(a) an amount of eligible relevant expenditure is incurred by a partnership;
(b) apart from this subsection, this section would not operate to deem a tax benefit not to be allowable and never to have been allowable in respect of any part of that amount of eligible relevant expenditure; and
(c) the Commissioner is satisfied that any partner in the partnership became a partner in the partnership by reason of or as a result of an agreement (whether or not that agreement was the agreement by virtue of which the partner became a partner in the partnership) that was entered into by any of the parties to the agreement for the purpose, or primarily for the purpose, of ensuring that this section would not operate to deem a tax benefit not to be allowable and never to have been allowable in respect of any part of the amount of the eligible relevant expenditure;
then, notwithstanding any other provision of this Act, a tax benefit is not allowable and shall be deemed never to have been allowable in respect of any part of that amount of eligible relevant expenditure.
(5) Where:
(a) in the making of an assessment, this section has been applied on the basis that a taxpayer was to be taken to have obtained a benefit by reason that it was reasonable to expect that a person to whom a debt was owed by the taxpayer or an associate of the taxpayer would release, abandon or fail to demand repayment of the debt or of a part of the debt; and
(b) the whole or a part of that debt or of that part of the debt is repaid;
then, notwithstanding anything contained in section 170, the Commissioner may amend the assessment at any time for the purposes of ensuring that this Subdivision shall be taken never to have applied on the basis that it was reasonable to expect that the person to whom the debt was owed would release, abandon or fail to demand repayment of the amount that was repaid.
(6) Where subsection (1), (2) or (4) deems a tax benefit not to be and never to have been allowable in respect of a loss or outgoing incurred by a taxpayer in the purchase of property that, for the purposes of the application of this Act and the Income Tax Assessment Act 1997 in relation to the taxpayer is or was trading stock, then, notwithstanding any other provision of this Act or that Act, the cost or cost price of that property, for the purposes of the application of (Primary production) of the Income Tax Assessment Act 1997 Subdivision B of Division 2 of Part III of this Act or Division 70 (Trading stock) or 385 in relation to that property in relation to the taxpayer, shall be taken to be, and at all times to have been, nil.
(7) Where, at any time after the making of an assessment in relation to a taxpayer, the taxpayer considers that the Commissioner ought to amend the assessment in accordance with subsection (3) or (5), the taxpayer may post to or lodge with the Commissioner a request in writing for an amendment of the assessment in accordance with subsection (3) or (5) or in accordance with subsections (3) and (5).
(8) The Commissioner shall consider the request and shall serve on the taxpayer, by post or otherwise, a written notice of the Commissioner’s decision on the request.
(9) If the taxpayer is dissatisfied with the Commissioner’s decision on the request, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.
Subdivision H—Period of deductibility of certain advance expenditure
82KZL Interpretation
(1) In this Subdivision, unless the contrary intention appears:
agreement means any agreement, arrangement, understanding or scheme, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.
associate has the meaning given by section 318.
eligible service period, in relation to an amount of expenditure incurred under an agreement, means the period from the beginning of:
(a) the day, or the first day, on which the thing to be done under the agreement in return for the amount of expenditure is required, or permitted, as the case may be, to commence being done; or
(b) if the expenditure is incurred on a later day—the day on which the expenditure is incurred;
until the end of:
(c) the day, or the last day, on which the thing to be done under the agreement in return for the amount of expenditure is required, or permitted, as the case may be, to cease being done; or
(d) if that day or last day ends more than 10 years after the beginning of the period—10 years after the beginning of the period.
excluded expenditure means an amount of expenditure:
(a) less than $1,000; or
(b) required to be incurred by a law, or by an order of a court, of the Commonwealth, a State or a Territory; or
(c) under a contract of service; or
(d) to the extent that it is of a capital nature and cannot be deducted under:
(i) section 355‑205 (R&D expenditure); or
(ii) section 355‑480 (earlier year associate R&D expenditure);
of the Income Tax Assessment Act 1997; or
(da) to the extent that it is of a private or domestic nature; or
(e) that has been or is incurred after 21 September 1999 by a general insurance company in connection with the issue of a general insurance policy and was related or relates to the gross premiums derived by the company in respect of the policy; or
(f) that has been or is incurred after 21 September 1999 by a general insurance company in payment of reinsurance premiums in respect of the reinsurance of risks covered by general insurance policies, other than reinsurance premiums that were or are paid in respect of a particular class of insurance business where, under the contract of reinsurance, the reinsurer agrees, in respect of a loss incurred by the company that is covered by the relevant policy, to pay only some or all of the excess over an agreed amount.
pre‑RBT obligation means a contractual obligation that:
(a) exists under an agreement at or before 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999; and
(b) requires the payment of an amount for the doing of a thing under the agreement; and
(c) requires the payment to be made before the doing of the thing; and
(d) cannot be escaped by unilateral action by the party bound by the obligation to make the payment.
