Fundamental Tax Legislation 2020 [(2020 Edition)]

Table of contents :
HOW TO USE
PREFACE
ACKNOWLEDGMENTS
TABLE OF CONTENTS
KEY TAX FORMULAE
TAX RATES AND TABLES 2020
YEAR IN REVIEW – 2019
INCOME TAX ASSESSMENT ACT 1997
CHAPTER 1 INTRODUCTION AND CORE PROVISIONS
CHAPTER 2 LIABILITY RULES OF GENERAL APPLICATION
CHAPTER 3 SPECIALIST LIABILITY RULES
CHAPTER 4 INTERNATIONAL ASPECTS OF INCOME TAX
CHAPTER 5 ADMINISTRATION
CHAPTER 6 THE DICTIONARY
INCOME TAX ASSESSMENT ACT 1936
INCOME TAX ASSESSMENT (1936 ACT) REGULATION 2015
INCOME TAX RATES ACT 1986
MEDICARE LEVY ACT 1986
A NEW TAX SYSTEM (GOODS AND SERVICES TAX) ACT 1999
A NEW TAX SYSTEM (GOODS AND SERVICES TAX) REGULATIONS 2019
FRINGE BENEFITS TAX ACT 1986
FRINGE BENEFITS TAX ASSESSMENT ACT 1986
SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993
SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994
SUPERANNUATION GUARANTEE (ADMINISTRATION) ACT 1992
INTERNATIONAL TAX AGREEMENTS ACT 1953
INCOME TAX (DIVIDENDS, INTEREST AND ROYALTIES WITHHOLDING TAX) ACT 1974
TAXATION ADMINISTRATION ACT 1953
TAXATION ADMINISTRATION REGULATIONS 2017
INCOME TAX ACT 1986
INSPECTOR-GENERAL OF TAXATION ACT 2003
TAX AGENT SERVICES ACT 2009
TAX AGENT SERVICES REGULATIONS 2009

Citation preview

CORE TAX

Fundamental Tax Legislation 2020

Income Tax Assessment Act 1997

Income Tax Assessment Act 1936

Income Tax Assessment (1936 Act) Regulation 2015

Income Tax Rates Act 1986

Thomson Reuters (Professional) Australia Limited 19 Harris Street PYRMONT NSW 2009 Tel: (02) 8587 7000 [email protected] http://www.thomsonreuters.com.au For all customer inquiries please ring 1300 304 195 (for calls within Australia only) INTERNATIONAL AGENTS & DISTRIBUTORS NORTH AMERICA Thomson Reuters Eagan United States of America

ASIA PACIFIC Thomson Reuters Sydney Australia

LATIN AMERICA Thomson Reuters São Paulo Brazil

EUROPE Thomson Reuters London United Kingdom

OTHER INCOME TAX

Fundamental Tax Legislation 2020

Medicare Levy Act 1986

GST

A New Tax System (GST) Act 1999

A New Tax System (GST) Regulations 2019

FRINGE BENEFITS TAX

Fringe Benefits Tax Act 1986

Fringe Benefits Tax Assessment Act 1986

SUPERANNUATION

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Regulations 1994

Superannuation Guarantee (Administration) Act 1992

INTERNATIONAL

International Tax Agreements Act 1953

Dividend Interest and Royalties Tax Act

ADMINISTRATIVE PROVISIONS

Inspector-General of Taxation Act 2003

Taxation Administration Act 1953/Tax Agent Services Act 2009

Taxation Administration Regulations 2017/ Tax Agent Services Regulations 2009

Income Tax Act 1986

Fundamental Tax Legislation 2020 AUTHORS

DALE PINTO Professor of Taxation Law Curtin Law School, Curtin University and

KEITH KENDALL Member Administrative Appeals Tribunal and

KERRIE SADIQ Professor of Taxation School of Accountancy, Queensland University of Technology

Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 19 Harris Street, Pyrmont, NSW, 2009

First edition.........................................................1992 Second edition ....................................................1993 Third edition .......................................................1994 Fourth edition .....................................................1995 Fifth edition ........................................................1996 Sixth edition........................................................1997 Seventh edition ...................................................1998 Eighth edition .....................................................1999 Ninth edition.......................................................2000 Tenth edition.......................................................2001 Eleventh edition..................................................2002 Twelfth edition....................................................2004 Thirteenth edition ...............................................2005 Fourteenth edition...............................................2006

Fifteenth edition..................................................2007 Sixteenth edition.................................................2008 Seventeenth edition ............................................2009 Eighteenth edition...............................................2010 Nineteenth edition...............................................2011 Twentieth edition ................................................2012 Twenty-first edition ............................................2013 Twenty-second edition........................................2014 Twenty-third edition ...........................................2015 Twenty-fourth edition .........................................2016 Twenty-fifth edition ............................................2017 Twenty-sixth edition ...........................................2018 Twenty-seventh edition ......................................2019 Twenty-eighth edition.........................................2020

National Library of Australia Cataloguing-in-Publication entry Australia. ISSN 1329–9574 Product No: 978 0455 244006 © 2020 Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act 1968, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Inquiries should be addressed to the publishers. The publishers, authors, contributors and endorsers of this publication each exclude liability for loss suffered by any person resulting in any way from the use of, or reliance on this publication. Copyright of Commonwealth legislative material: All Commonwealth legislative material is reproduced by permission but does not purport to be the official or authorised version. Some changes in layout and design have been made to enhance the readability, but the greatest care has been taken not to alter the text of the law. This publication is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth legislation. In particular, s 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction or publication beyond that permitted by the Act, permission should be sought in writing. Requests should be addressed to the Manager, Copyright Services, Info Access, Department of Communications, Information Technology and the Arts, GPO Box 1920, Canberra City ACT 2601, or e-mailed to [email protected]

This book has been printed on paper certified by the Programme for the Endorsement of Forest Certification (PEFC). PEFC is committed to sustainable forest management through third party forest certification of responsibly managed forests. For more info: www.pefc.org

HOW TO USE To locate the sections, use the information in the running heads which will indicate the Part, Division and Subdivision in each Act or Regulation where relevant as well as the provision number above the rule. To locate the sections in the Income Tax Assessment Act 1997 and A New Tax System (Goods and Services) Act 1999: • identify the relevant Division number (each section number includes the Division number as a prefix); then • locate the start of the Division using the running heads and thumb through to the required section. A complete list of the sections included for each Act and Regulation is provided in the table of provisions. Please note that tables of subdivisions, although forming part of the legislation, have not been reproduced. Repealed provisions have also been excluded. This book includes extracts on: Core tax Income Tax Income Tax Income Tax Income Tax

Assessment Act 1997 Assessment Act 1936 Assessment (1936 Act) Regulation 2015 Rates Act 1986

Other income tax Medicare Levy Act 1986 GST A New Tax System (Goods and Services Tax) Act 1999 A New Tax System (Goods and Services Tax) Regulations 2019 Fringe Benefits Tax Fringe Benefits Tax Act 1986 Fringe Benefits Tax Assessment Act 1986 Superannuation Superannuation Industry (Supervision) Act 1993 Superannuation Industry (Supervision) Regulations 1994 Superannuation Guarantee (Administration) Act 1992 International International Tax Agreements Act 1953 Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 Administrative Provisions Taxation Administration Act 1953 Taxation Administration Regulations 2017 Income Tax Act 1986 Inspector-General of Taxation Act 2003

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How to Use

Tax Agent Services Act 2009 Tax Agent Services Regulations 2009

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Fundamental Tax Legislation 2020

PREFACE First published in 1992, this is the 28th edition of Thomson Reuters’ Fundamental Tax Legislation. It contains extracts of tax-related legislation as it stood on 31 December 2019, with updates after that date being incorporated as far as possible. Updated and expanded for 2020, this volume is an indispensable reference for undergraduate and postgraduate students of taxation. 2019 was another busy year for tax in Australia. Many separate amending Acts relating to taxation were assented to during the year. Assented legislative changes are contained in a Year in Review section, which summarises the legislative developments in taxation over the previous 12 months. A Tax Rates and Tables section which contains an accessible summary of the main tax rates and tables that students will need to refer to for their tax studies is also included at the front of the 2020 edition of Fundamental Tax Legislation. We wish to acknowledge the significant contribution by the editing and production staff at Thomson Reuters, and would like to particularly recognise the patience, professionalism and good humour of Stephen Rennie, Sandesh Reddy Gaddam and Rebecca Beech who have been an absolute pleasure to work with on this project. Finally, and most importantly, we must record our thanks to our families, whose ongoing support, encouragement and sacrifices made completion of this edition possible. Professor Dale Pinto Professor Kerrie Sadiq Dr Keith Kendall December 2019 Fundamental Tax Legislation 2020 contains extracts of legislation as it stood on 31 December 2019.

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ACKNOWLEDGMENTS Contributions from the following persons are gratefully acknowledged. THOMSON REUTERS (PROFESSIONAL) AUSTRALIA LIMITED Editorial staff: Sandesh Reddy Gaddam, Rebecca Beech, Anicee Dowling, Sophie Fotis, Jason Diamond, Sumitha Chintha Kuntla and Jessica Feenstra Technical production: Patrick Harper Product developer: Stephen Rennie Publisher: Robert Wilson

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TABLE OF CONTENTS How to Use .................................................................................................................................................... iii Preface ............................................................................................................................................................. v Key Tax Formulae ......................................................................................................................................... xi Tax Rates and Tables ................................................................................................................................... xiii Year In Review – 2019 ............................................................................................................................. xxiii Income Tax Assessment Act 1997 ............................................................................................................... 27 Chapter 1 – Introduction and core provisions ........................................................................................... 101 Chapter 2 – Liability rules of general application .................................................................................... 145 Chapter 3 – Specialist liability rules .......................................................................................................... 423 Chapter 4 – International aspects of income tax ..................................................................................... 1165 Chapter 5 – Administration ...................................................................................................................... 1285 Chapter 6 – The dictionary ...................................................................................................................... 1299 Income Tax Assessment Act 1936 ........................................................................................................... 1447 Income Tax Assessment (1936 Act) Regulation 2015 ............................................................................. 1817 Income Tax Rates Act 1986 ..................................................................................................................... 1829 Medicare Levy Act 1986 .......................................................................................................................... 1853 A New Tax System (Goods and Services Tax) Act 1999 ....................................................................... 1861 A New Tax System (Goods and Services Tax) Regulations 2019 .......................................................... 1991 Fringe Benefits Tax Act 1986 ................................................................................................................... 2009 Fringe Benefits Tax Assessment Act 1986 ............................................................................................... 2011 Superannuation Industry (Supervision) Act 1993 .................................................................................... 2117 Superannuation Industry (Supervision) Regulations 1994 ...................................................................... 2159 Superannuation Guarantee (Administration) Act 1992 ............................................................................ 2171 International Tax Agreements Act 1953 ................................................................................................... 2199 Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 ......................................... 2225 Taxation Administration Act 1953 ........................................................................................................... 2227 Taxation Administration Regulations 2017 .............................................................................................. 2347 Income Tax Act 1986 ............................................................................................................................... 2355 Inspector-General of Taxation Act 2003 .................................................................................................. 2357 Tax Agent Services Act 2009 ................................................................................................................... 2363 Tax Agent Services Regulations 2009 ..................................................................................................... 2395

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KEY TAX FORMULAE The Key Tax Formula applicable to all entities can be set out as follows: Assessable Income Minus Deductions = Taxable Income apply Tax Rates = Gross Tax Payable Minus Offsets = Net Tax Payable Add Medicare Levy and Surcharge

For applicable rates, offsets and surcharges, see the Tax Rates and Tables 2020 section of this book.

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TAX RATES AND TABLES 2020 The following information has been extracted from Thomson Reuters’ Tax Rates and Tables.

GENERAL RATES – RESIDENTS Taxable income $ 0 - 18,200 18,201 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001+

Tax payable1, 2, 3, 4 $ Nil Nil + 19% of excess over 18,200 3,572 + 32.5% of excess over 37,000 20,797 + 37% of excess over 90,000 54,097 + 45% of excess over 180,000

1 Does not include Medicare levy (payable at a flat rate of 2% of taxable income). 2 Individuals with business income from an unincorporated small business entity (eg sole traders) can claim a tax offset of 8% (capped at $1,000). 3 The first $37,000 of taxable income earned by certain working holiday makers is taxed at 15% even if the person is a resident. 4 The $87,000 threshold increased to $90,000 from 2018-19. From 2022-23, the $37,000 threshold for the 19% rate will increase to $45,000 and the $90,000 threshold for the 32.5% rate will increase to $120,000. From 2024-25, the rate that applies to taxable income between $45,000 and $200,000 will be 30% and the top marginal tax rate of 45% will apply to taxable income in excess of $200,000.

GENERAL RATES – FOREIGN RESIDENTS Taxable income $ 0 - 90,000 90,001 - 180,000 180,001+

Tax payable1, 2, 3, 4 $ 32.5% 29,250 + 37% of excess over 90,000 62,550 + 45% of excess over 180,000

1 Foreign residents who hold a Special Program Visa (subclass 416) and are employed by an approved employer under the Seasonal Labour Mobility Program will be taxed at 15%. 2 Individuals with business income from an unincorporated small business entity (eg sole traders) can claim a tax offset of 8% (capped at $1,000). 3 The first $37,000 of taxable income earned by certain working holiday makers is taxed at 15% instead of 32.5%. 4 The $87,000 threshold increased to $90,000 from 2018-19. From 2022-23, the $90,000 threshold for the 32.5% rate will increase to $120,000. From 2024-25, the rate that applies to all taxable income not exceeding $200,000 will be 30% and the top marginal tax rate of 45% will apply to taxable income in excess of $200,000.

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Tax Rates and Tables 2020

MEDICARE LEVY – GENERAL RATE Medicare levy applies only to residents. The rate of Medicare levy from the 2014-15 income year and onwards is 2%. The 2019-20 rate scales are unlikely to be known until May 2020. The 2018-19 rates are summarised in the table below. Taxpayer Individual Senior and pensioner tax offset (SAPTO)

Taxable income $ 0 - 22,398 22,399 - 27,997 27,998+ 0 - 35,418 35,419 - 44,272 44,273+

Medicare levy payable $ Nil 10% of excess over 22,398 2% of entire amount Nil 10% of excess over 35,418 2% of entire amount

MEDICARE LEVY – SURCHARGE The Medicare levy surcharge is means tested against 3 income tier thresholds. Taxpayers who do not have the appropriate level of private patient hospital cover will be subject to a higher rate of surcharge. The surcharge thresholds are indexed but have been paused at 2014-15 rates with effect from 1 July 2015 until 30 June 2021. Therefore the thresholds and surcharge rates below will apply for the 2015-16 to 2020-21 income years.

$ Singles 0 - 90,000 Families1 0 - 180,000 Medicare levy surcharge Rates 0.0%

Tier 1 $ 90,001 - 105,000 180,001 - 210,000

Tier 2 $ 105,001 - 140,000 210,001 - 280,000

Tier 3 $ 140,001+ 280,001+

1.0%

1.25%

1.5%

1. For families with 2 dependants who are children, the surcharge thresholds to tiers 1, 2 and 3 are increased by $1,500. The thresholds then increase by $1,500 for each additional child. For a more detailed analysis of the Medicare levy surcharge, refer to Thomson Reuters’ Australian Tax Handbook 2020.

LOW INCOME TAX OFFSET (LITO) Taxable income (TI) $ 0 - 37,000 37,001 - 66,666 66,667+

Offset $ 445 445 − ([TI − 37,000] × 1.5%) Nil

LOW AND MIDDLE INCOME TAX OFFSET (LMITO) Taxable income (TI) $ 0 - 37,000 37,001 – 48,000 48,001 – 90,000 90,001 – 126,000

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Offset $ 255 255 + ([TI – 37,000] × 7.5%) 1,080 1,080 – ([TI – 90,000] × 3%)

Fundamental Tax Legislation 2020

Tax Rates and Tables 2020

Taxable income (TI) $ 126,001+

Offset $ Nil

A low and middle income tax offset (LMITO) applies from the 2018-19 income year (until the 2021-22 income year) for resident individuals (and certain trustees) with taxable income not exceeding $126,000. The amount of the offset will depend on the individual’s taxable income as set out in the table above. From 2022-23, LMITO and the existing low income tax offset (LITO) will be replaced by a new LITO. The LMITO is in addition to the LITO so that a resident taxpayer may receive both tax offsets. It is non-refundable and cannot be carried forward, transferred or used to reduce the Medicare levy. Similarly to the LITO, an eligible minor is not able to access the LMITO to reduce the tax payable on “unearned income” under Div 6AA of the ITAA 1936.

MINORS (DIVISION 6AA) INCOME – RESIDENT MINORS Div 6AA income $ 0 - 416 417 - 1,307 1,308+

Tax payable1, 3 $ Nil 66% of excess over 416 45%2 of entire amount

1 Rates apply if a minor beneficiary is only entitled to Div 6AA income from a trust estate (ie unearned income of minors). Note that minors will not be able to access the low income tax offset to reduce the tax payable on unearned income caught by Div 6AA. 2 The temporary budget repair levy (2%) ceased to apply from 1 July 2017. 3 A minor who qualifies as a small business entity may be entitled to the small business tax offset.

