63F Limit on deductions where debt write offs and debt/equity swaps occur
Situations where limit is to be applied
(1) If:
(a) apart from this section, a deduction (the current deduction) would be allowable to a taxpayer:
(i) under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997 in respect of the writing off of the whole or part of a debt as bad; or
(ii) under section 63E of this Act in respect of a debt/equity swap relating to the whole or part of a debt; and
(b) a deduction (a previous deduction) was allowed or allowable to the taxpayer under any of those sections, under former section 51 of this Act or under section 63 in respect of any number of occurrences of either or both of the following:
(i) a previous writing off as bad of the whole or part of a debt (a previous debt) that was the same as, or included, the debt mentioned in subparagraph (a)(i) or (ii);
(ii) a previous debt/equity swap relating to a part of a debt (a previous debt) that was the same as, or included, the debt mentioned in subparagraph (a)(i) or (ii); and
(c) the current deduction or at least one previous deduction is a deduction allowable under section 63E of this Act in respect of a debt/equity swap;
then the current deduction is only allowable to the extent that it does not exceed the limit worked out under subsection (2).
Calculation of limit
(2) The limit is worked out as follows:
Step 1: Take the amount of the previous debt in respect of the earliest or only writing off or debt/equity swap to which paragraph (1)(b) applies.
Step 2: Reduce the amount by the previous deduction in respect of that writing off or debt/equity swap.
Step 3: If one or more of the following events occur after the writing off or debt/equity swap, progressively reduce the balance of the amount in the way set out below and in the order in which the events occur:
Event How balance reduced
A writing off or debt/equity swap in respect of which there is a previous deduction. Reduce the balance by the amount of that previous deduction. If the reduced balance is higher than the level of the debt owing after the event, further reduce the balance to that lower level.
Any other event (e.g. a repayment) that reduces the amount of debt owing, being an event that occurs before the writing off or debt/equity swap in respect of the current deduction. If the balance at the time of the event is higher than the level of the debt owing after the event occurs, reduce the balance to that lower level
The limit is the resulting balance.
63G Bad debts etc. of trust not allowable in certain circumstances
If:
(a) a deduction is allowable from a trust’s assessable income of any year of income:
(i) under former section 51 of this Act, under section 63 of this Act or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997 in respect of the writing off of the whole or part of a debt as bad; or
(ii) under subsection 63E(3) or (4) in respect of the extinguishment of the whole or part of a debt; and
(b) the debt was incurred as well as written off or extinguished on the last day of the year of income;
the deduction is not allowable.
Schedule 2F may also prevent a taxpayer deducting an amount in respect of a debt in other circumstances.
65 Payments to associated persons and relatives
(1B) Where, by virtue of section 26‑35 (Reduction of deduction for amounts paid to related entities) of the Income Tax Assessment Act 1997, an amount is not allowable as a deduction in calculating in accordance with section 90 of this Act the net income, or a partnership loss, of a partnership in which a company, being a private company in relation to the year of income of the company to which the individual interest of the company in the net income of the partnership or in the partnership loss relates, is a partner:
(a) the company shall, for the purposes of this Act other than Division 11A, be deemed to have paid, on the last day of that year of income, a dividend of an amount ascertained in accordance with subsection (1C); and
(b) subsection 26‑35(4) of the Income Tax Assessment Act 1997 does not apply in relation to so much of the amount that is not so allowable as a deduction as is equal to the amount of the dividend that the company is to be so deemed to have paid.
(1C) For the purposes of subsection (1B), the amount of the dividend that the company is to be deemed to have paid is:
(a) where the effect of the disallowance of the deduction has been to increase the net income of the partnership—an amount equal to the difference between the amount of the individual interest of the company in the net income of the partnership and the amount that would have been the individual interest of the company in the net income of the partnership if the deduction had been allowed;
(b) where the effect of the disallowance of the deduction has been to reduce the partnership loss—an amount equal to the difference between the amount of the individual interest of the company in the partnership loss and the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed;
(c) where there is net income of the partnership and the amount of the deduction that was disallowed is equal to that net income—an amount equal to the individual interest of the company in the net income of the partnership;
(d) where there is net income of the partnership and, but for the disallowance of the deduction, there would have been a partnership loss—an amount equal to the sum of the amount of the individual interest of the company in the net income of the partnership and the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed; and
(e) where there is no net income of the partnership and, but for the disallowance of the deduction, there would have been a partnership loss—an amount equal to the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed.