R&D activities has the same meaning as in the Income Tax Assessment Act 1997.
transfer includes assign.
(2) Without otherwise limiting the generality of references in this Subdivision to expenditure being incurred under an agreement in return for the doing of a thing under the agreement:
(a) where expenditure incurred under an agreement consists of a payment of loan interest or a payment of a similar kind, the expenditure shall, for the purposes of this Subdivision, be taken to be incurred in return for the making available or continued making available, as the case requires, of the loan principal, or other amount of a similar kind, under the agreement during the period to which the payment relates; and
(b) where expenditure incurred under an agreement consists of a payment of rent, a lease payment or a payment of a similar kind, the expenditure shall, for the purposes of this Subdivision, be taken to be incurred in return for the making available or continued making available, as the case requires, of the thing rented or leased, or other thing of a similar kind, under the agreement during the period to which the payment relates; and
(c) where expenditure incurred under an agreement consists of a payment of an insurance premium or a payment of a similar kind, the expenditure shall, for the purposes of this Subdivision, be taken to be incurred in return for the provision or continued provision, as the case requires, of insurance against the risk concerned, or of a thing of a similar kind, under the agreement during the period to which the payment relates.
(3) This Subdivision has effect as if conducting R&D activities were carrying on a business.
82KZLA Subdivision does not apply to financial arrangements to which Subdivision 250‑E applies
To avoid doubt, this Subdivision does not apply to:
(a) a Division 230 financial arrangement (within the meaning of the Income Tax Assessment Act 1997); or
(b) a financial benefit (within the meaning of that Act) that is provided or received in relation to such an arrangement.
Note: See section 250‑210 of the Income Tax Assessment Act 1997.
82KZLB How this Subdivision applies to deductible R&D expenditure incurred to associates in earlier income years
In addition to its application apart from this section, this Subdivision applies to expenditure deductible under section 355‑480 of the Income Tax Assessment Act 1997 as if:
(a) references in this Subdivision to incurring the expenditure were references to paying the expenditure; and
(b) references in this Subdivision to the expenditure year were references to the payment year.
82KZM Expenditure by small and medium business entities and individuals incurring non‑business expenditure
(1) Where:
(a) a taxpayer incurs expenditure under an agreement entered into after 25 May 1988; and
(aa) at least one of the following applies:
(i) the taxpayer is a small business entity, or is covered by subsection (1A), for the year of income and has not chosen to apply section 82KZMD to the expenditure;
(ii) the taxpayer is an individual and the expenditure is not incurred in carrying on a business;
(iii) the expenditure meets a pre‑RBT obligation (see subsection 82KZL(1)); and
(b) the expenditure is not excluded expenditure; and
(ba) either:
(i) the eligible service period for the expenditure is longer than 12 months; or
(ii) the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred; and
(c) apart from this section, a deduction under:
(i) section 8‑1; or
(ii) section 355‑205 (R&D expenditure) or 355‑480 (earlier year associate R&D expenditure);
of the Income Tax Assessment Act 1997, in respect of the expenditure, would be allowable from the taxpayer’s assessable income for the year of income in which the expenditure is incurred;
then, for the purposes of this Act, instead of the deduction being allowable as mentioned in paragraph (c), a proportion of the deduction is allowable from the assessable income of the taxpayer of each year of income during which the whole or part of the eligible service period in relation to the expenditure occurs, being a proportion ascertained in accordance with the formula:
Start formula start fraction Period in year over Eligible service period end fraction end formula
where:
Period in year is the number of days in the whole or the part of the eligible service period that occurs in the year of income.
Eligible service period is the number of days in the eligible service period.
(1A) A taxpayer is covered by this subsection for a year of income if:
(a) the taxpayer is not a small business entity for the year of income; and
(b) the taxpayer would be a small business entity for the year of income if:
(i) each reference in Subdivision 328‑C (about what is a small business entity) of the Income Tax Assessment Act 1997 to $10 million were instead a reference to $50 million; and
(ii) the reference in paragraph 328‑110(5)(b) of that Act to a small business entity were instead a reference to a taxpayer covered by this subsection.
(2) Subsection (1) has effect subject to Division 245 of the Income Tax Assessment Act 1997.
82KZMA Application of section 82KZMD
Overview
(1) Section 82KZMD sets the amount and timing of deductions for expenditure that a taxpayer incurs in a year of income (the expenditure year), if:
(a) apart from that section, the taxpayer could deduct the expenditure for the expenditure year under:
(i) section 8‑1; or
(ii) section 355‑205 (R&D expenditure) or 355‑480 (earlier year associate R&D expenditure);
of the Income Tax Assessment Act 1997; and
(b) the requirements in subsections (2), (3), (4) and (5) are met.