MINORS (DIVISION 6AA) INCOME – FOREIGN RESIDENT MINORS Div 6AA income $ 0 - 416 417 - 663 664+

Tax payable1 $ 32.5% of entire amount 135.20 + 66% of excess over 416 45%2 of entire amount

1 A minor who qualifies as a small business entity may be entitled to the small business tax offset. 2 The 2% temporary budget repair levy ceased to apply from 1 July 2017.

COMPANIES – GENERAL RATE Corporate tax rates are uniform regardless of whether the company is public or private. However, special rates apply to certain non-profit companies. Special rates also apply to certain companies that provide Retirement Savings Accounts (RSA), but only on those accounts. 2019-20 and later income years Financial year Aggregated turnover less than 2019-20 $50m 2020-21 $50m 2021-22+ $50m

Corporate tax rate1 27.5% 26% 25%

1 As originally enacted, the rate would have remained at 27.5% until 2024-25 and then it would have gradually reduced to 25% by 2026-27.

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Tax Rates and Tables 2020

TRUSTEE RATES SECTION 98 ASSESSMENTS – RESIDENT BENEFICIARIES

Taxable income $ 0 - 18,200 18,201 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001+

Tax payable1 $ Nil Nil + 19% of excess over 18,200 3,572 + 32.5% of excess over 37,000 20,797 + 37% of excess over 90,000 54,097 + 45% of excess over 180,000

1 Does not include Medicare levy (payable at a flat rate of 2% of taxable income). SECTION 98 ASSESSMENTS – FOREIGN RESIDENT BENEFICIARIES The following rates apply where a presently entitled beneficiary is a foreign resident. Taxable income $ 0 - 90,000 90,001 - 180,000 180,001+

Tax payable $ 32.5% 29,250 + 37% of excess over 90,000 62,550 + 45% of excess over 180,000

SECTION 99 ASSESSMENTS – DECEASED ESTATES RESIDENT TRUSTS Less than 3 years since death The following tax rates apply where a trustee is assessed under s 99 in respect of the net income (or part of the net income) of a resident trust estate of a deceased person who died less than 3 years before the end of the income year. Taxable income $ 0 - 18,200 18,201 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001 +

Tax payable1 $ Nil Nil + 19% of excess over 18,200 3,572 + 32.5% of excess over 37,000 20,797 + 37% of excess over 90,000 54,097 + 45% of excess over 180,000

1 Does not include Medicare levy (payable at a flat rate of 2% of taxable income). Three years or more since death The following tax rates apply where a trustee is assessed under s 99 in respect of the net income (or part of the net income) of a resident trust estate of a deceased person who died more than 3 years before the end of the income year (these are the same rates as apply to resident individual beneficiaries). Net income $ 0 - 416 417 - 670 671 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001 +

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Tax payable $ Nil 50% of excess over 416 127.30 + 19% of excess over 670 7,030 + 32.5% of excess over 37,000 24,255 + 37% of excess over 90,000 57,555 + 45% of excess over 180,000

Fundamental Tax Legislation 2020

Tax Rates and Tables 2020

SECTION 99A ASSESSMENTS The following applies where there is no beneficiary presently entitled to a share of the net income of the trust. Net income $ 0+

Tax payable $ 45% of entire amount

PRIVATE COMPANY LOANS (DIV 7A) – BENCHMARK INTEREST RATE Income year

Interest rate % 5.37

2019-2020

FBT AND CARS – STATUTORY BENCHMARK INTEREST RATES FBT year ending

Interest rate % 5.37

31 March 2020

FBT AND LOANS – STATUTORY BENCHMARK INTEREST RATES FBT year ending 31 March 2020

Interest rate 5.37

CPI INDEX NUMBERS AND INDEXATION Year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

31 March 114.1 112.6 110.5 108.2 106.8 105.4 102.40 99.90 98.30 95.20 92.50 90.30 86.60 84.50 82.10 80.20 78.60 76.10 73.90

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Quarter ending 30 June 30 September 113.0 110.7 108.6 107.5 105.9 102.80 100.40 99.20 95.80 92.90 91.60 87.70 85.90 82.60 80.60 78.60 76.60 74.50

113.5 111.4 109.4 108.0 106.4 104.00 101.801 99.80 96.50 93.80 92.70 88.30 86.70 83.40 80.90 79.10 77.10 74.70

31 December 114.1 112.1 110.0 108.4 106.6 104.80 102.00 99.80 96.90 94.30 92.40 89.10 86.60 83.80 81.50 79.50 77.60 75.40

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Year

31 March 69.70 67.80 67.00 67.10 66.20 63.80 61.50 60.60 59.90 58.90 56.20 51.70 48.40 45.30 41.40 37.90

2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985

Quarter ending 30 June 30 September 70.20 72.90 68.10 68.70 67.40 67.50 66.90 66.60 66.70 66.90 64.70 65.50 61.90 62.30 60.80 61.10 59.70 59.80 59.00 59.30 57.10 57.50 53.00 54.20 49.30 50.20 46.00 46.80 42.10 43.20 38.80 39.70

31 December 73.10 69.10 67.80 66.80 67.00 66.00 62.80 61.20 60.10 59.90 59.00 55.20 51.20 47.60 44.40 40.50

1. From the September 2012 quarter, the index numbers have been calculated on a new index reference period of 2011-12. This has resulted in the index numbers for each index series being reset to 100.0 for the 2011-12 financial year. According to the ABS, the differences do not constitute a revision. The figures shown in the above table are the reset index numbers.

IMPROVEMENTS – SEPARATE ASSET THRESHOLDS Year of disposal

Monetary threshold $ 153,093 150,386 147,582 145,401 143,392 140,443 136,884

2019-20 2018-19 2017-18 2016-17 2015-16 2014-15 2013-14

TREATY COUNTRIES – DIVIDENDS, INTEREST, ROYALTIES The rates contained in the table represent limits only on the tax which Australia may impose, and are referable to the gross amount of the income item in question. Hence, if Australian tax payable is less than the limits, the Australian tax otherwise payable will apply. The provisions of the relevant treaty should always be consulted for exclusions, eg if dividends, interest or royalties are effectively connected with a permanent establishment.

Country Argentina Austria Belgium Canada Chile4 China5 Czech Republic Denmark

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Dividends % 10-151 15 15 153 15 15 5-156 15

Interest % 12 10 10 10 10 10 10 10

Royalties % 10-152 10 10 10 10 10 10 10

Fundamental Tax Legislation 2020

Tax Rates and Tables 2020

Country Fiji Finland7 France8 Germany9 Hungary India Indonesia Ireland Italy Japan12 Kiribati Korea Malaysia Malta Mexico14 Netherlands New Zealand15 Norway16 Papua New Guinea Philippines Poland Romania Russian Federation Singapore Slovakia South Africa24 Spain Sri Lanka Sweden Switzerland26 Taiwan27 Thailand Turkey30 UK31 USA32 Vietnam

Dividends % 20 15 15 0-15 15 15 15 15 15 10 20 15 15 1513 15 15 15 15 15-2017 15-2518 15 5-1521 5-1522 1523 15 15 1525 15 15 0-15 10-15 15-2028 15 0-15 0-30 10-1533

Interest % 10 10 10 0-10 10 15 10 10 10 10 10 15 15 15 10-15 10 10 10 10 10-1519 10 10 10 10 10 10 10 10 10 0-10 10 10-2529 10 0-10 0-10 10

Royalties % 15 5 5 5 10 10-1510 10-1511 10 10 5 15 15 15 10 10 10 5 10 10 15-2520 10 10 10 10 10 10 10 10 10 5 12.5 15 10 5 5 10

1 The Australian withholding tax rate is: (i) 10% on fully franked dividends if the recipient has a minimum 10% direct voting interest in the paying company; and (ii) 15% in all other cases. In Argentina the withholding tax rate is: (i) 10% if the recipient has a minimum 25% direct capital interest in the paying company; and (ii) 15% in all other cases. 2 Source country withholding tax rate is 10% or 15% depending on type of royalty. The 10% rate applies in respect of: copyright on literary works; industrial and scientific equipment; industrial and scientific knowledge; and ancillary assistance. For “other technical assistance” the 10% rate applies on a net basis. The 15% rate applies to: other copyright, patents and trademarks; commercial equipment; satellite reception of, TV or radio broadcast of, visual images or sounds; motion pictures and videos etc. In Argentina, there is a special 3% withholding tax applied to payments treated as royalties in respect of the transfer of news by an international news agency. 3 Lower (5%) rate applicable to non-portfolio dividends. In the case of dividends flowing from Australia to Canada, dividends must also be franked for 5% rate to apply. Agreement allows each country to impose a branch profits tax at 5%, but only Canada currently imposes such a tax. 4 Provisions of the Chile agreement will take effect in 4 stages. The dividend withholding rate will be 15%, unless the beneficial owner is a company which holds directly at least 10% of the voting power in the company paying the dividend, in which case the rate will be 5%. The interest withholding rate

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Tax Rates and Tables 2020

Country

Dividends Interest Royalties % % % will be 10% if Australian sourced interest and 15% if Chilean sourced interest. However, a 5% rate will apply if the interest is derived by a financial institution which is unrelated to, and deals wholly independently with, the payer. The royalty withholding rate will be 10% (5% for payments for the use of, or rights to use, industrial, commercial or scientific equipment). 5 For the purposes of the agreement, China does not include Hong Kong (Ruling TR 97/19) nor the Special Administrative Region of Macau (Determination TD 2000/9). 6 The Australian withholding tax rate is 5% for franked dividends and 15% for unfranked dividends. The Czech Republic withholding rate is: (i) 5% if the recipient Australian resident company has a minimum 20% direct capital holding in the paying company; and (ii) 15% in other cases. 7 In the case of intercorporate dividends, there is an exemption if the dividend recipient is a company that holds directly at least 80% of the voting power of the company paying the dividend, subject to certain conditions. A 5% rate applies for other intercorporate dividends if the dividend recipient is a company that holds directly at least 10% of the voting power of the company paying the dividend. 8 Intercorporate non-portfolio dividends are not subject to withholding in the source country if paid out of profits that have borne the normal rate of company tax. A 5% rate applies for all other non-portfolio intercorporate dividends. Amounts derived from equipment leasing, including certain container leasing, are excluded from the royalty definition. 9 Under the revised DTA agreement, no source country tax is payable on intercorporate dividends where the beneficial owner of those dividends is a company (other than a partnership) that is a resident of the other country which holds directly at least 80% of the voting power of the paying company throughout a 12 month period, subject to certain conditions. If the resident holds at least 10% of the voting power and the dividends are paid throughout a 6-month period, the rate is 5%. 15% limit applies to all other dividends. In respect to interest, source country taxation is limited to 10% subject to certain exemptions (eg bodies exercising governmental functions etc). A royalties rate limit of 5% applies to the source country. 10 Source country withholding tax rate is 10% for payments for the use of, or rights to use, industrial, commercial or scientific equipment and ancillary and subsidiary technical or consultancy services rendered in relation to such equipment. A rate of 15% applies for all other royalties. 11 The source country withholding tax rate is 10% for payments relating to the use of, right to use, or related ancillary services for, industrial, commercial and scientific equipment or the supply of scientific, technical, industrial or commercial knowledge or information. A rate of 15% applies for all other royalties. 12 In the case of intercorporate dividends, there is an exemption if the dividend recipient is a company that holds directly at least 80% of the voting power of the company paying the dividend, subject to certain conditions, and a 5% rate applies if the dividend recipient is a company that holds directly at least 10% of the voting power of the company paying the dividend. In addition, in the case of dividends paid by a Japanese resident company entitled to a deduction for dividends paid to its beneficiaries, a 15% rate limit applies if more than 50% of the paying company’s assets consist, directly or indirectly, of real property situated in Japan and a 10% rate limit applies in all other cases. 13 Withholding tax on dividends paid by a resident Malta company to an Australian resident are limited to the tax in chargeable in Malta on the profits out of which the dividend is paid (including any reduced rate of tax applicable under Malta’s investment incentive arrangements). If Maltese tax is less than the company tax chargeable on such profits, the difference is refundable to the dividend recipient. 14 If non-portfolio dividends have been fully taxed at the corporate level, a zero rate applies. In Australia, franked dividends, in any case, are exempt from withholding tax under domestic law, while Mexico does not impose withholding tax on dividends. The lower rate for interest (10%) will apply if certain conditions are met, including if the person beneficially entitled is a bank or an insurance company. 15 In the case of intercorporate non-portfolio dividends, there is an exemption if the recipient holds directly at least 80% of the voting power of the company paying the dividend. A 5% rate applies on all other intercorporate non-portfolio dividends if the recipient holds directly at least 10% of the voting power of the company paying the dividend. A zero rate applies to dividends paid in respect of portfolio investment by a government body. There is an interest withholding tax exemption for government

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Tax Rates and Tables 2020

Country

Dividends Interest Royalties % % % bodies, central banks and certain other financial institutions. Royalties include amounts paid for spectrum licences amounts derived from leasing industrial, commercial or scientific equipment are excluded. 16 In the case of intercorporate non-portfolio dividends, there is an exemption in the source country if the recipient holds directly at least 80% of the voting power of the company paying the dividend and a 5% rate for all other non-portfolio intercorporate dividends. Amounts derived from equipment leasing, including certain container leasing, are excluded from the definition of royalty and are treated as either profits from international transport operations or business profits. 17 Withholding tax rate is 15% if Australia is the source country and 20% if PNG is the source country. 18 The agreement provides for a withholding tax rate of 15% if the recipient is a company and the beneficial owner of the dividends is entitled to relief by way of rebate or credit. For Philippines source dividends the rate remains at 15% although Australia now provides relief by way of exemption for such dividends. In other cases the rate is 25%. 19 The withholding tax rate is 15% for both countries, except that the rate of Philippines withholding tax on interest arising from public bond issues etc is 10%. As the limit set by the agreement exceeds that set under Australian domestic law, Australian withholding tax is 10%. 20 The withholding tax rate is 15% for royalties paid by an enterprise registered with the Philippines Board of Investments and engaged in preferred activities. In other cases, the rate of tax is 25%. 21 The withholding tax rate is 5% if paid out of fully taxed profits and the recipient holds a minimum 10% direct capital interest in the paying company. In any other case the rate is 15%. 22 The withholding tax rate is generally 15%, but a 5% rate applies if: (i) the dividends have been fully taxed at company level; (ii) the recipient is a company with a minimum 10% direct capital holding in the paying company; and (iii) the recipient has invested a minimum of A$700,000 (or rouble equivalent) in the paying company. To qualify for the 5% rate, Russian source dividends must also be exempt from Australian tax. 23 Singapore source dividends are not subject to withholding tax. 24 In the case of intercorporate dividends, a 5% rate applies if the dividend recipient is a company that holds directly at least 10% of the voting power of the company paying the dividend. 25 The 15% rate does not apply to income which, under Spanish taxation law relating to transparent companies, is attributable to shareholders of such companies. This income is taxed under its domestic law, provided that the income has not been subject to Spanish corporation tax. 26 Under the revised DTA with Switzerland, a zero withholding rate applies to dividends paid to public listed companies, or subsidiaries thereof, or to unlisted companies in certain circumstances, that hold 80% or more of the paying company, and also to dividends paid to complying Australian super funds and tax exempt Swiss pension schemes. A 5% withholding rate applies to dividends paid to companies that hold 10% or more of the paying company and a 15% withholding rate applies in all other cases. The interest withholding rate is zero for interest paid to bodies exercising governmental functions and to banks performing central banking functions, banks that are unrelated to, and dealing independently with, the payer and complying Australian super funds and tax exempt Swiss pension schemes; a 10% withholding rate applies in all other cases. The revised definition of royalties will exclude the right to use industrial, commercial or scientific equipment. Royalties may be taxed in the source country at up to 5%. 27 For diplomatic reasons, the signatories to this agreement are trade offices (the Australian Commerce and Industry Office and the Taipei Economic and Cultural Office) rather than the governments of Australia and Taiwan. 28 The withholding tax limit specified in the agreement only applies if the recipient company holds a minimum 25% direct capital holding in the paying company. In such cases the limit is 15% if the paying company is engaged in an industrial undertaking and 20% otherwise. 29 The withholding tax rate is 10% for interest to which a financial institution (including an insurance company) is beneficially entitled. In other cases the rate is 25%. 30 The dividend withholding rate is limited to 5% on certain inter-corporate non-portfolio dividends where the recipient holds directly at least 10% of the voting power of the Australian company paying

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Tax Rates and Tables 2020

Country

Dividends Interest Royalties % % % the dividend or 25% of the capital of the Turkish company paying the dividend. An exemption applies for interest derived from the investment of official reserve assets by a government, its central bank or a bank performing central banking functions. 31 There is a 5% rate for non-portfolio dividends and a 15% rate for other dividends. In addition, there is a zero rate on dividends if the recipient is a company that holds directly at least 80% of the voting power of the paying company. These rates apply to both franked and unfranked dividends. A zero rate applies to interest derived by a government body of the other country or a financial institution resident in the other country. 32 General treatment is 5% rate for non-portfolio dividends and 15% rate for other dividends. However, special provision is made for: (i) zero rate on dividends paid to a company resident in the other country which has at least 80% control of the payer; (ii) 15% rate for dividends paid by a US regulated investment company; (iii) 15% rate for dividends paid by a US real estate investment trust (REIT) to a listed Australian property trust. This rate is subject to limits on interests held in the REIT by persons beneficially entitled to the dividends. If these limits are exceeded, the rate is 30%. A zero rate applies to interest derived by a government body of the other country or a financial institution resident in the other country. Interest calculated by reference to the profits of the payer can be taxed at 15% (equivalent to the general rate for dividends). 33 The withholding tax rate is 10% for dividends paid by Vietnamese resident companies and 15% for Australian resident companies.

