Disposing of Assets:
Common Questions for Australian Businesses

When you sell an asset that has been fully written off for tax purposes, its tax written-down value is zero. The full amount you receive for the asset, even if it is just a few thousand dollars, is treated as assessable income in the year of sale. This is called a balancing adjustment. It does not mean you have done anything wrong. It is the other side of the deduction you already claimed. For accountants The balancing adjustment under section 40-285 applies when a depreciating asset is disposed of or ceases to be used for a taxable purpose. The assessable amount equals the termination value (consideration received) minus the tax WDV. For assets written off under the instant asset write-off, WDV is zero, making the full proceeds assessable.

Not always, and it depends on the full lifecycle of the asset. The write-off gives you an earlier tax deduction, which is generally valuable because of the time value of money. But it also reduces the tax WDV to zero immediately, meaning any future sale proceeds will be fully assessable. For assets with a short expected life or low residual value, the write-off is almost always worthwhile. For assets that are likely to be sold for significant proceeds, the modelling is more nuanced. For accountants The optimal decision depends on the NPV of the tax timing benefit versus the cost of the disposal balancing adjustment, discounted at the applicable tax rate. For corporate taxpayers, the 25% or 30% rate applies to both the initial deduction and the disposal income, so the net benefit is purely a time-value-of-money question. For individuals at marginal rates that may change over time, the analysis is more complex.

For most business assets that are depreciating assets under Division 40, the balancing adjustment is assessable income under Division 40, not a capital gain. Capital gains tax generally does not apply to assets that are depreciating assets held solely for income-producing purposes. However, if the asset has both a capital and revenue use, or is a collectible, the rules may differ. Always confirm with your tax advisor. For accountants The CGT exclusion for depreciating assets is in section 118-24 of the ITAA 1997. The exclusion applies to assets whose decline in value is deductible under Division 40. Where an asset is used partly for private purposes, the portion attributable to private use may still give rise to a CGT event. The interaction of Division 40 and CGT for mixed-use assets requires careful analysis.

When an asset is disposed of from the small business pool, the sale proceeds reduce the pool balance rather than triggering an individual asset balancing adjustment. If the pool balance goes negative as a result, that is, the proceeds exceed the remaining pool balance, the negative amount is assessable income. This is why monitoring the pool balance matters, particularly for businesses that have accumulated many write-offs over recent years. For accountants Section 328-215 governs disposals from the general small business pool. The termination value of the disposed asset is deducted from the pool balance. If the result is a negative pool balance, the negative amount is included in assessable income under section 328-215(4). There is no individual asset balancing adjustment, the pool mechanics apply instead.