value at that time, the balancing adjustment amount, any reduction of it, and details of any rollover or balancing adjustment relief. Where automatic rollover relief applies, the business handing the asset over gives the new holder a notice with enough information to work out how the rules apply, generally within 6 months after the end of the new holder’s income year in which the event occurred. How long each record is kept sets out the retention periods for those notices.
A destroyed asset can still matter afterwards. If an asset is disposed of involuntarily, for example destroyed by fire, the ATO says the business “may be able to offset the assessable balancing adjustment amount against the cost of a replacement asset”. And before a business computer, phone or tablet is sold, traded in or thrown away, the Australian Signals Directorate’s small business handbook advises removing all information from it.