NON-TREATY COUNTRIES – DIVIDENDS, INTEREST, ROYALTIES The withholding tax rates in respect of the unfranked portion of dividends, interest and royalties apply to the gross amount of such dividends, interest or royalties. Dividends (unfranked portion) % 30

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Interest % 10

Royalties % 30

Fundamental Tax Legislation 2020

YEAR IN REVIEW – 2019 Introduction The following table summarises the main tax statutes which passed both Houses of Parliament and received Royal Assent during 2019. The main effects of each bill are summarised in the accompanying paragraphs, and the main provisions arising from these amendments have been incorporated in this edition of Fundamental Tax Legislation. All monetary amounts are in Australian dollars unless otherwise indicated. Dates in bold refer to 2019. The following table is current to 11 November 2019. Short Title

Intro House Income Tax (Managed Investment Trust With- 20/9 holding Tax) Amendment 2018

Passed Intro Passed Assent Act No. House Senate Senate Date 14/2 14/2 3/4 5/4 35

(Act citation: IIncome Tax (Managed Investment Trust Withholding Tax) Amendment 2019)

14/2

14/2

3/4

5/4

36

3/4

3/4

3/4

5/4

28

22/6

22/6

5/12

1/3

7

16/10

17/10

17/10

28/10

94

25/6

25/6

5/12

1/3

8

17/10

18/10

14/2

12/3

15

24/7

12/9

12/9

19/9

2/10

78

13/2

2/4

3/4

3/4

5/4

49

13/2

2/4

3/4

3/4

5/4

43

24/7

1/8

1/8

16/10

28/10

95

Income Tax Rates Amendment (Sovereign Enti- 20/9 ties) 2018 (Act citation: Income Tax Rates Amendment (Sovereign Entities) 2019)

Social Services Legislation Amendment (Energy 3/4 Assistance Payment) 2019 Treasury Laws Amendment (2017 Enterprise 30/3 Incentives No 1) 2017 (Act citation: Treasury Laws Amendment (2017 Enterprise Incentives No 1) 2019)

Treasury Laws Amendment (2018 Measures No 18/9 2) 2019 Treasury Laws Amendment (2018 Measures No 28/3 4) 2018 (Act citation: Treasury Laws Amendment (2018 Measures No 4) 2019)

Treasury Laws Amendment (2018 Measures No 20/9 5) 2018 (Act citation: Treasury Laws Amendment (2018 Measures No 5) 2019

Treasury Laws Amendment (2018 Superannuation Measures No 1) 2019 Treasury Laws Amendment (2019 Measures No 1) 2019 Treasury Laws Amendment (2019 Petroleum Resource Rent Tax Reforms No 1) 2019 Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) 2019

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xxiii

Year In review – 2019

Short Title

Intro House Treasury Laws Amendment (Increasing and 13/2 Extending the Instant Asset Write-Off) 2019

Passed Intro Passed Assent Act No. House Senate Senate Date 2/4 3/4 3/4 6/4 51

(Previous citation: Treasury Laws Amendment (Increasing the Instant Asset Write Off for Small Business Entities) 2019)

14/2

2/4

3/4

5/4

34

4/7

31/7

1/8

9/9

13/9

65

2/4

3/4

3/4

3/4

5/4

29

2/4

2/4

3/4

3/4

5/4

30

21/6

28/6

28/6

14/2

12/3

16

2/7

4/7

4/7

5/7

52

25/7

29/7

29/7

7/8

59

Treasury Laws Amendment (Making Sure Foreign 20/9 Investors Pay Their Fair Share of Tax in Australia and Other Measures) 2019 (Previous citation: Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) 2018)

Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) 2019 Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) 2019 Treasury Laws Amendment (North Queensland Flood Recovery) 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) 2018 (Act citation: Treasury Laws Amendment (Protecting Your Superannuation Package) 2019)

Treasury Laws Amendment (Tax Relief So Work- 2/7 ing Australians Keep More Of Their Money) 2019 Treasury Laws Amendment (Timor Sea Maritime 24/7 Boundaries Treaty) 2019

2017 Bills passed in 2019 Treasury Laws Amendment (2017 Enterprise Incentives No 1) 2017 Act 7 of 2019 Introduces the similar business test as a supplement to the same business test designed to allow more flexible access to corporate losses as a means of assisting innovation and growth with application to income years starting on or after 1 July 2015. Also allows taxpayers to self-assess the effective life of certain intangible assets, rather than the statutory effective life, for assets that the taxpayer began to hold on or after 1 July 2016.

2018 Bills passed in 2019 Income Tax (Managed Investment Trust Withholding Tax) Amendment 2018 Act 35 of 2019 Introduces consequential amendments to ensure that the withholding rate applicable to non-concessional income of a managed investment trust (MIT) is 30%. Income Tax Rates Amendment (Sovereign Entities) 2018 Act 36 of 2019 Introduces consequential amendments to ensure that sovereign entities are liable to tax on taxable income at a rate of 30%. Treasury Laws Amendment (2018 Measures No 4) 2018 Act 8 of 2019 Introduces changes to the superannuation guarantee system to: • allow the Commissioner of Taxation to issue directions to employers to pay unpaid superannuation guarantee amounts and attend education courses; xxiv

Fundamental Tax Legislation 2020

Year In review – 2019

• allow the Commissioner to disclose more information to affected employees regarding superannuation guarantee non-compliance; • extend Single Touch Payroll to all employers; • facilitate more regular reporting by superannuation funds; • improve the operation of the Commissioner of Taxation’s collection and compliance measures; and • streamline the employee commencement process. Amendments also introduced to allow the Commissioner of Taxation to share and verify tax file numbers with other Commonwealth agencies that have been obtained in accordance with Commonwealth law, lists 3 new deductible gift recipients and technical amendments to improve the efficiency of the tax laws. Treasury Laws Amendment (2018 Measures No 2) 2019 Act 94 of 2019 Amends the venture capital and early stage investor tax concession provisions to ensure those provisions operate as intended. Treasury Laws Amendment (2018 Measures No 5) 2018 Act 15 of 2019 Introduces technical amendments to the Managed Investment Trust (MIT) and Attribution Managed Investment Trust (AMIT) rules to ensure those rules operate as intended. Includes 6 new listed deductible gift recipients and extends the deductible gift recipient rules to allow endorsement for entities promoting Indigenous languages. Treasury Laws Amendment (2018 Superannuation Measures No 1) 2019 Act 78 of 2019 Introduces amendments to permit employees with multiple employers to avoid unintentionally breaching the superannuation concessional contributions cap, ensures that the non-arm’s length income rules apply to a superannuation fund that incurs non-arm’s length expenditure in deriving that income and ensures that the total value of superannuation assets are considered when determining member balances where limited recourse borrowing arrangements are involved. Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) 2019 Act 34 of 2019 Limits the availability of concessions relating to Managed Investment Trusts (MIT) in respect of stapled instruments and for foreign investors, modifies the thin capitalisation rules to prevent double gearing structures and limits the withholding tax exemption for superannuation funds with members who are foreign residents. Treasury Laws Amendment (Protecting Your Superannuation Package) 2018 Act 16 of 2019 Introduces consequential amendments stemming from reforms to protect certain superannuation accounts.

2019 Bills passed in 2019 Social Services Legislation Amendment (Energy Assistance Payment) 2019 Act 28 of 2019 Introduces amendments to ensure that one-off energy assistance payments made under 2019 legislation are exempt from income tax. Treasury Laws Amendment (2019 Measures No 1) 2019 Act 49 of 2019 Increases the number of permissible members in a self-managed superannuation fund (SMSF) from 4 to 6 and consequential amendments to reflect changes to the customs treatment of craft brewers.

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xxv

Year In review – 2019

Treasury Laws Amendment (2019 Petroleum Resource Rent Tax Reforms No 1) 2019 Act 43 of 2019 Removes certain exclusions from the petroleum rent resources tax (PRRT) that are no longer necessary due to the exclusion of onshore petroleum projects. Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) 2019 Act 95 of 2019 Introduces amendments to modify the treatment of concessional loans that involve a tax exempt entity where that entity loses its tax exempt status, amends the small business capital gains tax concessions as they apply to partnerships where the income or capital is assigned to a non-partner of the partnership, limiting the deductions available in respect of vacant land, extends anti-avoidance rules for certain circular trust distributions, allows the Australian Taxation Office to disclose business debt information to credit reporting agencies, allows the Commissioner of Taxation to utilise electronic invoicing and ensures salary sacrifice superannuation contribution cannot adversely affect the superannuation guarantee contributions made by employers. Treasury Laws Amendment (Increasing and Extending the Instant Asset Write-Off) 2019 Act 51 of 2019 Extends the instant asset write-off for small businesses to 30 June 2020 and increases the threshold to $25,000. Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) 2019 Act 65 of 2019 Amends the thin capitalisation rules to ensure valuations for assets and liabilities used in financial reports are also used for tax purposes, removes the ability to revalue such assets and liabilities for thin capitalisation purposes, treats members of a consolidated group as both outward and inward investing entities in appropriate circumstances, ensures offshore suppliers of rights or options to use commercial accommodation include such amounts in turnover for goods and services tax (GST) purposes and removes luxury car tax from cars re-imported after being sent overseas for servicing or refurbishment. Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) 2019 Act 29 of 2019 Increases the thresholds for Medicare Levy and Medicare Levy Surcharge and the phase-in limits to be consistent with the increased thresholds. Treasury Laws Amendment (North Queensland Flood Recovery) 2019 Act 30 of 2019 Ensures that certain grants and payments made to relieve hardship stemming from floods in North Queensland in late 2018 and early 2019 are non-assessable non-exempt income. Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) 2019 Act 52 of 2019 Increases the amount of the low and middle income tax offset, adjusts the threshold for the 19% bracket and reduces the 32.5% rate to 30%. Treasury Laws Amendment (Timor Sea Maritime Boundaries Treaty) 2019 Act 59 of 2019 Introduces consequential amendments to give effect to the Treaty between Australia and the Democratic Republic of Timor-Leste Establishing Their Maritime Boundaries in the Timor Sea.

xxvi

Fundamental Tax Legislation 2020

CORE TAX

Table of provisions

INCOME TAX ASSESSMENT ACT 1997 Table of provisions CHAPTER 1 - INTRODUCTION AND CORE PROVISIONS Part 1-1 - Preliminary Division 1 - Preliminary 1-1 Short title 1-2 Commencement 1-3 Differences in style not to affect meaning 1-4 Application 1-7 Administration of this Act

Part 1-2 - A Guide to this Act

ITAA 1997

Division 2 - How to use this Act Subdivision 2-A - How to find your way around 2-1 The design Subdivision 2-B - How the Act is arranged 2-5 The pyramid Subdivision 2-C - How to identify defined terms and find the definitions 2-10 When defined terms are identified 2-15 When terms are not identified 2-20 Identifying the defined term in a definition Subdivision 2-D - The numbering system 2-25 Purposes 2-30 Gaps in the numbering Subdivision 2-E - Status of Guides and other non-operative material 2-35 Non-operative material 2-40 Guides 2-45 Other material Division 3 - What this Act is about 3-5 Annual income tax 3-10 Your other obligations as a taxpayer 3-15 Your obligations other than as a taxpayer

Part 1-3 - Core provisions Division 4 - How to work out the income tax payable on your taxable income 4-1 Who must pay income tax 4-5 Meaning of you 4-10 How to work out how much income tax you must pay 4-15 How to work out your taxable income 4-25 Special provisions for working out your basic income tax liability Division 5 - How to work out when to pay your income tax Guide to Division 5 5-1 What this Division is about Subdivision 5-A - How to work out when to pay your income tax 5-5 When income tax is payable 5-10 When shortfall interest charge is payable 5-15 General interest charge payable on unpaid income tax or shortfall interest charge Division 6 - Assessable income and exempt income Guide to Division 6 6-1 Diagram showing relationships among concepts in this Division

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27

Income Tax Assessment Act 1997 Operative provisions 6-5 Income according to ordinary concepts (ordinary income) 6-10 Other assessable income (statutory income) 6-15 What is not assessable income 6-20 Exempt income 6-23 Non-assessable non-exempt income 6-25 Relationships among various rules about ordinary income Division 8 - Deductions 8-1 General deductions 8-5 Specific deductions 8-10 No double deductions

Part 1-4 - Checklists of what is covered by concepts used in the core provisions Division 9 - Entities that must pay income tax 9-1A Effect of this Division 9-1 List of entities 9-5 Entities that work out their income tax by reference to something other than taxable income Division 10 - Particular kinds of assessable income 10-1 Effect of this Division 10-5 List of provisions about assessable income Division 11 - Particular kinds of non-assessable income Subdivision 11-A - Lists of classes of exempt income 11-1A Effect of this Subdivision 11-1 Overview 11-5 Entities that are exempt, no matter what kind of ordinary or statutory income they have 11-15 Ordinary or statutory income which is exempt Subdivision 11-B - Particular kinds of non-assessable non-exempt income 11-50 Effect of this Subdivision 11-55 List of non-assessable non-exempt income provisions Division 12 - Particular kinds of deductions 12-1 Effect of this Division 12-5 List of provisions about deductions Division 13 - Tax offsets 13-1A Effect of this Division 13-1 List of tax offsets

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION Part 2-1 - Assessable income Division 15 - Some items of assessable income Guide to Division 15 15-1 What this Division is about Operative provisions 15-2 Allowances and other things provided in respect of employment or services 15-3 Return to work payments 15-5 Accrued leave transfer payments 15-10 Bounties and subsidies 15-15 Profit-making undertaking or plan 15-20 Royalties 15-22 Payments made to members of a copyright collecting society 15-25 Amount received for lease obligation to repair 15-30 Insurance or indemnity for loss of assessable income

28

Fundamental Tax Legislation 2020

15-35 15-40 15-45 15-46 15-50

CORE TAX

Table of provisions Interest on overpayments and early payments of tax Providing mining, quarrying or prospecting information or geothermal exploration information Amounts paid under forestry agreements Amounts paid under forestry managed investment schemes Work in progress amounts

Division 17 - Effect of GST etc. on assessable income Guide to Division 17 17-1 What this Division is about 17-5 GST and increasing adjustments 17-10 Certain decreasing adjustments 17-15 Elements in calculation of amounts 17-20 GST groups and GST joint ventures 17-30 Special credits because of indirect tax transition 17-35 Certain sections not to apply to certain assets or expenditure Division 20 - Amounts included to reverse the effect of past deductions Guide to Division 20 20-1 What this Division is about 20-5 Other provisions that reverse the effect of deductions Subdivision 20-A - Insurance, indemnity or other recoupment for deductible expenses

ITAA 1997

Guide to Subdivision 20-A 20-10 What this Subdivision is about 20-15 How to use this Subdivision What is an assessable recoupment? 20-20 Assessable recoupments 20-25 What is recoupment? 20-30 Tables of deductions for which recoupments are assessable How much is included in your assessable income? 20-35 If the expense is deductible in a single income year 20-40 If the expense is deductible over 2 or more income years Subdivision 20-B - Disposal of a car for which lease payments have been deducted Guide to Subdivision 20-B 20-100 What this Subdivision is about 20-105 Map of this Subdivision The usual case 20-110 Disposal of a leased car for profit 20-115 Working out the profit on the disposal 20-120 Meaning of notional depreciation

Part 2-5 - Rules about deductibility of particular kinds of amounts Division 25 - Some amounts you can deduct Guide to Division 25 25-1 What this Division is about Operative provisions 25-5 Tax-related expenses 25-10 Repairs 25-15 Amount paid for lease obligation to repair 25-20 Lease document expenses 25-25 Borrowing expenses 25-30 Expenses of discharging a mortgage 25-35 Bad debts 25-40 Loss from profit-making undertaking or plan 25-45 Loss by theft etc. 25-47 Misappropriation where a balancing adjustment event occurs

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29

Income Tax Assessment Act 1997 25-50 25-55 25-60 25-70 25-85 25-90 25-95 25-100 25-110

Payments of pensions, gratuities or retiring allowances Payments to associations Parliament election expenses Deduction for election expenses does not extend to entertainment Certain returns in respect of debt interests Deduction relating to foreign non-assessable non-exempt income Deduction for work in progress amounts Travel between workplaces Capital expenditure to terminate lease etc.