70B Deduction for loss on disposal or redemption of traditional securities
(1) Expressions used in this section that are also used in section 26BB have the same meanings in this section as in section 26BB.
(2) Where a taxpayer disposes of a traditional security or a traditional security of a taxpayer is redeemed, the amount of any loss on the disposal or redemption is allowable as a deduction from the assessable income of the taxpayer of the year of income in which the disposal or redemption takes place.
(2A) A deduction is not allowable under subsection (2) for a loss on the disposal or redemption of traditional securities that are:
(a) segregated exempt assets (for the purposes of the Income Tax Assessment Act 1997) of a life assurance company; or
(b) segregated current pension assets (as defined in the Income Tax Assessment Act 1997) of a complying superannuation fund.
(2B) A deduction is not allowable under subsection (2) for a loss on the disposal or redemption of a traditional security if:
(a) the disposal or redemption occurs because the traditional security is converted into ordinary shares in a company that is:
(i) the issuer of the traditional security; or
(ii) a connected entity of the issuer of the traditional security; and
(b) the traditional security was issued on the basis that it will or may convert into ordinary shares in:
(i) the issuer of the traditional security; or
(ii) the connected entity.
(2C) A deduction is not allowable under subsection (2) for a loss on the disposal or redemption of a traditional security if:
(a) the disposal or redemption is in exchange for ordinary shares in a company that is neither:
(i) the issuer of the traditional security; nor
(ii) a connected entity of the issuer of the traditional security; and
(b) in the case of a disposal—the disposal is to:
(i) the issuer of the traditional security; or
(ii) a connected entity of the issuer of the traditional security; and
(c) the traditional security was issued on the basis that it will or may be:
(i) disposed of to the issuer of the traditional security or to the connected entity; or
(ii) redeemed;
in exchange for ordinary shares in the company.
(3) Where the Commissioner, having regard to any connection between the parties to the transaction by which the taxpayer disposed of the traditional security or by which it was redeemed, or by which the taxpayer acquired the traditional security, is satisfied that the parties were not dealing with each other at arm’s length in relation to the transaction, then, for the purposes of determining under subsection (2) the amount of any loss on the disposal or redemption, the consideration for the transaction shall be taken to be:
(a) the amount that might reasonably be expected for the transaction if the parties were independent parties dealing at arm’s length with each other; or
(b) where, for any reason it is not possible or practicable for the Commissioner to ascertain that amount—such amount as the Commissioner determines.
(4) If:
(a) a taxpayer disposes of a traditional security or a traditional security of a taxpayer is redeemed; and
(b) there is a loss on the disposal or redemption; and
(c) in the case of a disposal or redemption of a marketable security:
(i) the taxpayer did not acquire the security in the ordinary course of trading on a securities market; and
(ii) at the time the taxpayer acquired the security, it was not open to the taxpayer to acquire an identical security in the ordinary course of trading on a securities market; and
(d) in the case of a disposal of a marketable security—the disposal did not take place in the ordinary course of trading on a securities market; and
(e) having regard to:
(i) the financial position of the issuer of the security; and
(ii) perceptions of the financial position of the issuer of the security; and
(iii) other relevant matters;
it would be concluded that the disposal or redemption took place for the reason, or for reasons that included the reason, that there was an apprehension or belief that the issuer was, or would be likely to be, unable or unwilling to discharge all liability to pay amounts under the security;
a deduction is not allowable to the taxpayer under this section in respect of so much of the amount of the loss as is a loss of capital or a loss of a capital nature.
(5) A reference in this section to the disposal by a taxpayer of a security, or to the redemption of a security of a taxpayer, does not include a reference to the waiver or release by the taxpayer of:
(a) the whole or a part of the debt the subject of the security; or
(b) any other right of the taxpayer under the security.
(6) Subsection (5) does not, by implication, affect the meaning of an expression used in:
(a) a provision of this Act other than this section; or
(b) any other law of the Commonwealth.
(7) In this section:
issuer, in relation to a security at a particular time, means the person who, if the amount or amounts payable under the security were due and payable at that time, would be liable to pay the amount or amounts.
marketable security means a traditional security that is covered by paragraph (a) of the definition of security in subsection 159GP(1).
securities market means a market, exchange or other place at which, or a facility by means of which, offers to sell, purchase or exchange marketable securities are regularly made or accepted.
73A Expenditure on scientific research
(1A) This section has effect subject to Division 245 of the Income Tax Assessment Act 1997.
