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INCOME TAX ASSESSMENT ACT 1997 - SECT 104.235

Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7

  (1)   CGT event K7 happens if:

  (a)   a * balancing adjustment event occurs for a * depreciating asset you * held; and

  (b)   at some time when you held the asset, you used it, or had it * installed ready for use, for:

  (i)   a purpose other than a * taxable purpose; or

  (ii)   the purpose to which paragraphs 40 - 27(2)(a) and (b) relate (about second - hand assets in residential property).

  (1A)   However, subsection   (1) does not apply if:

  (a)   you are an * R&D entity and you could deduct an amount under section   40 - 25 for the * depreciating asset if the following assumptions were made:

  (i)   despite paragraph   40 - 30(1)(c) and subsection   40 - 30(2), all intangible assets were excluded from the definition of depreciating asset in section   40 - 30;

  (ii)   subsection   40 - 45(2) did not, except in the case of buildings, prevent Division   40 from applying to capital works to which Division   43 applies, or to which Division   43 would apply but for expenditure being incurred, or capital works being started, before a particular day;

  (iii)   you satisfied any relevant requirement for deductibility under Division   40; or

  (b)   there is roll - over relief for the * balancing adjustment event under section   40 - 340 of this Act; or

  (c)   the asset is one for which you or another entity has deducted or can deduct amounts under Subdivision   40 - F or 40 - G.

  (1AA)   Without limiting subsection   (1A), if the asset is a vessel for which:

  (a)   you have a * shipping exempt income certificate; or

  (b)   you have at any time had such a certificate;

subsection   (1) does not apply in relation to the asset to the extent that you are using, or at any time have used, it to produce income that is exempt under section   51 - 100.

  (1B)   CGT event K7 also happens if:

  (a)   you are an * R&D entity; and

  (b)   a * balancing adjustment event occurs for a * depreciating asset you * held; and

  (c)   when you held the asset, you could deduct an amount under section   40 - 25 for the asset if the assumptions set out in paragraph   (1A)(a) were made; and

  (d)   at some time when you held the asset:

  (i)   you used it other than for a taxable purpose or for the purpose of conducting * R&D activities for which you were registered under section   27A of the Industry Research and Development Act 1986 ; or

  (ii)   you had it installed ready for use other than for a taxable purpose.

Note:   For subparagraph   (d)(i), disregard any use of the asset for the purpose of carrying on research and development activities (within the meaning of former section   73B of the Income Tax Assessment Act 1936 ): see section   104 - 235 of the Income Tax (Transitional Provisions) Act 1997.

  (2)   The time of * CGT event K7 is when the * balancing adjustment event occurs.

  (3)   Any * capital gain or * capital loss is worked out:

  (a)   under section   104 - 240; or

  (b)   under section   104 - 245 if the * depreciating asset was allocated to a low - value pool.

  (4)   A * capital gain or * capital loss you make is disregarded if:

  (a)   the * depreciating asset covered by subsection   (1) or (1B) is a * pre - CGT asset; or

  (b)   you can deduct an amount for the asset under Division   328 (about small business entities) for the income year in which the * balancing adjustment event occurred.


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