Division 26 - Some amounts you cannot deduct, or cannot deduct in full Guide to Division 26 26-1 What this Division is about Operative provisions 26-5 Penalties 26-10 Leave payments 26-19 Rebatable benefits 26-20 Assistance to students 26-22 Political contributions and gifts 26-25 Interest or royalty 26-25A Seasonal Labour Mobility Program 26-26 Non-share distributions and dividends 26-30 Relative’s travel expenses 26-35 Reducing deductions for amounts paid to related entities 26-40 Maintaining your family 26-45 Recreational club expenses 26-52 Bribes to foreign public officials 26-53 Bribes to public officials 26-54 Expenditure relating to illegal activities 26-55 Limit on deductions 26-60 Superannuation contributions surcharge 26-74 Excess concessional contributions charge cannot be deducted 26-75 Excess non-concessional contributions tax cannot be deducted 26-80 Financing costs on loans to pay superannuation contribution 26-85 Borrowing costs on loans to pay life insurance premiums 26-90 Superannuation supervisory levy 26-95 Superannuation guarantee charge 26-97 National Disability Insurance Scheme expenditure 26-98 Division 293 tax cannot be deducted 26-99 Excess transfer balance tax cannot be deducted 26-105 Non-compliant payments for work and services Division 27 - Effect of input tax credits etc. on deductions Guide to Division 27 27-1 What this Division is about Subdivision 27-A - General 27-5 Input tax credits and decreasing adjustments 27-10 Certain increasing adjustments 27-15 GST payments 27-20 Elements in calculation of amounts 27-25 GST groups and GST joint ventures 27-35 Certain sections not to apply to certain assets or expenditure Subdivision 27-B - Effect of input tax credits etc. on capital allowances 27-80 Cost or opening adjustable value of depreciating assets reduced for input tax credits 27-85 Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments

30

Fundamental Tax Legislation 2020

27-87 27-90 27-92 27-95 27-100 27-105 27-110

CORE TAX

Table of provisions Certain decreasing adjustments included in assessable income Cost or opening adjustable value of depreciating assets increased: increasing adjustments Certain increasing adjustments can be deducted Balancing adjustment events Pooling Other Division 40 expenditure Input tax credit etc. relating to 2 or more things

Division 28 - Car expenses Guide to Division 28 28-1 What this Division is about 28-5 Map of this Division Subdivision 28-A - Deductions for car expenses 28-10 Application of Division 28 28-12 Car expenses 28-13 Meaning of car expense Subdivision 28-B - Choosing which method to use

ITAA 1997

Guide to Subdivision 28-B 28-14 What this Subdivision is about 28-15 Choosing between the 2 methods Operative provision 28-20 Rules governing choice of method Subdivision 28-C - The cents per kilometre method 28-25 How to calculate your deduction 28-30 Capital allowances 28-35 Substantiation Subdivision 28-F - The log book method 28-90 How to calculate your deduction 28-95 Eligibility 28-100 Substantiation Subdivision 28-G - Keeping a log book Guide to Subdivision 28-G 28-105 What this Subdivision is about 28-110 Steps for keeping a log book Operative provisions 28-115 Income years for which you need to keep a log book 28-120 Choosing the 12 week period for a log book 28-125 How to keep a log book 28-130 Replacing one car with another Subdivision 28-H - Odometer records for a period Guide to Subdivision 28-H 28-135 What this Subdivision is about Operative provision 28-140 How to keep odometer records for a car for a period Subdivision 28-I - Retaining the log book and odometer records 28-150 Retaining the log book for the retention period 28-155 Retaining odometer records Subdivision 28-J - Situations where you cannot use, or do not need to use, one of the 2 methods Guide to Subdivision 28-J 28-160 What this Subdivision is about Operative provisions 28-165 Exception for particular cars taken on hire 28-170 Exception for particular cars used in particular ways 28-175 Further miscellaneous exceptions

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Income Tax Assessment Act 1997 28-180 28-185

Car expenses related to award transport payments Application of Subdivision 28-J to recipients and payers of certain withholding payments

Division 30 - Gifts or contributions Guide to Division 30 30-1 What this Division is about 30-5 How to find your way around this Division 30-10 Index Subdivision 30-A - Deductions for gifts or contributions 30-15 Table of gifts or contributions that you can deduct 30-17 Requirements for certain recipients Subdivision 30-B - Tables of recipients for deductible gifts Health 30-20

Health

Education 30-25 30-30 30-35 30-37

Education Gifts that must be for certain purposes Rural schools hostel buildings Scholarship etc. funds

Research 30-40

Research

Welfare and rights 30-45 Welfare and rights Defence 30-50 Environment 30-55 30-60

Defence The environment Gifts to a National Parks body or conservation body must satisfy certain requirements

Industry, trade and design 30-65 Industry, trade and design The family 30-70 30-75

The family Marriage education organisations must be approved

International affairs 30-80 International affairs Sports and recreation 30-90 Sports and recreation Philanthropic trusts 30-95 Philanthropic trusts Cultural organisations 30-100 Cultural organisations Subdivision 30-BA - Endorsement of deductible gift recipients Guide to Subdivision 30-BA 30-115 What this Subdivision is about Endorsement as a deductible gift recipient 30-120 Endorsement by Commissioner 30-125 Entitlement to endorsement 30-130 Maintaining a gift fund Government entities treated like entities 30-180 How this Subdivision applies to government entities

32

Fundamental Tax Legislation 2020

CORE TAX

Table of provisions Subdivision 30-C - Rules applying to particular gifts of property Valuation requirements 30-200 Getting written valuations 30-205 Proceeds of the sale would have been assessable 30-210 Approved valuers 30-212 Valuations by the Commissioner Working out the amount you can deduct for a gift of property 30-215 How much you can deduct 30-220 Reducing the amount you can deduct Subdivision 30-CA - Administrative requirements relating to ABNs Guide to Subdivision 30-CA 30-226 What this Subdivision is about Requirements 30-227 30-228 30-229

Entities to which this Subdivision applies Content of receipt for gift or contribution Australian Business Register must show deductibility of gifts to deductible gift recipient Subdivision 30-DA - Donations to political parties and independent candidates and members Guide to Subdivision 30-DA 30-241 What this Subdivision is about

ITAA 1997

Operative provisions 30-242 Deduction for political contributions and gifts 30-243 Amount of the deduction 30-244 When an individual is an independent candidate 30-245 When an individual is an independent member Division 32 - Entertainment expenses Guide to Division 32 32-1 What this Division is about Subdivision 32-A - No deduction for entertainment expenses 32-5 No deduction for entertainment expenses 32-10 Meaning of entertainment 32-15 No deduction for property used for providing entertainment Subdivision 32-B - Exceptions 32-20 The main exception—fringe benefits 32-25 The tables set out the other exceptions 32-30 Employer expenses 32-35 Seminar expenses 32-40 Entertainment industry expenses 32-45 Promotion and advertising expenses 32-50 Other expenses Subdivision 32-C - Definitions relevant to the exceptions 32-55 In-house dining facility (employer expenses table items 1.1 and 1.2) 32-60 Dining facility (employer expenses table item 1.3) 32-65 Seminars (seminar expenses table item 2.1) Subdivision 32-D - In-house dining facilities (employer expenses table item 1.2) 32-70 $30 is assessable for each meal provided to non-employee in an in-house dining facility Subdivision 32-E - Anti-avoidance 32-75 Commissioner may treat you as having incurred entertainment expense Subdivision 32-F - Special rules for companies and partnerships 32-80 Company directors 32-85 Directors, employees and property of wholly-owned group company 32-90 Partnerships

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Income Tax Assessment Act 1997 Division 34 - Non-compulsory uniforms Guide to Division 34 34-1 What this Division is about 34-3 What you need to read Subdivision 34-A - Application of Division 34 34-5 This Division applies to employees and others 34-7 This Division applies to employers and others Subdivision 34-B - Deduction for your non-compulsory uniform 34-10 What you can deduct 34-15 What is a non-compulsory uniform? 34-20 What are occupation specific clothing and protective clothing? Subdivision 34-C - Registering the design of a non-compulsory uniform 34-25 Application to register the design 34-30 Industry Secretary’s decision on application Division 35 - Deferral of losses from non-commercial business activities Guide to Division 35 35-1 What this Division is about Operative provisions 35-5 Object 35-10 Deferral of deductions from non-commercial business activities 35-15 Modification if you have exempt income 35-20 Modification if you become bankrupt 35-25 Application of Division to certain partnerships 35-30 Assessable income test 35-35 Profits test 35-40 Real property test 35-45 Other assets test 35-50 Apportionment 35-55 Commissioner’s discretion Division 36 - Tax losses of earlier income years Guide to Division 36 36-1 What this Division is about Subdivision 36-A - Deductions for tax losses of earlier income years 36-10 How to calculate a tax loss for an income year 36-15 How to deduct tax losses of entities other than corporate tax entities 36-17 How to deduct tax losses of corporate tax entities 36-20 Net exempt income 36-25 Special rules about tax losses Subdivision 36-B - Effect of you becoming bankrupt Guide to Subdivision 36-B 36-30 What this Subdivision is about Operative provisions 36-35 No deduction for tax loss incurred before bankruptcy 36-40 Deduction for amounts paid for debts incurred before bankruptcy 36-45 Limit on deductions for amounts paid Subdivision 36-C - Excess franking offsets Guide to Subdivision 36-C 36-50 What this Subdivision is about Operative provision 36-55 Converting excess franking offsets into tax loss

Part 2-10 - Capital allowances: rules about deductibility of capital expenditure Division 40 - Capital allowances Guide to Division 40 40-1 What this Division is about

34

Fundamental Tax Legislation 2020

40-10

CORE TAX

Table of provisions Simplified outline of this Division

Subdivision 40-A - Objects of Division 40-15 Objects of Division Subdivision 40-B - Core provisions Guide to Subdivision 40-B 40-20 What this Subdivision is about

ITAA 1997

Operative provisions 40-25 Deducting amounts for depreciating assets 40-30 What a depreciating asset is 40-35 Jointly held depreciating assets 40-40 Meaning of hold a depreciating asset 40-45 Assets to which this Division does not apply 40-50 Assets for which you deduct under another Subdivision 40-53 Alterations etc. to certain depreciating assets 40-55 Use of the “cents per kilometre” car expense deduction method 40-60 When a depreciating asset starts to decline in value 40-65 Choice of methods to work out the decline in value 40-70 Diminishing value method 40-72 Diminishing value method for post-9 May 2006 assets 40-75 Prime cost method 40-80 When you can deduct the asset’s cost 40-82 Assets costing less than $30,000—medium sized businesses—income years ending between 2 April 2019 and 30 June 2020 40-85 Meaning of adjustable value and opening adjustable value of a depreciating asset 40-90 Debt forgiveness 40-95 Choice of determining effective life 40-100 Commissioner’s determination of effective life 40-102 Capped life of certain depreciating assets 40-103 Effective life and remaining effective life of certain vessels 40-105 Self-assessing effective life 40-110 Recalculating effective life 40-115 Splitting a depreciating asset 40-125 Merging depreciating assets 40-130 Choices 40-135 Certain anti-avoidance provisions 40-140 Getting tax information from associates Subdivision 40-C - Cost Guide to Subdivision 40-C 40-170 What this Subdivision is about Operative provisions 40-175 Cost 40-180 First element of cost 40-185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit 40-190 Second element of cost 40-195 Apportionment of cost 40-200 Exclusion from cost 40-205 Cost of a split depreciating asset 40-210 Cost of merged depreciating assets 40-215 Adjustment: double deduction 40-220 Cost reduced by amounts not of a capital nature 40-222 Cost reduced by water infrastructure improvement expenditure 40-225 Adjustment: acquiring a car at a discount 40-230 Adjustment: car limit 40-235 Adjustment: National Disability Insurance Scheme costs

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Income Tax Assessment Act 1997 Subdivision 40-D - Balancing adjustments Guide to Subdivision 40-D 40-280 What this Subdivision is about Operative provisions 40-285 Balancing adjustments 40-290 Reduction for non-taxable use 40-292 Adjustments—assets used for both general tax purposes and R&D activities 40-293 Adjustments—partnership assets used for both general tax purposes and R&D activities 40-295 Meaning of balancing adjustment event 40-300 Meaning of termination value 40-305 Amount you are taken to have received under a balancing adjustment event 40-310 Apportionment of termination value 40-320 Car to which section 40-225 applies 40-325 Adjustment: car limit 40-335 Deduction for in-house software where you will never use it 40-340 Roll-over relief 40-345 What the roll-over relief is 40-350 Additional consequences 40-360 Notice to allow transferee to work out how this Division applies 40-362 Roll-over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012 40-365 Involuntary disposals 40-370 Balancing adjustments where there has been use of different car expense methods Subdivision 40-E - Low-value and software development pools Guide to Subdivision 40-E 40-420 What this Subdivision is about Operative provisions 40-425 Allocating assets to a low-value pool 40-430 Rules for assets in low-value pools 40-435 Private or exempt use of assets 40-440 How you work out the decline in value of assets in low-value pools 40-445 Balancing adjustment events 40-450 Software development pools 40-455 How to work out your deduction 40-460 Your assessable income includes consideration for pooled software Subdivision 40-F - Primary production depreciating assets Guide to Subdivision 40-F 40-510 What this Subdivision is about Operative provisions 40-515 Water facilities, horticultural plants, fodder storage assets and fencing assets 40-520 Meaning of water facility, horticultural plant, fodder storage asset and fencing asset 40-525 Conditions 40-530 When declines in value start 40-535 Meaning of horticulture and commercial horticulture 40-540 How you work out the decline in value for water facilities 40-545 How you work out the decline in value for horticultural plants 40-555 Amounts you cannot deduct 40-560 Non-arm’s length transactions 40-565 Extra deduction for destruction of a horticultural plant Subdivision 40-G - Capital expenditure of primary producers and other landholders Guide to Subdivision 40-G 40-625 What this Subdivision is about

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Table of provisions Operative provisions 40-630 Landcare operations 40-635 Meaning of landcare operation 40-640 Meaning of approved management plan 40-645 Electricity and telephone lines 40-650 Amounts you cannot deduct under this Subdivision 40-655 Meaning of connecting power to land or upgrading the connection and metering point 40-660 Non-arm’s length transactions Subdivision 40-H - Capital expenditure that is immediately deductible Guide to Subdivision 40-H 40-725 What this Subdivision is about Operative provisions 40-730 Deduction for expenditure on exploration or prospecting 40-735 Deduction for expenditure on mining site rehabilitation 40-740 Meaning of ancillary mining activities and mining building site 40-745 No deduction for certain expenditure Subdivision 40-I - Capital expenditure that is deductible over time Guide to Subdivision 40-I 40-825 What this Subdivision is about

ITAA 1997

Operative provisions 40-830 Project pools 40-832 Project pools for post-9 May 2006 projects 40-835 Reduction of deduction 40-840 Meaning of project amount 40-845 Project life 40-855 When you start to deduct amounts for a project pool 40-860 Meaning of mining capital expenditure 40-865 Meaning of transport capital expenditure 40-880 Business related costs 40-885 Non-arm’s length transactions Subdivision 40-J - Capital expenditure for the establishment of trees in carbon sink forests Guide to Subdivision 40-J 40-1000 What this Subdivision is about Operative provisions 40-1005 Deduction for expenditure for establishing trees in carbon sink forests 40-1010 Expenditure for establishing trees in carbon sink forests Carbon sequestration by trees 40-1015 40-1020 Certain expenditure disregarded 40-1025 Non-arm’s length transactions 40-1030 Extra deduction for destruction of trees in carbon sink forest 40-1035 Getting information if you acquire a carbon sink forest Division 43 - Deductions for capital works Guide to Division 43 43-1 What this Division is about 43-2 Key concepts used in this Division Subdivision 43-A - Key operative provisions Guide to Subdivision 43-A 43-5 What this Subdivision is about Operative provisions 43-10 Deductions for capital works 43-15 Amount you can deduct 43-20 Capital works to which this Division applies 43-25 Rate of deduction

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Income Tax Assessment Act 1997 43-30 No deduction until construction is complete 43-40 Deduction for destruction of capital works Subdivision 43-B - Establishing the deduction base Guide to Subdivision 43-B 43-60 What this Subdivision is about 43-65 Explanatory material Operative provisions 43-70 What is construction expenditure? 43-75 Construction expenditure area 43-80 When capital works begin 43-85 Pools of construction expenditure 43-90 Table of intended use at time of completion of construction Subdivision 43-C - Your area and your construction expenditure Guide to Subdivision 43-C 43-105 What this Subdivision is about 43-110 Explanatory material Operative provisions 43-115 Your area and your construction expenditure—owners 43-120 Your area and your construction expenditure—lessees and quasi-ownership right holders 43-125 Lessees’ or right holders’ pools can revert to owner 43-130 Identifying your area on acquisition or disposal Subdivision 43-D - Deductible uses of capital works Guide to Subdivision 43-D 43-135 What this Subdivision is about Operative provisions 43-140 Using your area in a deductible way 43-145 Using your area in the 4% manner 43-150 Meaning of industrial activities Subdivision 43-E - Special rules about uses Guide to Subdivision 43-E 43-155 What this Subdivision is about Operative provisions 43-160 Your area is used for a purpose if it is maintained ready for use for the purpose 43-165 Temporary cessation of use 43-170 Own use—capital works other than hotel and apartment buildings Subdivision 43-F - Calculation of deduction Guide to Subdivision 43-F 43-200 What this Subdivision is about 43-205 Explanatory material Operative provisions 43-210 Deduction for capital works begun after 26 February 1992 43-215 Deduction for capital works begun before 27 February 1992 Subdivision 43-G - Undeducted construction expenditure Guide to Subdivision 43-G 43-225 What this Subdivision is about Operative provisions 43-230 Calculating undeducted construction expenditure—common step 43-235 Post-26 February 1992 undeducted construction expenditure 43-240 Pre-27 February 1992 undeducted construction expenditure Subdivision 43-H - Balancing deduction on destruction of capital works Guide to Subdivision 43-H 43-245 What this Subdivision is about