(1) The following payments made, and expenditure incurred, during the year of income (other than any amount which is allowable as a deduction under any other section of this Act) by a person carrying on a business for the purpose of gaining or producing assessable income shall be allowable deductions:
(a) Payments to:
(i) an approved research institute for scientific research related to that business; or
(ii) an approved research institute, the object of which is the undertaking of scientific research related to the class of business to which that business belongs; and
(b) Expenditure of a capital nature on scientific research related to that business (except to the extent that it is expenditure on plant, machinery, land or buildings or on alterations, additions or extensions to buildings or in the acquisition of rights in or arising out of scientific research).
(2) Where, on or after the first day of the year of income ending on 30 June 1946, a taxpayer carrying on a business for the purpose of gaining or producing assessable income incurs expenditure of a capital nature in the construction or acquisition of a building, or part of a building, or in making any alteration or addition to a building, in which scientific research related to that business is to be carried on by or on behalf of the taxpayer, and the building, part of a building, alteration or addition, as the case may be, is of use for scientific research purposes only, an amount equal to one‑third of that expenditure shall be an allowable deduction:
(a) from the assessable income of the year of income in which the building, part of a building, alteration or addition is first used by or on behalf of the taxpayer for such scientific research; and
(b) from the assessable income of each of the 2 years of income next succeeding that year of income, if the taxpayer continues to carry on that business during the year in which that assessable income was derived.
(2A) Subsection (2) does not apply to expenditure incurred by a taxpayer in the construction of a building or part of a building, in the making of an alteration or addition to a building or in the acquisition of a building or part of a building unless:
(a) either of the following subparagraphs applies:
(i) that construction or making commenced, or that acquisition occurred, before 21 November 1987;
(ii) any contract in respect of that construction, making or acquisition was entered into before 21 November 1987; and
(b) if the expenditure was incurred after 20 November 1987—the taxpayer intended, on 20 November 1987, that:
(i) scientific research, being research related to a business carried on by the taxpayer for the purpose of gaining or producing assessable income, would be carried on by or on behalf of the taxpayer in the building; and
(ii) the building, part of the building, alteration or addition, as the case may be, would be of use for scientific research purposes only.
(3) Where any expenditure or payment to which this section refers is incurred or made outside Australia and the business in relation to which it is so incurred or made is carried on partly in and partly out of Australia, the deduction allowable under this section shall be such part of the amount which would otherwise be allowable as the Commissioner considers reasonable in the circumstances.
(4) Where any expenditure has been allowed or is allowable as a deduction under subsection (2) and:
(a) the taxpayer sells, transfers or otherwise disposes of the building or any part thereof; or
(b) the building or any part thereof is destroyed;
the termination value of the building or part shall, to the extent of the expenditure so allowed or allowable as a deduction, be included in the assessable income of the year of income in which the disposal or destruction occurs:
Provided that where the Commissioner is of opinion that part only, or no part, of that termination value relates to the disposal or destruction of any property which was acquired or created by that expenditure, that part only, or no part, as the case may be, of the termination value shall be taken into account for the purposes of this subsection.
(4A) If:
(a) a person has purchased from another person a building, or part of a building, where the vendor had incurred capital expenditure of a kind in respect of which deductions are or have been allowable under subsection (2); and
(b) it would be concluded that, having regard to any connection between the vendor and the purchaser or to any other relevant circumstances, those persons were not dealing with each other at arm’s length; and
(c) the purchase price is greater or lesser than the market value of the building, or the part of the building, at the time of the purchase;
the purchase price is, for all purposes of the application of this Act in relation to the vendor, taken to have been the amount of the market value of the property at the time of the purchase.
(5) If the purchase of the building is a creditable acquisition by the vendor, references in subsection (4A) to the purchase price are taken to be references to that price reduced by the amount of the net input tax credit to which the purchaser is entitled for the acquisition.
(6) In this section:
an approved research institute means the Commonwealth Scientific and Industrial Research Organization, or any university, college, institute, association or organization which is approved in writing for the purposes of this section by that Organization, by the Chief Executive Officer of the NHMRC or by the Research Secretary, as an institution, association or organization for undertaking scientific research which is or may prove to be of value to Australia.
NHMRC means the National Health and Medical Research Council established by section 5B of the National Health and Medical Research Council Act 1992.
Research Secretary means the Secretary of the Department administered by the Minister administering the Australian Research Council Act 2001.
scientific research means any activities in the fields of natural or applied science for the extension of knowledge.
termination value has the meaning given by subsection 995‑1(1) of the Income Tax Assessment Act 1997.
(7) An approval for the purposes of subsection (6) may: