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| Compensation for Damage to Depreciable Asset Not Assessable |
| The Tax Office has released an Interpretative Decision (ID) outlining its view on whether a compensation payment received by a taxpayer for damage to an item of depreciable plant is assessable income. |
The Tax Office considers a case where a taxpayer received a compensation payment from a supplier for permanent damage, not capable of repair, to an item of plant. According to the Tax Office, the compensation amount received does not possess the characteristics of income and is thus not assessable.
The ID also states that the amount is not assessable as a capital gain because the depreciable asset is considered to be the underlying CGT asset, rather than the right to seek compensation.
The ID thus stipulates that a CGT event has not occurred in relation to that asset.
Finally, the compensation received does not reduce the asset?s ?cost? for depreciation purposes.
Caution: However, this principle does not apply to other situations. In many cases, compensation amounts can be assessable either as income or a capital gain. The facts and the law need to be carefully considered in each case.
5th-August-2003 |
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