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Fundamental Tax Legislation 2020

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Table of provisions Operative provisions 43-250 The amount of the balancing deduction 43-255 Amounts received or receivable 43-260 Apportioning amounts received for destruction

Part 2-15 - Non-assessable income Division 50 - Exempt entities Subdivision 50-A - Various exempt entities 50-1 Entities whose ordinary income and statutory income is exempt 50-5 Charity, education and science 50-10 Community service 50-15 Employees and employers 50-25 Government 50-30 Health 50-35 Mining 50-40 Primary and secondary resources, and tourism 50-45 Sports, culture and recreation 50-47 Special condition for all items 50-50 Special conditions for item 1.1 50-52 Special condition for item 1.1 50-55 Special conditions for items 1.3, 1.4, 6.1 and 6.2 Subdivision 50-B - Endorsing charitable entities as exempt from income tax

ITAA 1997

Guide to Subdivision 50-B 50-100 What this Subdivision is about Endorsing charitable entities as exempt from income tax 50-105 Endorsement by Commissioner 50-110 Entitlement to endorsement Division 51 - Exempt amounts 51-1 Amounts of ordinary income and statutory income that are exempt 51-5 Defence 51-10 Education and training 51-30 Welfare 51-32 Compensation payments for loss of tax exempt payments 51-33 Compensation payments for loss of pay and/or allowances as a Defence reservist 51-35 Payments to a full-time student at a school, college or university 51-40 Payments to a secondary student 51-42 Bonuses for early completion of an apprenticeship 51-43 Income collected or derived by copyright collecting society 51-50 Maintenance payments to a spouse or child 51-57 Interest on judgment debt relating to personal injury 51-100 Shipping 51-105 Shipping activities 51-110 Core shipping activities 51-115 Incidental shipping activities 51-125 2018 storms—relief payments

Part 2-20 - Tax offsets Division 61 - Generally applicable tax offsets Subdivision 61-A - Dependant (invalid and carer) tax offset Guide to Subdivision 61-A 61-1 What this Subdivision is about Object of this Subdivision 61-5 Object of this Subdivision Entitlement to the dependant (invalid and carer) tax offset 61-10 Who is entitled to the tax offset

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Income Tax Assessment Act 1997 61-15 61-20 61-25

Cases involving more than one spouse Exceeding the income limit for family tax benefit (Part B) Eligibility for family tax benefit (Part B) without shared care

Amount of the dependant (invalid and carer) tax offset 61-30 Amount of the dependant (invalid and carer) tax offset 61-35 Families with shared care percentages 61-40 Reduced amounts of dependant (invalid and carer) tax offset 61-45 Reductions to take account of the other individual’s income Subdivision 61-D - Low and Middle Income tax offset and Low Income tax offset Guide to Subdivision 61-D 61-100 What this Subdivision is about Operative provisions 61-105 Entitlement to the Low and Middle Income tax offset 61-107 Amount of the Low and Middle Income tax offset 61-110 Entitlement to the Low Income tax offset 61-115 Amount of the Low Income tax offset Subdivision 61-G - Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 Guide to Subdivision 61-G 61-200 What this Subdivision is about Operative provisions 61-205 Entitlement to the private health insurance tax offset 61-210 Amount of the private health insurance tax offset 61-215 Reallocation of the private health insurance tax offset between spouses Subdivision 61-N - Seafarer tax offset Guide to Subdivision 61-N 61-695 What this Subdivision is about Operative provisions 61-700 Object of this Subdivision 61-705 Who is entitled to the seafarer tax offset 61-710 Amount of the seafarer tax offset Subdivision 61-P - ESVCLP tax offset Guide to Subdivision 61-P 61-750 What this Subdivision is about Operative provisions 61-755 Object of this Subdivision 61-760 Who is entitled to the ESVCLP tax offset 61-765 Amount of the ESVCLP tax offset—general case 61-770 Amount of the ESVCLP tax offset—members of trusts or partnerships 61-775 Amount of the ESVCLP tax offset—trustees Division 63 - Common rules for tax offsets Guide to Division 63 63-1 What this Division is about 63-10 Priority rules Division 65 - Tax offset carry forward rules Guide to Division 65 65-10 What this Division is about Operative provisions 65-30 Amount carried forward 65-35 How to apply carried forward tax offsets 65-40 When a company cannot apply a tax offset 65-50 Effect of bankruptcy 65-55 Deduction for amounts paid for debts incurred before bankruptcy

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Table of provisions Division 67 - Refundable tax offset rules Guide to Division 67 67-10 What this Division is about Operative provisions 67-20 Which tax offsets this Division applies to 67-23 Refundable tax offsets 67-25 Refundable tax offsets—franked distributions 67-30 Refundable tax offsets—R&D

Part 2-25 - Trading stock Division 70 - Trading stock

General rules 70-35 70-40 70-45

ITAA 1997

Guide to Division 70 70-1 What this Division is about 70-5 The 3 key features of tax accounting for trading stock Subdivision 70-A - What is trading stock 70-10 Meaning of trading stock 70-12 Registered emissions units Subdivision 70-B - Acquiring trading stock 70-15 In which income year do you deduct an outgoing for trading stock? 70-20 Non-arm’s length transactions 70-25 Cost of trading stock is not a capital outgoing 70-30 Starting to hold as trading stock an item you already own Subdivision 70-C - Accounting for trading stock you hold at the start or end of the income year You include the value of your trading stock in working out your assessable income and deductions Value of trading stock at start of income year Value of trading stock at end of income year

Special valuation rules 70-50 Valuation if trading stock obsolete etc. 70-55 Working out the cost of natural increase of live stock Subdivision 70-D - Assessable income arising from disposals of trading stock and certain other assets Guide to Subdivision 70-D 70-75 What this Subdivision is about 70-80 Why the rules in this Subdivision are necessary Operative provisions 70-90 Assessable income on disposal of trading stock outside the ordinary course of business 70-95 Purchase price is taken to be market value 70-100 Notional disposal when you stop holding an item as trading stock 70-105 Death of owner 70-110 You stop holding an item as trading stock but still own it 70-115 Compensation for lost trading stock

Part 2-40 - Rules affecting employees and other taxpayers receiving PAYG withholding payments Division 80 - General rules Guide to Division 80 80-1 What this Division is about Operative provisions 80-5 Holding of an office 80-10 Application to the termination of employment 80-15 Transfer of property 80-20 Payments for your benefit or at your direction or request

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Income Tax Assessment Act 1997 Division 82 - Employment termination payments Guide to Division 82 82-1 What this Division is about Subdivision 82-A - Employment termination payments: life benefits Guide to Subdivision 82-A 82-5 What this Subdivision is about Operative provisions 82-10 Taxation of life benefit termination payments Subdivision 82-B - Employment termination payments: death benefits Guide to Subdivision 82-B 82-60 What this Subdivision is about Operative provisions 82-65 Death benefits for dependants 82-70 Death benefits for non-dependants 82-75 Death benefits paid to trustee of deceased estate Subdivision 82-C - Key concepts Guide to Subdivision 82-C 82-125 What this Subdivision is about Operative provisions 82-130 What is an employment termination payment? 82-135 Payments that are not employment termination payments 82-140 Tax free component of an employment termination payment 82-145 Taxable component of an employment termination payment 82-150 What is an invalidity segment of an employment termination payment? 82-155 What is a pre-July 83 segment of an employment termination payment? 82-160 What is the ETP cap amount? Division 83 - Other payments on termination of employment Guide to Division 83 83-1 What this Division is about Subdivision 83-A - Unused annual leave payments Guide to Subdivision 83-A 83-5 What this Subdivision is about Operative provisions 83-10 Unused annual leave payment is assessable 83-15 Entitlement to tax offset Subdivision 83-B - Unused long service leave payments Guide to Subdivision 83-B 83-65 What this Subdivision is about General 83-70 83-75 83-80 83-85 83-90

Application—long service leave Meaning of unused long service leave payment Taxation of unused long service leave payments Entitlement to tax offset Meaning of pre-16/8/78 period, pre-18/8/93 period, post-17/8/93 period and long service leave employment period

Employment wholly full-time or wholly part-time 83-95 How to work out amount of payment attributable to each period 83-100 How to work out unused days of long service leave for each period 83-105 How to work out long service leave accrued in each period Employment partly full-time and partly part-time 83-110 Leave accrued in pre-16/8/78, pre-18/8/93 periods—employment full-time and part-time

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Table of provisions Long service leave taken at less than full pay 83-115 Working out used days of long service leave if leave taken at less than full pay Subdivision 83-C - Genuine redundancy payments and early retirement scheme payments Guide to Subdivision 83-C 83-165 What this Subdivision is about Operative provisions 83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments 83-175 What is a genuine redundancy payment? 83-180 What is an early retirement scheme payment? Subdivision 83-D - Foreign termination payments Guide to Subdivision 83-D 83-230 What this Subdivision is about Operative provisions 83-235 Termination payments tax free—foreign resident period 83-240 Termination payments tax free—Australian resident period Subdivision 83-E - Other payments Guide to Subdivision 83-E 83-290 What this Subdivision is about Operative provisions 83-295 Termination payments made more than 12 months after termination etc.

ITAA 1997

Division 83A - Employee share schemes Guide to Division 83A 83A-1 What this Division is about Subdivision 83A-A - Objects of Division and key concepts 83A-5 Objects of Division 83A-10 Meaning of ESS interest and employee share scheme Subdivision 83A-B - Immediate inclusion of discount in assessable income Guide to Subdivision 83A-B 83A-15 What this Subdivision is about Operative provisions 83A-20 Application of Subdivision 83A-25 Discount to be included in assessable income 83A-30 Amount for which discounted ESS interest acquired 83A-35 Reducing amounts included in assessable income—other cases Subdivision 83A-C - Deferred inclusion of gain in assessable income Guide to Subdivision 83A-C 83A-100 What this Subdivision is about Main provisions 83A-105 83A-110 83A-115 83A-120 83A-125

Application of Subdivision Amount to be included in assessable income ESS deferred taxing point—shares ESS deferred taxing point—rights to acquire shares Tax treatment of ESS interests held after ESS deferred taxing points

Takeovers and restructures 83A-130 Takeovers and restructures Subdivision 83A-D - Deduction for employer Guide to Subdivision 83A-D 83A-200 What this Subdivision is about Operative provisions 83A-205 Deduction for employer 83A-210 Timing of general deductions

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Income Tax Assessment Act 1997 Subdivision 83A-E - Miscellaneous 83A-305 Acquisition by associates 83A-310 Forfeiture etc. of ESS interest 83A-315 Market value of ESS interest 83A-320 Interests in a trust 83A-325 Application of Division to relationships similar to employment 83A-330 Application of Division to ceasing employment 83A-335 Application of Division to stapled securities 83A-340 Application of Division to indeterminate rights

Part 2-42 - Personal services income Division 84 - Introduction Guide to Part 2-42 84-1 What this Part is about Operative provisions 84-5 Meaning of personal services income 84-10 This Part does not imply that individuals are employees Division 85 - Deductions relating to personal services income Guide to Division 85 85-1 What this Division is about Operative provisions 85-5 Object of this Division 85-10 Deductions for non-employees relating to personal services income 85-15 Deductions for rent, mortgage interest, rates and land tax 85-20 Deductions for payments to associates etc. 85-25 Deductions for superannuation for associates 85-30 Exception: personal services businesses 85-35 Exception: employees, office holders and religious practitioners 85-40 Application of Subdivision 900-B to individuals who are not employees Division 86 - Alienation of personal services income Guide to Division 86 86-1 What this Division is about 86-5 A simple description of what this Division does Subdivision 86-A - General 86-10 Object of this Division 86-15 Effect of obtaining personal services income through a personal services entity 86-20 Offsetting the personal services entity’s deductions against personal services income 86-25 Apportionment of entity maintenance deductions among several individuals 86-27 Deduction for net personal services income loss 86-30 Assessable income etc. of the personal services entity 86-35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes 86-40 Salary payments shortly after an income year Subdivision 86-B - Entitlement to deductions 86-60 General rule for deduction entitlements of personal services entities 86-65 Entity maintenance deductions 86-70 Car expenses 86-75 Superannuation 86-80 Salary or wages promptly paid 86-85 Deduction entitlements of personal services entities for amounts included in an individual’s assessable income 86-87 Personal services entity cannot deduct net personal services income loss 86-90 Application of Divisions 28 and 900 to personal services entities

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Table of provisions Division 87 - Personal services businesses Guide to Division 87 87-1 What this Division is about 87-5 Diagram showing the operation of this Division Subdivision 87-A - General 87-10 Object of this Division 87-15 What is a personal services business? 87-18 The results test for a personal services business 87-20 The unrelated clients test for a personal services business 87-25 The employment test for a personal services business 87-30 The business premises test for a personal services business 87-40 Application of this Division to certain agents Subdivision 87-B - Personal services business determinations 87-60 Personal services business determinations for individuals 87-65 Personal services business determinations for personal services entities 87-85 Review of decisions

CHAPTER 3 - SPECIALIST LIABILITY RULES Part 3-1 - Capital gains and losses: general topics Division 100 - A Guide to capital gains and losses

ITAA 1997

General overview 100-1 What this Division is about 100-5 Effect of this Division 100-10 Fundamentals of CGT 100-15 Overview of Steps 1 and 2 Step 1—Have you made a capital gain or a capital loss? 100-20 What events attract CGT? 100-25 What are CGT assets? 100-30 Does an exception or exemption apply? 100-33 Can there be a roll-over? Step 2—Work out the amount of the capital gain or loss 100-35 What is a capital gain or loss? 100-40 What factors come into calculating a capital gain or loss? 100-45 How to calculate the capital gain or loss for most CGT events Step 3—Work out your net capital gain or loss for the income year 100-50 How to work out your net capital gain or loss 100-55 How do you comply with CGT? Keeping records for CGT purposes 100-60 Why keep records? 100-65 What records? 100-70 How long you need to keep records Division 102 - Assessable income includes net capital gain Guide to Division 102 102-1 What this Division is about 102-3 Concessions in working out your net capital gain Operative provisions 102-5 Assessable income includes net capital gain 102-10 How to work out your net capital loss 102-15 How to apply net capital losses 102-20 Ways you can make a capital gain or a capital loss 102-22 Amounts of capital gains and losses 102-23 CGT event still happens even if gain or loss disregarded 102-25 Order of application of CGT events

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Income Tax Assessment Act 1997 102-30

Exceptions and modifications

Division 103 - General rules Guide to Division 103 103-1 What this Division is about Operative provisions 103-5 Giving property as part of a transaction 103-10 Entitlement to receive money or property 103-15 Requirement to pay money or give property 103-25 Choices 103-30 Reduction of cost base etc. by net input tax credits Division 104 - CGT events Guide to Division 104 104-1 What this Division is about 104-5 Summary of the CGT events Subdivision 104-A - Disposals 104-10 Disposal of a CGT asset: CGT event A1 Subdivision 104-B - Use and enjoyment before title passes 104-15 Use and enjoyment before title passes: CGT event B1 Subdivision 104-C - End of a CGT asset 104-20 Loss or destruction of a CGT asset: CGT event C1 104-25 Cancellation, surrender and similar endings: CGT event C2 104-30 End of option to acquire shares etc.: CGT event C3 Subdivision 104-D - Bringing into existence a CGT asset 104-35 Creating contractual or other rights: CGT event D1 104-40 Granting an option: CGT event D2 104-45 Granting a right to income from mining: CGT event D3 104-47 Conservation covenants: CGT event D4 Subdivision 104-E - Trusts 104-55 Creating a trust over a CGT asset: CGT event E1 104-60 Transferring a CGT asset to a trust: CGT event E2 104-65 Converting a trust to a unit trust: CGT event E3 104-70 Capital payment for trust interest: CGT event E4 104-71 Adjustment of non-assessable part 104-72 Reducing your capital gain under CGT event E4 if you are a trustee 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 104-80 Disposal to beneficiary to end income right: CGT event E6 104-85 Disposal to beneficiary to end capital interest: CGT event E7 104-90 Disposal by beneficiary of capital interest: CGT event E8 104-95 Making a capital gain 104-100 Making a capital loss 104-105 Creating a trust over future property: CGT event E9 104-107A AMIT—cost base reduction exceeds cost base: CGT event E10 104-107B Annual cost base adjustment for member’s unit or interest in AMIT 104-107C AMIT cost base net amount 104-107D AMIT cost base reduction amount 104-107E AMIT cost base increase amount 104-107F Receipt of money etc. increasing AMIT cost base reduction amount not to be treated as income 104-107G Effect of AMIT cost base net amount on cost of AMIT membership interest or unit that is a revenue asset—adjustment of cost of asset 104-107H Effect of AMIT cost base net amount on cost of AMIT membership interest or unit that is a revenue asset—amount included in assessable income Subdivision 104-F - Leases 104-110 Granting a lease: CGT event F1 104-115 Granting a long-term lease: CGT event F2