Requirements for taxpayer
(2) The taxpayer:
(a) must:
(i) carry on a business; or
(ii) be a taxpayer that is not an individual and that does not carry on a business; and
(b) if the taxpayer is a small business entity, or is covered by subsection (2A), for the expenditure year—must, before lodging its return of income for that year or within such further time as the Commissioner allows, choose to apply section 82KZMD to the expenditure.
(2A) A taxpayer is covered by this subsection for the expenditure year if:
(a) the taxpayer is not a small business entity for the expenditure year; and
(b) the taxpayer would be a small business entity for the expenditure year if:
(i) each reference in Subdivision 328‑C (about what is a small business entity) of the Income Tax Assessment Act 1997 to $10 million were instead a reference to $50 million; and
(ii) the reference in paragraph 328‑110(5)(b) of that Act to a small business entity were instead a reference to a taxpayer covered by this subsection.
(3) The expenditure must be:
(a) either:
(i) incurred in carrying on a business; or
(ii) incurred otherwise than in carrying on a business by a taxpayer that is not an individual; and
(b) incurred under an agreement (see subsection 82KZL(1); and
(c) incurred in return for the doing of a thing under the agreement that is not to be wholly done within the expenditure year.
Requirement for expenditure not to be excluded expenditure
(4) The expenditure must not be excluded expenditure (see subsection 82KZL(1)).
Requirement for expenditure not to meet pre‑RBT obligation
(5) The expenditure must not meet a pre‑RBT obligation (see subsection 82KZL(1)).
Relationship with other provisions
(6) Section 82KZMD has effect:
(a) despite section 8‑1 of the Income Tax Assessment Act 1997; and
(b) subject to Division 245 of that Act.
82KZMD Business expenditure and non‑business expenditure by non‑individual
(2) For each year of income containing all or part of the eligible service period for the expenditure, the taxpayer may deduct the amount worked out using the formula:
Start formula Expenditure times start fraction Number of days of eligible service period in the year of income over Total number of days of eligible service period end fraction end formula
Note: This section does not apply to expenditure incurred by a small or medium business entity unless the entity chooses to apply this section to the expenditure: see paragraph 82KZMA(2)(b).
82KZME Expenditure under some agreements
(1) Section 82KZMF applies to set the amount and timing of deductions for expenditure that a taxpayer incurs in a year of income (the expenditure year) if:
(a) apart from that section, the taxpayer could deduct the expenditure for the expenditure year under:
(i) section 8‑1; or
(ii) section 355‑205 (R&D expenditure) or 355‑480 (earlier year associate R&D expenditure);
of the Income Tax Assessment Act 1997; and
(c) the requirements of subsections (2) and (3) are met.
Note: There are some exceptions: see subsections (5), (7), (8) and (9).
General requirements for expenditure
(2) The expenditure must be incurred:
(a) after 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999 under an agreement; and
(b) in return for the doing of a thing under the agreement that is not to be wholly done within the expenditure year.
Requirements for agreement
(3) There are these requirements for the agreement:
(a) the taxpayer’s allowable deductions for the expenditure year that are attributable to the agreement must exceed the taxpayer’s assessable income (if any) for the expenditure year that is attributable to the agreement; and
(b) the taxpayer does not have day to day control over the operation of the agreement (whether or not the taxpayer has the right to be consulted or give directions); and
(c) at least one of these must be satisfied:
(i) there is more than one participant in the agreement in the same capacity as the taxpayer;
(ii) the person who manages, arranges or promotes the agreement, or an associate of that person, manages, arranges or promotes similar agreements for other taxpayers.
Activities that relate to the agreement
(4) Without affecting the operation of any other section in this Subdivision, an agreement referred to in this section includes all activities that relate to the agreement, including those that give rise to deductions or assessable income.
Exception 1: certain negatively geared investments
(5) The expenditure must not be:
(a) a premium for building insurance, contents insurance or rent protection insurance; or
(b) interest on money borrowed to acquire:
(i) real property or an interest in real property; or
(ii) shares that are listed for quotation in the official list of an approved stock exchange; or
(iii) units in a trust that has at least 300 beneficiaries and is a widely held unit trust as defined in section 272‑105 in Schedule 2F;
where:
(c) the taxpayer has obtained, or can reasonably be expected to obtain, rent, dividends or trust income from the agreement; and
(d) the taxpayer has not obtained and will not obtain any other kind of assessable income from the agreement (except a capital gain or an insurance receipt); and
(e) all aspects of the agreement have been conducted at arm’s length.
Exception 3: expenditure is excluded expenditure
(7) The expenditure must not be excluded expenditure (see subsection 82KZL(1)).
Exception 4: expenditure meets a pre‑existing obligation
(8) The expenditure by the taxpayer must not meet a contractual obligation that:
(a) exists under an agreement at or before 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999; and
(b) requires the payment of an amount for the doing of a thing under the agreement; and