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Fundamental Tax Legislation 2020

104-120 104-125 104-130

CORE TAX

Table of provisions Lessor pays lessee to get lease changed: CGT event F3 Lessee receives payment for changing lease: CGT event F4 Lessor receives payment for changing lease: CGT event F5

Subdivision 104-G - Shares 104-135 Capital payment for shares: CGT event G1 104-145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 Subdivision 104-H - Special capital receipts 104-150 Forfeiture of deposit: CGT event H1 104-155 Receipt for event relating to a CGT asset: CGT event H2 Subdivision 104-I - Australian residency ends 104-160 Individual or company stops being an Australian resident: CGT event I1 104-165 Exception for individuals 104-170 Trust stops being a resident trust: CGT event I2

ITAA 1997

Subdivision 104-J - CGT events relating to roll-overs 104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 Sub-group break-up 104-180 104-182 Consolidated group break-up 104-185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 104-190 Replacement asset period 104-195 Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 104-197 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 104-198 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6 Subdivision 104-K - Other CGT events 104-205 Incoming international transfer of emissions unit: CGT event K1 104-210 Bankrupt pays amount in relation to debt: CGT event K2 104-215 Asset passing to tax-advantaged entity: CGT event K3 104-220 CGT asset starts being trading stock: CGT event K4 104-225 Special collectable losses: CGT event K5 104-230 Pre-CGT shares or trust interest: CGT event K6 104-235 Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7 104-240 Working out capital gain or loss for CGT event K7: general case 104-245 Working out capital gain or loss for CGT event K7: pooled assets 104-250 Direct value shifts: CGT event K8 104-255 Carried interests: CGT event K9 104-260 Certain short-term forex realisation gains: CGT event K10 104-265 Certain short-term forex realisation losses: CGT event K11 104-270 Foreign hybrids: CGT event K12 Subdivision 104-L - Consolidated groups and MEC groups 104-500 Loss of pre-CGT status of membership interests in entity becoming subsidiary member: CGT event L1 104-505 Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2 104-510 Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3 104-515 Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4 104-520 Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5 104-525 Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6

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Income Tax Assessment Act 1997 104-535

Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8

Division 106 - Entity making the gain or loss Guide to Division 106 106-1 What this Division is about Subdivision 106-A - Partnerships 106-5 Partnerships Subdivision 106-B - Bankruptcy and liquidation 106-30 Effect of bankruptcy 106-35 Effect of liquidation Subdivision 106-C - Absolutely entitled beneficiaries 106-50 Absolutely entitled beneficiaries Subdivision 106-D - Securities, charges and encumbrances 106-60 Securities, charges and encumbrances Division 108 - CGT assets Guide to Division 108 108-1 What this Division is about Subdivision 108-A - What a CGT asset is 108-5 CGT assets 108-7 Interest in CGT assets as joint tenants Subdivision 108-B - Collectables 108-10 Losses from collectables to be offset only against gains from collectables 108-15 Sets of collectables 108-17 Cost base of a collectable Subdivision 108-C - Personal use assets 108-20 Losses from personal use assets must be disregarded 108-25 Sets of personal use assets 108-30 Cost base of a personal use asset Subdivision 108-D - Separate CGT assets Guide to Subdivision 108-D 108-50 What this Subdivision is about Operative provisions 108-55 When is a building a separate asset from land? 108-60 Depreciating asset that is part of a building is a separate asset 108-65 Land adjacent to land acquired before 20 September 1985 108-70 When is a capital improvement a separate asset? 108-85 Meaning of improvement threshold Division 109 - Acquisition of CGT assets Guide to Division 109 109-1 What this Division is about Subdivision 109-A - Operative rules 109-5 General acquisition rules 109-10 When you acquire a CGT asset without a CGT event Subdivision 109-B - Signposts to other acquisition rules 109-50 Effect of this Subdivision 109-55 Other acquisition rules 109-60 Acquisition rules outside this Part and Part 3-3 Division 110 - Cost base and reduced cost base Guide to Division 110 110-1 What this Division is about 110-5 Modifications to general rules 110-10 Rules about cost base not relevant for some CGT events

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Table of provisions Subdivision 110-A - Cost base 110-25 General rules about cost base 110-35 Incidental costs 110-36 Indexation What does not form part of the cost base 110-37 Expenditure forming part of cost base or element 110-38 Exclusions 110-40 Assets acquired before 7.30 pm on 13 May 1997 Partnership interests acquired before 7.30 pm on 13 May 1997 110-43 Assets acquired after 7.30 pm on 13 May 1997 110-45 Partnership interests acquired after 7.30 pm on 13 May 1997 110-50 Exceptions to application of sections 110-45 and 110-50 110-53 110-54 Debt deductions disallowed by thin capitalisation rules Subdivision 110-B - Reduced cost base 110-55 General rules about reduced cost base 110-60 Reduced cost base for partnership assets Division 112 - Modifications to cost base and reduced cost base

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ITAA 1997

Guide to Division 112 112-1 What this Division is about 112-5 Discussion of modifications Subdivision 112-A - General modifications 112-15 General rule for replacement modifications 112-20 Market value substitution rule 112-25 Split, changed or merged assets 112-30 Apportionment rules 112-35 Assumption of liability rule 112-37 Put options Subdivision 112-B - Finding tables for special rules 112-40 Effect of this Subdivision 112-45 CGT events 112-46 Annual cost base adjustment for member’s unit or interest in AMIT 112-48 Gifts acquired by associates 112-50 Main residence 112-53 Scrip for scrip roll-over 112-53AA Statutory licences 112-53AB Change of incorporation 112-53A MDO roll-over 112-53B Exchange of stapled ownership interests for units in a unit trust 112-53C Water entitlement roll-overs 112-54 Demergers 112-54A Transfer of assets between certain trusts 112-55 Effect of you dying 112-60 Bonus shares or units 112-65 Rights 112-70 Convertible interests 112-77 Exchangeable interests 112-80 Leases 112-85 Options 112-87 Residency 112-90 An asset stops being a pre-CGT asset 112-92 Demutualisation of certain entities 112-95 Transfer of tax losses and net capital losses within wholly-owned groups of companies 112-97 Modifications outside this Part and Part 3-3 Subdivision 112-C - Replacement-asset roll-overs 112-100 Effect of this Subdivision

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Income Tax Assessment Act 1997 112-105 What is a replacement-asset roll-over? 112-110 How is the cost base of the replacement asset modified? 112-115 Table of replacement-asset roll-overs Subdivision 112-D - Same-asset roll-overs 112-135 Effect of this Subdivision 112-140 What is a same-asset roll-over? 112-145 How is the cost base of the asset modified? 112-150 Table of same-asset roll-overs Division 114 - Indexation of cost base 114-1 Indexing elements of cost base 114-5 When indexation relevant 114-10 Requirement for 12 months ownership 114-15 Cost base modifications 114-20 When expenditure is incurred for roll-overs Division 115 - Discount capital gains and trusts’ net capital gains Guide to Division 115 115-1 What this Division is about Subdivision 115-A - Discount capital gains What is a discount capital gain? 115-5 What is a discount capital gain? Who can make a discount capital gain? 115-10 115-15 Discount capital gain must be made after 21 September 1999 115-20 Discount capital gain must not have indexed cost base 115-25 Discount capital gain must be on asset acquired at least 12 months before 115-30 Special rules about time of acquisition 115-32 Special rule about time of acquisition for certain replacement-asset roll-overs 115-34 Further special rule about time of acquisition for certain replacement-asset roll-overs What are not discount capital gains? 115-40 Capital gain resulting from agreement made within a year of acquisition 115-45 Capital gain from equity in an entity with newly acquired assets 115-50 Discount capital gain from equity in certain entities Subdivision 115-B - Discount percentage 115-100 What is the discount percentage for a discount capital gain 115-105 Foreign or temporary residents—individuals with direct gains 115-110 Foreign or temporary residents—individuals with trust gains 115-115 Foreign or temporary residents—percentage for individuals 115-120 Foreign or temporary residents—trusts with certain gains Subdivision 115-C - Rules about trusts with net capital gains Guide to Subdivision 115-C 115-200 What this Division is about Operative provisions 115-210 When this Subdivision applies 115-215 Assessing presently entitled beneficiaries 115-220 Assessing trustees under section 98 of the Income Tax Assessment Act 1936 115-222 Assessing trustees under section 99 or 99A of the Income Tax Assessment Act 1936 115-225 Attributable gain Share of a capital gain 115-227 115-228 Specifically entitled to an amount of a capital gain 115-230 Choice for resident trustee to be specifically entitled to capital gain Subdivision 115-D - Tax relief for shareholders in listed investment companies Guide to Subdivision 115-D What this Subdivision is about 115-275

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Fundamental Tax Legislation 2020

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Table of provisions Operative provisions 115-280 Deduction for certain dividends 115-285 Meaning of LIC capital gain 115-290 Meaning of listed investment company 115-295 Maintaining records Division 116 - Capital proceeds Guide to Division 116 116-1 What this Division is about 116-5 General rules 116-10 Modifications to general rules General rules 116-20

General rules about capital proceeds

Modifications to general rules 116-25 Table of modifications to the general rules 116-30 Market value substitution rule: modification 1 116-35 Companies and trusts that are not widely held 116-40 Apportionment rule: modification 2 116-45 Non-receipt rule: modification 3 116-50 Repaid rule: modification 4 116-55 Assumption of liability rule: modification 5 116-60 Misappropriation rule: modification 6 Disposal etc. of a CGT asset the subject of an option Option requiring both acquisition and disposal etc. Special rule for CGT event happening to a lease Special rule if CGT asset is shares or an interest in a trust Section 47A of 1936 Act applying to rolled-over asset Company changes residence from an unlisted country Gifts of property Conservation covenants Roll-overs for merging superannuation funds Disposals of assets involving look-through earnout rights

ITAA 1997

Special rules 116-65 116-70 116-75 116-80 116-85 116-95 116-100 116-105 116-110 116-120

Division 118 - Exemptions Guide to Division 118 118-1 What this Division is about Subdivision 118-A - General exemptions Exempt assets 118-5 Cars, motor cycles and valour decorations 118-10 Collectables and personal use assets 118-12 Assets used to produce exempt income etc. 118-13 Shares in a PDF 118-15 Registered emissions units Anti-overlap provisions 118-20 Reducing capital gains if amount otherwise assessable 118-21 Carried interests 118-22 Superannuation lump sums and employment termination payments 118-24 Depreciating assets 118-25 Trading stock 118-27 Division 230 financial arrangements and financial arrangements to which Subdivision 250-E applies 118-30 Film copyright 118-35 R&D Exempt or loss-denying transactions 118-37 Compensation, damages etc.

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Income Tax Assessment Act 1997 118-40 118-42 118-45 118-55 118-60 118-70 118-75 118-77

Expiry of a lease Transfer of stratum units Sale of rights to mine Foreign currency hedging gains and losses Certain gifts Transactions by exempt entities Marriage or relationship breakdown settlements Native title and rights to native title benefits

Boat capital gains 118-80 Reduction of boat capital gain Subdivision 118-B - Main residence Guide to Subdivision 118-B 118-100 What this Subdivision is about 118-105 Map of this Subdivision Basic case and concepts 118-110 Basic case 118-115 Meaning of dwelling 118-120 Extension to adjacent land etc. Meaning of ownership period 118-125 118-130 Meaning of ownership interest in land or a dwelling Rules that may extend the exemption 118-135 Moving into a dwelling 118-140 Changing main residences 118-145 Absences 118-147 Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc. 118-150 If you build, repair or renovate a dwelling 118-155 Where individual referred to in section 118-150 dies 118-160 Destruction of dwelling and sale of land Rules that may limit the exemption 118-165 Separate CGT event for adjacent land or other structures 118-170 Spouse having different main residence 118-175 Dependent child having different main residence Roll-overs under Subdivision 126-A 118-178 Previous roll-over under Subdivision 126-A 118-180 Acquisition of dwelling from company or trust on marriage or relationship breakdown—roll-over provision applying Partial exemption rules 118-185 Partial exemption where dwelling was your main residence during part only of ownership period 118-190 Use of dwelling for producing assessable income 118-192 Special rule for first use to produce income Dwellings acquired from deceased estates 118-195 Dwelling acquired from a deceased estate 118-197 Special rule for surviving joint tenant 118-200 Partial exemption for deceased estate dwellings 118-205 Adjustment if dwelling inherited from deceased individual 118-210 Trustee acquiring dwelling under will Subdivision 118-F - Venture capital investment Guide to Subdivision 118-F 118-408 Partial exemption for some capital gains otherwise fully exempt under section 118-407 Subdivision 118-G - Venture capital: investment by superannuation funds for foreign residents Guide to Subdivision 118-G What this Subdivision is about 118-500

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Table of provisions 118-505 Exemption for certain foreign venture capital 118-510 Meaning of resident investment vehicle 118-515 Meaning of venture capital entity 118-520 Meaning of superannuation fund for foreign residents 118-525 Meaning of venture capital equity Subdivision 118-H - Demutualisation of Tower Corporation 118-550 Demutualisation of Tower Corporation Subdivision 118-I - Look-through earnout rights 118-560 Object 118-565 Look-through earnout rights 118-570 Extra ways a CGT asset can be an active asset Creating and ending look-through earnout rights 118-575 118-580 Temporarily disregard capital losses affected by look-through earnout rights Division 121 - Record keeping Guide to Division 121 121-10 What this Division is about Operative provisions 121-20 What records you must keep 121-25 How long you must retain the records 121-30 Exceptions 121-35 Asset register entries

ITAA 1997

Part 3-3 - Capital gains and losses: special topics Division 122 - Roll-over for the disposal of assets to, or the creation of assets in, a wholly-owned company Guide to Division 122 122-1 What this Division is about Subdivision 122-A - Disposal or creation of assets by an individual or trustee to a wholly-owned company Guide to Subdivision 122-A 122-5 What this Subdivision is about When is a roll-over available 122-15 Disposal or creation of assets—wholly-owned company 122-20 What you receive for the trigger event 122-25 Other requirements to be satisfied 122-35 What if the company undertakes to discharge a liability (disposal case) 122-37 Rules for working out what a liability in respect of an asset is Replacement-asset roll-over if you dispose of a CGT asset 122-40 Disposal of a CGT asset Replacement-asset roll-over if you dispose of all the assets of a business 122-45 Disposal of all the assets of a business 122-50 All assets acquired on or after 20 September 1985 122-55 All assets acquired before 20 September 1985 122-60 Assets acquired before and after 20 September 1985 Replacement-asset roll-over for a creation case 122-65 Creation of asset Same-asset roll-over consequences for the company (disposal case) 122-70 Consequences for the company (disposal case) Same-asset roll-over consequences for the company (creation case) 122-75 Consequences for the company (creation case) Subdivision 122-B - Disposal or creation of assets by partners to a wholly-owned company Guide to Subdivision 122-B 122-120 What this Subdivision is about

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Income Tax Assessment Act 1997 When is a roll-over available 122-125 Disposal or creation of assets—wholly-owned company 122-130 What the partners receive for the trigger event 122-135 Other requirements to be satisfied 122-140 What if the company undertakes to discharge a liability (disposal case) 122-145 Rules for working out what a liability in respect of an interest in an asset is Replacement-asset roll-over if partners dispose of a CGT asset 122-150 Capital gain or loss disregarded 122-155 Disposal of post-CGT or pre-CGT interests 122-160 Disposal of both post-CGT and pre-CGT interests Replacement-asset roll-over if the partners dispose of all the assets of a business 122-170 Capital gain or loss disregarded 122-175 Other consequences 122-180 All interests acquired on or after 20 September 1985 122-185 All interests acquired before 20 September 1985 122-190 Interests acquired before and after 20 September 1985 Replacement-asset roll-over for a creation case 122-195 Creation of asset Same-asset roll-over consequences for the company (disposal case) 122-200 Consequences for the company (disposal case) Same-asset roll-over consequences for the company (creation case) 122-205 Consequences for the company (creation case) Division 124 - Replacement-asset roll-overs Guide to Division 124 124-1 What this Division is about 124-5 How to find your way around this Division Subdivision 124-A - General rules 124-10 Your ownership of one CGT asset ends 124-15 Your ownership of more than one CGT asset ends 124-20 Share and interest sale facilities Subdivision 124-B - Asset compulsorily acquired, lost or destroyed When a roll-over is available 124-70 Events giving rise to a roll-over 124-75 Other requirements if you receive money 124-80 Other requirements if you receive an asset The consequences of a roll-over being available 124-85 Consequences for receiving money 124-90 Consequences for receiving an asset 124-95 You receive both money and an asset Subdivision 124-M - Scrip for scrip roll-over Guide to Subdivision 124-M 124-775 What this Subdivision is about Operative provisions 124-780 Replacement of shares 124-781 Replacement of trust interests 124-782 Transfer or allocation of cost base of shares acquired by acquiring entity etc. 124-783 Meaning of significant stakeholder, common stakeholder, significant stake and common stake 124-784 Cost base of equity or debt given within acquiring group 124-784A When arrangement is a restructure 124-784B What is the cost base and reduced cost base when arrangement is a restructure? 124-784C Cost base of equity or debt given within acquiring group 124-785 What is the roll-over? 124-790 Partial roll-over

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Fundamental Tax Legislation 2020

124-795 124-800 124-810

CORE TAX

Table of provisions Exceptions Interest received for pre-CGT interest Certain companies and trusts not regarded as having 300 members or beneficiaries

Division 126 - Same-asset roll-overs Guide to Division 126 126-1 What this Division is about Subdivision 126-A - Marriage or relationship breakdowns 126-5 CGT event involving spouses 126-15 CGT event involving company or trustee Subdivision 126-B - Companies in the same wholly-owned group Guide to Subdivision 126-B 126-40 What this Subdivision is about Operative provisions 126-45 Roll-over for members of wholly-owned group 126-50 Requirements for roll-over 126-55 When there is a roll-over 126-60 Consequences of roll-over Division 128 - Effect of death

General rules 128-10 128-15 128-20 128-25

ITAA 1997

Guide to Division 128 128-1 What this Division is about Capital gain or loss when you die is disregarded Effect on the legal personal representative or beneficiary When does an asset pass to a beneficiary? The beneficiary is a trustee of a superannuation fund etc.

Special rules for joint tenants 128-50 Joint tenants Division 130 - Investments Guide to Division 130 130-1 What this Division is about Subdivision 130-A - Bonus shares and units Guide to Subdivision 130-A 130-15 Acquisition time and cost base of bonus equities Operative provisions 130-20 Issue of bonus shares or units Subdivision 130-B - Rights 130-40 Exercise of rights 130-45 Timing rules 130-50 Application to options Subdivision 130-C - Convertible interests 130-60 Shares or units acquired by converting a convertible interest Subdivision 130-D - Employee share schemes 130-75 Objects of Subdivision 130-80 ESS interests acquired under employee share schemes 130-85 Interests in employee share trusts 130-90 Shares held by employee share trusts Subdivision 130-E - Exchangeable interests 130-100 Exchangeable interest 130-105 Shares acquired in exchange for the disposal or redemption of an exchangeable interest

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Income Tax Assessment Act 1997 Division 132 - Leases 132-1 Lessee incurs expenditure to get lease term varied or waived 132-5 Lessor pays lessee for improvements 132-10 Grant of a long-term lease 132-15 Lessee of land acquires reversionary interest of lessor Division 134 - Options 134-1 Exercise of options Division 152 - Small business relief Guide to Division 152 152-1 What this Division is about Subdivision 152-A - Basic conditions for relief under this Division Guide to Subdivision 152-A 152-5 What this Subdivision is about Basic conditions for relief 152-10 Basic conditions for relief 152-12 Special conditions for CGT event D1 Maximum net asset value test 152-15 Maximum net asset value test 152-20 Meaning of net value of the CGT assets Active asset test 152-35 Active asset test 152-40 Meaning of active asset 152-45 Continuing time periods for involuntary disposals Significant individual test 152-50 Significant individual test 152-55 Meaning of significant individual CGT concession stakeholder 152-60 Meaning of CGT concession stakeholder Small business 152-65 152-70 152-75

participation percentage Small business participation percentage Direct small business participation percentage Indirect small business participation percentage

CGT event happens to asset or interest within 2 years of an individual’s death 152-80 CGT event happens to an asset or interest within 2 years of individual’s death Subdivision 152-B - Small business 15-year exemption Guide to Subdivision 152-B 152-100 What this Subdivision is about 152-105 15-year exemption for individuals 152-110 15-year exemption for companies and trusts 152-115 Continuing time periods for involuntary disposals 152-125 Payments to company’s or trust’s CGT concession stakeholders are exempt Subdivision 152-C - Small business 50% reduction Guide to Subdivision 152-C 152-200 What this Subdivision is about 152-205 You get the small business 50% reduction 152-210 You may also get the small business retirement exemption and small business roll-over relief 152-215 15-year rule has priority 152-220 You may choose not to apply this Subdivision Subdivision 152-D - Small business retirement exemption Guide to Subdivision 152-D 152-300 What this Subdivision is about 152-305 Choosing the exemption

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Table of provisions 152-310 Consequences of choice 152-315 Choosing the amount to disregard 152-320 Meaning of CGT retirement exemption limit 152-325 Company or trust conditions 152-330 15-year rule has priority Subdivision 152-E - Small business roll-over Guide to Subdivision 152-E 152-400 What this Subdivision is about Operative provisions 152-410 When you can obtain the roll-over 152-415 What the roll-over consists of 152-420 Rules where an individual who has obtained a roll-over dies 152-430 15-year rule has priority

Part 3-5 - Corporate taxpayers and corporate distributions

ITAA 1997

Division 164 - Non-share capital accounts for companies Guide to Division 164 164-1 What this Division is about Operative provisions 164-5 Object 164-10 Non-share capital account 164-15 Credits to non-share capital account 164-20 Debits to non-share capital account Division 165 - Income tax consequences of changing ownership or control of a company Guide to Division 165 165-1 What this Division is about Subdivision 165-A - Deducting tax losses of earlier income years Guide to Subdivision 165-A 165-5 What this Subdivision is about Operative provisions 165-10 To deduct a tax loss 165-12 Company must maintain the same owners 165-13 Alternatively, the company must satisfy the business continuity test 165-15 The same people must control the voting power, or the company must satisfy the business continuity test 165-20 When company can deduct part of a tax loss Subdivision 165-B - Working out the taxable income and tax loss for the income year of the change Guide to Subdivision 165-B 165-23 What this Subdivision is about 165-25 Summary of this Subdivision 165-30 Flow chart showing the application of this Subdivision When a company must work out its taxable income and tax loss under this Subdivision 165-35 On a change of ownership, unless the company satisfies the business continuity test 165-37 Who has more than a 50% stake in the company during a period 165-40 On a change of control of the voting power in the company, unless the company satisfies the business continuity test Working out the company’s taxable income 165-45 First, divide the income year into periods 165-50 Next, calculate the notional loss or notional taxable income for each period 165-55 How to attribute deductions to periods 165-60 How to attribute assessable income to periods Subdivision 165-CA - Applying net capital losses of earlier income years Guide to Subdivision 165-CA 165-93 What this Subdivision is about

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Income Tax Assessment Act 1997 Operative provisions 165-96 When a company cannot apply a net capital loss Subdivision 165-CB - Working out the net capital gain and the net capital loss for the income year of the change Guide to Subdivision 165-CB 165-99 What this Subdivision is about When a company must work out its net capital gain and net capital loss under this Subdivision 165-102 On a change of ownership, or of control of voting power, unless the company satisfies the business continuity test Working out the company’s net capital gain and net capital loss 165-105 First, divide the income year into periods 165-108 Next, calculate the notional net capital gain or notional net capital loss for each period 165-111 How to work out the company’s net capital gain 165-114 How to work out the company’s net capital loss Subdivision 165-CC - Change of ownership or control of company that has an unrealised net loss Guide to Subdivision 165-CC 165-115 What this Subdivision is about Subdivision 165-CD - Reductions after alterations in ownership or control of loss company Guide to Subdivision 165-CD 165-115GA What this Subdivision is about 165-115GB When adjustments must be made 165-115GC How adjustments are calculated 165-115H How this Subdivision applies Subdivision 165-C - Deducting bad debts Guide to Subdivision 165-C 165-117 What this Subdivision is about Operative provisions 165-119 Application of Subdivision 165-120 To deduct a bad debt 165-123 Company must maintain the same owners 165-126 Alternatively, the company must satisfy the business continuity test 165-129 Same people must control the voting power, or the company must satisfy the business continuity test 165-132 When tax losses resulting from bad debts cannot be deducted Subdivision 165-D - Tests for finding out whether the company has maintained the same owners The primary and alternative tests 165-150 Who has more than 50% of the voting power in the company 165-155 Who has rights to more than 50% of the company’s dividends 165-160 Who has rights to more than 50% of the company’s capital distributions 165-165 Rules about tests for a condition or occurrence of a circumstance 165-175 Tests can be satisfied by a single person Rules affecting 165-180 165-185 165-190 165-200 165-202 165-203 165-205 165-207 165-208 165-209

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the operation of the tests Arrangements affecting beneficial ownership of shares Shares treated as not having carried rights Shares treated as always having carried rights Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units Shares held by government entities and charities etc. Companies where no shares have been issued Death of share owner Trustees of family trusts Companies in liquidation etc. Dual listed companies

Fundamental Tax Legislation 2020

CORE TAX

Table of provisions Subdivision 165-E - Business continuity test 165-210 The business continuity test—carrying on the same business 165-211 The business continuity test—carrying on a similar business 165-212D Restructure of MDOs etc. 165-212E Entry history rule does not apply for the purposes of sections 165-210 and 165-211 Subdivision 165-G - Other special provisions 165-250 Control of companies in liquidation etc. 165-255 Incomplete periods Division 180 - Information about family trusts with interests in companies Guide to Division 180 180-1 What this Division is about Subdivision 180-A - Information relevant to Division 165 180-5 Information about family trusts with interests in companies 180-10 Notice where requirements of section 180-5 are met Subdivision 180-B - Information relevant to Division 175 180-15 Information about family trusts with interests in companies 180-20 Notice where requirements of section 180-15 are met

ITAA 1997

Division 197 - Tainted share capital accounts Guide to Division 197 197-1 What this Division is about Subdivision 197-A - What transfers into a company’s share capital account does this Division apply to? 197-5 Division generally applies to an amount transferred to share capital account from another account 197-10 Exclusion for amounts that could be identified as share capital 197-15 Exclusion for amounts transferred under debt/equity swaps 197-20 Exclusion for amounts transferred leading to there being no shares with a par value—non-Corporations Act companies 197-25 Exclusion for transfers from option premium reserves 197-30 Exclusion for transfers made in connection with demutualisations of noninsurance etc. companies 197-35 Exclusion for transfers made in connection with demutualisations of insurance etc. companies 197-37 Exclusion for transfers made in connection with demutualisations of private health insurers 197-38 Exclusion for transfers connected with demutualisations of friendly society health or life insurers 197-40 Exclusion for post-demutualisation transfers relating to life insurance companies Subdivision 197-B - Consequence of transfer: franking debit arises 197-45 A franking debit arises in relation to the transfer Subdivision 197-C - Consequence of transfer: tainting of share capital account 197-50 The share capital account becomes tainted (if it is not already tainted) 197-55 Choosing to untaint a tainted share capital account 197-60 Choosing to untaint—liability to untainting tax 197-65 Choosing to untaint—further franking debits may arise 197-70 Due date for payment of untainting tax 197-75 General interest charge for late payment of untainting tax 197-80 Notice of liability to pay untainting tax 197-85 Evidentiary effect of notice of liability to pay untainting tax

Part 3-6 - The imputation system Division 200 - Guide to Part 3-6 Guide to Division 200 200-1 What this Division is about 200-5 The imputation system

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Income Tax Assessment Act 1997 200-10 200-15 200-20 200-25 200-30 200-35 200-40 200-45

Franking a distribution The franking account How a distribution is franked A corporate tax entity must not give its members credit for more tax than the entity has paid Benchmark rule Effect of receiving a franked distribution An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members Special rules for franking by some entities

Division 201 - Objects and application of Part 3-6 201-1 Objects 201-5 Application of this Part Division 202 - Franking a distribution Subdivision 202-A - Franking a distribution Guide to Subdivision 202-A 202-1 What this Subdivision is about Operative provisions 202-5 Franking a distribution Subdivision 202-B - Who can frank a distribution? Guide to Subdivision 202-B 202-10 What this Subdivision is about Operative provisions 202-15 Franking entities 202-20 Residency requirement when making a distribution Subdivision 202-C - Which distributions can be franked? Guide to Subdivision 202-C 202-25 What this Subdivision is about 202-30 Frankable distributions Operative provisions 202-35 Object 202-40 Frankable distributions 202-45 Unfrankable distributions 202-47 Distributions of certain ADI profits following restructure Subdivision 202-D - Amount of the franking credit on a distribution Guide to Subdivision 202-D 202-50 What this Subdivision is about 202-55 What is the maximum franking credit for a frankable distribution? Operative provisions 202-60 Amount of the franking credit on a distribution 202-65 Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution Subdivision 202-E - Distribution statements Guide to Subdivision 202-E 202-70 What this Subdivision is about Operative provisions 202-75 Obligation to give a distribution statement 202-80 Distribution statement 202-85 Changing the franking credit on a distribution by amending the distribution statement Division 203 - Benchmark rule Guide to Division 203 203-1 What this Division is about

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Fundamental Tax Legislation 2020

203-5 203-10

CORE TAX

Table of provisions Benchmark rule Benchmark franking percentage

Operative provisions 203-15 Object 203-20 Application of the benchmark rule 203-25 Benchmark rule 203-30 Setting a benchmark franking percentage 203-35 Franking percentage 203-40 Franking periods—where the entity is not a private company 203-45 Franking period—private companies 203-50 Consequences of breaching the benchmark rule 203-55 Commissioner’s powers to permit a departure from the benchmark rule Division 204 - Anti-streaming rules Subdivision 204-A - Objects and application 204-1 Objects 204-5 Application Subdivision 204-B - Linked distributions Guide to Subdivision 204-B 204-10 What this Subdivision is about

ITAA 1997

Operative provisions 204-15 Linked distributions Subdivision 204-C - Substituting tax-exempt bonus share for franked distributions Guide to Subdivision 204-C 204-20 What this Subdivision is about Operative provisions 204-25 Substituting tax-exempt bonus shares for franked distributions Subdivision 204-D - Streaming distributions Guide to Subdivision 204-D 204-26 What this Subdivision is about Operative provisions 204-30 Streaming distributions 204-35 When does a franking debit arise if the Commissioner makes a determination under paragraph 204-30(3)(a) 204-40 Amount of the franking debit 204-41 Amount of the exempting debit 204-45 Effect of a determination about distributions to favoured members 204-50 Assessment and notice of determination 204-55 Right to review where a determination made Subdivision 204-E - Disclosure requirements Guide to Subdivision 204-E 204-65 What this Subdivision is about Operative provisions 204-70 Application of this Subdivision 204-75 Notice to the Commissioner 204-80 Commissioner may require information where the Commissioner suspects streaming Division 205 - Franking accounts, franking deficit tax liabilities and the related tax offset Guide to Division 205 205-1 What this Division is about 205-5 Franking accounts, franking deficit tax liabilities and the related tax offset Operative provisions 205-10 Each entity that is or has been a corporate tax entity has a franking account 205-15 Franking credits

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Income Tax Assessment Act 1997 205-20 205-25 205-30 205-35 205-40 205-45 205-50 205-70

Paying a PAYG instalment, income tax or diverted profits tax Residency requirement for an event giving rise to a franking credit or franking debit Franking debits Refund of income tax or diverted profits tax Franking surplus and deficit Franking deficit tax Deferring franking deficit Tax offset arising from franking deficit tax liabilities

Division 207 - Effect of receiving a franked distribution Guide to Division 207 207-5 Overview Subdivision 207-A - Effect of receiving a franked distribution generally Guide to Subdivision 207-A 207-10 What this Subdivision is about Operative provisions 207-15 Applying the general rule 207-20 General rule—gross-up and tax offset Subdivision 207-B - Franked distribution received through certain partnerships and trustees Guide to Subdivision 207-B 207-25 What this Subdivision is about Gross-up and tax offset 207-30 Applying this Subdivision 207-35 Gross-up—distribution made to, or flows indirectly through, a partnership or trustee 207-37 Attributable franked distribution—trusts 207-45 Tax offset—distribution flows indirectly to an entity Key concepts 207-50 207-55 207-57 207-58 207-59

When a franked distribution flows indirectly to or through an entity Share of a franked distribution Share of the franking credit on a franked distribution Specifically entitled to an amount of a franked distribution Franked distributions within class treated as single franked distribution

Subdivision 207-C - Residency requirements for the general rule Guide to Subdivision 207-C 207-60 What this Subdivision is about 207-65 Satisfying the residency requirement Operative provisions 207-70 Gross-up and tax offset under section 207-20 207-75 Residency requirement Subdivision 207-D - No gross-up or tax offset where distribution would not be taxed Guide to Subdivision 207-D 207-80 What this Subdivision is about Operative provisions 207-85 Applying this Subdivision 207-90 Distribution that is made to an entity 207-95 Distribution that flows indirectly to an entity Subdivision 207-E - Exceptions to the rules in Subdivision 207-D Guide to Subdivision 207-E 207-105 What this Subdivision is about Operative provisions 207-110 Effect of non-assessable income on gross up and tax offset

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CORE TAX

Table of provisions Exempt institutions 207-115 Which exempt institutions are eligible for a refund? 207-117 Residency requirement Subdivision 207-F - No gross-up or tax offset where the imputation system has been manipulated Guide to Subdivision 207-F 207-140 What this Subdivision is about Operative provisions 207-145 Distribution that is made to an entity 207-150 Distribution that flows indirectly to an entity 207-155 When is a distribution made as part of a dividend stripping operation? 207-157 Distribution washing 207-160 Distribution that is treated as an interest payment Division 214 - Administering the imputation system Guide to Division 214 214-1 Purpose of the system 214-5 Key features Subdivision 214-A - Franking returns Guide to Subdivision 214-A 214-10 What this Subdivision is about

ITAA 1997

Operative provisions 214-15 Notice to give a franking return—general notice 214-20 Notice to a specific corporate tax entity 214-25 Content and form of a franking return 214-30 Franking account balance 214-35 Venture capital sub-account balance 214-40 Meaning of franking tax 214-45 Effect of a refund on franking returns Subdivision 214-B - Franking assessments Guide to Subdivision 214-B 214-55 What this Subdivision is about Operative provisions 214-60 Commissioner may make a franking assessment 214-65 Commissioner taken to have made a franking assessment on first return 214-70 Part-year assessment 214-75 Validity of assessment 214-80 Objections Subdivision 214-C - Amending franking assessments Guide to Subdivision 214-C 214-90 What this Subdivision is about Operative provisions 214-95 Amendments within 3 years of the original assessment 214-100 Amended assessments are treated as franking assessments 214-105 Further return as a result of a refund affecting a franking deficit tax liability 214-110 Later amendments—on request 214-115 Later amendments—failure to make proper disclosure 214-120 Later amendments—fraud or evasion 214-125 Further amendment of an amended particular 214-135 Amendment on review etc. 214-140 Notice of amendments Subdivision 214-D - Collection and recovery Guide to Subdivision 214-D 214-145 What this Subdivision is about

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Income Tax Assessment Act 1997 Operative provisions 214-150 Due date for payment of franking tax 214-155 General interest charge 214-160 Refunds of amounts overpaid Subdivision 214-E - Records Guide to Subdivision 214-E 214-170 What this Subdivision is about Operative provisions 214-175 Record keeping Division 215 - Consequences of the debt/equity rules Subdivision 215-A - Application of the imputation system to non-share equity interests 215-1 Application of the imputation system to non-share equity interests Subdivision 215-B - Non-share dividends that are unfrankable to some extent Guide to Subdivision 215-B 215-5 What this Subdivision is about 215-10 Certain non-share dividends by ADIs unfrankable 215-15 Non-share dividends are unfrankable if profits are unavailable 215-20 Working out the available frankable profits 215-25 Anticipating available frankable profits Division 220 - Imputation for NZ resident companies and related companies Guide to Division 220 220-1 What this Division is about Subdivision 220-A - Objects of this Division 220-15 Objects 220-20 What is an NZ resident? Subdivision 220-B - NZ company treated as Australian resident for imputation system if company chooses 220-25 Application of provisions of Part 3-6 outside this Division 220-30 What is an NZ franking company? 220-35 Making an NZ franking choice 220-40 When is an NZ franking choice in force? 220-45 Revoking an NZ franking choice 220-50 Cancelling an NZ franking choice Subdivision 220-C - Modifications of other Divisions of this Part Franking NZ franking companies’ distributions 220-110 Maximum franking credit under section 202-60

Part 3-10 - Financial transactions Division 230 - Taxation of financial arrangements Guide to Division 230 230-1 What this Division is about 230-5 Scope of this Division Subdivision 230-A - Core rules Objects 230-10

Objects of this Division

Tax treatment of gains and losses from financial arrangements 230-15 Gains are assessable and losses deductible 230-20 Gain or loss to be taken into account only once under this Act 230-25 Associated financial benefits to be taken into account only once under this Act 230-30 Treatment of gains and losses related to exempt income and non-assessable non-exempt income 230-35 Treatment of gains and losses of private or domestic nature Method to be applied to take account of gain or loss 230-40 Methods for taking gain or loss into account

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Table of provisions Financial arrangement concept 230-45 Financial arrangement 230-50 Financial arrangement (equity interest or right or obligation in relation to equity interest) 230-55 Rights, obligations and arrangements (grouping and disaggregation rules) General rules 230-60 When financial benefit provided or received under financial arrangement 230-65 Amount of financial benefit relating to more than one financial arrangement etc. 230-70 Apportionment when financial benefit received or right ceases 230-75 Apportionment when financial benefit provided or obligation ceases 230-80 Consistency in working out gains or losses (integrity measure) 230-85 Rights and obligations include contingent rights and obligations Subdivision 230-B - The accruals/realisation methods Guide to Subdivision 230-B 230-90 What this Subdivision is about Objects of Subdivision 230-95 Objects of this Subdivision

ITAA 1997

When accruals method or realisation method applies 230-100 When accruals method or realisation method applies 230-105 Sufficiently certain overall gain or loss 230-110 Sufficiently certain gain or loss from particular event 230-115 Sufficiently certain financial benefits 230-120 Financial arrangements with notional principal The accruals method 230-125 Overview of the accruals method 230-130 Applying accruals method to work out period over which gain or loss is to be spread 230-135 How gain or loss is spread 230-140 Method of spreading gain or loss—effective interest method 230-145 Application of effective interest method where differing income and accounting years 230-150 Election for portfolio treatment of fees 230-155 Election for portfolio treatment of fees where differing income and accounting years 230-160 Portfolio treatment of fees 230-165 Portfolio treatment of premiums and discounts for acquiring portfolio 230-170 Allocating gain or loss to income years 230-172 Applying accruals method to loss resulting from impairment 230-175 Running balancing adjustments Realisation method 230-180 Realisation method Reassessment and re-estimation 230-185 Reassessment 230-190 Re-estimation 230-192 Re-estimation—impairments and reversals 230-195 Balancing adjustment if rate of return maintained on re-estimation 230-200 Re-estimation if balancing adjustment on partial disposal Division 240 - Arrangements treated as a sale and loan Guide to Division 240 240-1 What this Division is about 240-3 How the recharacterisation affects the notional seller 240-7 How the recharacterisation affects the notional buyer Division 242 - Leases of luxury cars Guide to Division 242 242-1 What this Division is about

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Income Tax Assessment Act 1997 Division 243 - Limited recourse debt Guide to Division 243 243-10 What this Division is about Division 245 - Forgiveness of commercial debts Guide to Division 245 245-1 What this Division is about 245-2 Simplified outline of this Division Division 253 - Financial claims scheme for account-holders with insolvent ADIs Subdivision 253-A - Tax treatment of entitlements under financial claims scheme Guide to Subdivision 253-A 253-1 What this Subdivision is about Operative provisions 253-5 Payment of entitlement under financial claims scheme treated as payment from ADI 253-10 Disposal of rights against ADI to APRA and meeting of financial claims scheme entitlement have no CGT effects 253-15 Cost base of financial claims scheme entitlement and any remaining part of account that gave rise to entitlement

Part 3-25 - Particular kinds of trusts Division 275 - Australian managed investment trusts: general Guide to Division 275 275-1 What this Division is about Subdivision 275-A - Meaning of managed investment trust Guide to Subdivision 275-A 275-5 What this Subdivision is about Operative provisions 275-10 Meaning of managed investment trust 275-15 Trusts with wholesale membership 275-20 Widely-held requirements—ordinary case 275-30 Closely-held restrictions 275-35 Licensing requirements for unregistered MIS Subdivision 275-B - Choice for capital treatment of managed investment trust gains and losses 275-100 Consequences of making choice—CGT to be primary code for calculating MIT gains or losses 275-105 Covered assets 275-110 MIT not to be trading trust 275-115 MIT CGT choices 275-120 Consequences of not making choice—revenue account treatment Subdivision 275-C - Carried interests in managed investment trusts 275-200 Gains and losses etc. from carried interests in managed investment trusts reflected in assessable income or deduction Subdivision 275-L - Modification for non-arm’s length income 275-615 Commissioner’s determination in relation to amount of non-arm’s length income Division 276 - Australian managed investment trusts: attribution managed investment trusts Guide to Division 276 276-1 What this Division is about Subdivision 276-A - What is an attribution managed investment trust? Guide to Subdivision 276-A 276-5 What this Subdivision is about Operative provisions 276-10 Meaning of attribution managed investment trust (or AMIT) 276-15 Clearly defined interests

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Table of provisions 276-20 Trust with classes of membership interests—each class treated as separate AMIT Subdivision 276-B - Member’s vested and indefeasible interest in share of income and capital of AMIT Guide to Subdivision 276-B 276-50 What this Subdivision is about Operative provisions 276-55 AMIT taken to be fixed trust and member taken to have vested and indefeasible interest in income and capital Subdivision 276-C - Taxation etc. of member components Guide to Subdivision 276-C 276-75 What this Subdivision is about Taxation etc. of member on determined member components 276-80 Member’s assessable income or tax offsets for determined member components—general rules 276-85 Member’s assessable income or tax offsets for determined member components—specific rules 276-90 Commissioner’s determination as to status of member as qualified person 276-95 Relationship between section 276-80 and withholding rules 276-100 Relationship between section 276-80 and other charging provisions in this Act Foreign resident members—taxation of trustee and corresponding tax offset for members 276-105 Trustee taxed on foreign resident’s determined member components 276-110 Refundable tax offset for foreign resident member—member that is not a trustee

ITAA 1997

Special rule for interposed custodian 276-115 Custodian interposed between AMIT and member Subdivision 276-D - Member components Guide to Subdivision 276-D 276-200 What this Subdivision is about Member-level concepts 276-205 Meaning of determined member component 276-210 Meaning of member component Subdivision 276-E - Trust components Guide to Subdivision 276-E 276-250 What this Subdivision is about Trust-level concepts 276-255 Meaning of determined trust component 276-260 Meaning of trust component 276-265 Rules for working out trust components—general rules 276-270 Rules for working out trust components—allocation of deductions Subdivision 276-F - Unders and overs Guide to Subdivision 276-F 276-300 What this Subdivision is about Adjustment of trust component for unders and overs etc. 276-305 Adjustment of trust component for unders and overs 276-310 Rounding adjustment deficit increases trust component 276-315 Rounding adjustment surplus decreases trust component 276-320 Meaning of trust component deficit 276-325 Trust component of character relating to assessable income—adjustment for cross-character allocation amount, carry-forward trust component deficit and FITO allocation amount 276-330 Meaning of cross-character allocation amount and carry-forward trust component deficit 276-335 Meaning of FITO allocation amount 276-340 Trust component character relating to tax offset—taxation of trust component deficit

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Income Tax Assessment Act 1997 Unders and overs 276-345 Meaning of under and over of a character 276-350 Limited discovery period for unders and overs Subdivision 276-G - Shortfall and excess taxation Guide to Subdivision 276-G 276-400 What this Subdivision is about Ensuring determined trust components are properly taxed 276-405 Trustee taxed on shortfall in determined member component (character relating to assessable income) 276-410 Trustee taxed on excess in determined member component (character relating to tax offset) 276-415 Trustee taxed on amounts of determined trust component that are not reflected in determined member components Ensuring unders and overs are properly taxed 276-420 Trustee taxed on amounts of under of character relating to assessable income not properly carried forward 276-425 Trustee taxed on amounts of over of character relating to tax offset not properly carried forward Commissioner may remit tax under this Subdivision 276-430 Commissioner may remit tax under this Subdivision Subdivision 276-H - AMMA statements Guide to Subdivision 276-H 276-450 What this Subdivision is about Operative provisions 276-455 Obligation to give an AMMA statement 276-460 AMIT member annual statement (or AMMA statement) Subdivision 276-J - Debt-like trust instruments Guide to Subdivision 276-J 276-500 What this Subdivision is about Operative provisions 276-505 Meaning of debt-like trust instrument 276-510 Debt-like trust instruments treated as debt interests etc. 276-515 Distribution on debt-like trust instrument could be deductible in working out trust components Subdivision 276-K - Ceasing to be an AMIT Guide to Subdivision 276-K 276-800 What this Subdivision is about Operative provisions 276-805 Application of Subdivision to former AMIT 276-810 Continue to work out trust components, unders, overs etc. 276-815 Effect of increase 276-820 Effect of decrease

Part 3-30 - Superannuation Division 280 - Guide to the superannuation provisions 280-1 Effect of this Division 280-5 Overview Contributions phase 280-10 Contributions phase—deductibility 280-15 Contributions phase—limits on superannuation tax concessions Investment phase 280-20 Investment phase Benefits phase 280-25 Benefits phase—different types of superannuation benefit 280-30 Benefits phase—taxation varies with age of recipient and type of benefit

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Table of provisions 280-35 Benefits phase—roll-overs The regulatory scheme outside this Act 280-40 Other relevant legislative schemes Division 285 - General concepts relating to superannuation 285-5 Transfers of property Division 290 - Contributions to superannuation funds Guide to Division 290 290-1 What this Division is about Subdivision 290-A - General rules 290-5 Non-application to roll-over superannuation benefits etc. 290-10 No deductions other than under this Division Subdivision 290-B - Deduction of employer contributions and other employment-connected contributions Deducting employer contributions 290-60 Employer contributions deductible 290-65 Application to employees etc. Conditions for deducting an employer contribution 290-70 Employment activity conditions 290-75 Complying fund conditions 290-80 Age related conditions

ITAA 1997

Other employment-connected deductions 290-85 Contributions for former employees etc. 290-90 Controlling interest deductions 290-95 Amounts offset against superannuation guarantee charge Returned contributions 290-100 Returned contributions assessable Subdivision 290-C - Deducting personal contributions 290-150 Personal contributions deductible Conditions for deducting a personal contribution 290-155 Complying superannuation fund condition 290-165 Age-related conditions 290-170 Notice of intent to deduct conditions 290-175 Deduction limited by amount specified in notice 290-180 Notice may be varied but not revoked or withdrawn Subdivision 290-D - Tax offsets for spouse contributions 290-230 Offset for spouse contribution 290-235 Limit on amount of tax offsets 290-240 Tax file number Division 291 - Excess concessional contributions Guide to Division 291 291-1 What this Division is about Subdivision 291-A - Object of this Division 291-5 Object of this Division Subdivision 291-B - Excess concessional contributions Guide to Subdivision 291-B 291-10 What this Subdivision is about Operative provisions 291-15 Excess concessional contributions—assessable income, 15% tax offset 291-20 Your excess concessional contributions for a financial year 291-25 Your concessional contributions for a financial year Subdivision 291-C - Modifications for defined benefit interests Guide to Subdivision 291-C 291-155 What this Subdivision is about

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Income Tax Assessment Act 1997 Operative provisions 291-160 Application 291-165 Concessional contributions—special rules for defined benefit interests 291-170 Notional taxed contributions 291-175 Defined benefit interest Subdivision 291-CA - Contributions that do not result in excess contributions Guide to Subdivision 291-CA 291-365 What this Subdivision is about Operative provisions 291-370 Contributions that do not result in excess contributions Subdivision 291-D - Other provisions Guide to Subdivision 291-D 291-460 What this Subdivision is about Operative provisions 291-465 Commissioner’s discretion to disregard contributions etc. in relation to a financial year Division 292 - Excess non-concessional contributions Guide to Division 292 292-1 What this Division is about Subdivision 292-A - Object of this Division 292-5 Object of this Division Subdivision 292-B - Assessable income and tax offset 292-15 What this Subdivision is about 292-20 Amount in assessable income, and tax offset, relating to your non-concessional contributions 292-25 Amount included in assessable income 292-30 Amount of the tax offset Subdivision 292-C - Excess non-concessional contributions tax 292-75 What this Subdivision is about Operative provisions 292-80 Liability for excess non-concessional contributions tax 292-85 Your excess non-concessional contributions for a financial year 292-90 Your non-concessional contributions for a financial year 292-95 Contributions arising from structured settlements or orders for personal injuries 292-100 Contribution relating to some CGT small business concessions 292-105 CGT cap amount Subdivision 292-E - Excess non-concessional contributions tax assessments Guide to Subdivision 292-E 292-225 What this Subdivision is about Operative provisions 292-230 Commissioner must make an excess non-concessional contributions tax assessment 292-240 Validity of assessment 292-245 Objections Subdivision 292-F - Amending excess non-concessional contributions tax assessments Guide to Subdivision 292-F 292-300 What this Subdivision is about Operative provisions 292-305 Amendments within 4 years of the original assessment 292-310 Amended assessments are treated as excess non-concessional contributions tax assessments 292-315 Later amendments—on request 292-320 Later amendments—fraud or evasion 292-325 Further amendment of an amended particular

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Table of provisions 292-330 Amendment on review etc. Subdivision 292-G - Collection and recovery Guide to Subdivision 292-G 292-380 What this Subdivision is about Operative provisions 292-385 Due date for payment of excess non-concessional contributions tax 292-390 General interest charge 292-395 Refunds of amounts overpaid Subdivision 292-H - Other provisions 292-465 Commissioner’s discretion to disregard contributions etc. in relation to a financial year 292-467 Direction that the value of superannuation interests is nil Division 293 - Sustaining the superannuation contribution concession Guide to Division 293 293-1 What this Division is about Subdivision 293-A - Object of this Division Operative provisions 293-5 Object of this Division Subdivision 293-B - Sustaining the superannuation contribution concession

ITAA 1997

Guide to Subdivision 293-B 293-10 What this Subdivision is about Liability for tax 293-15 Liability for tax 293-20 Your taxable contributions Low tax contributions 293-25 Your low tax contributions 293-30 Low tax contributed amounts Subdivision 293-C - When tax is payable Guide to Subdivision 293-C 293-60 What this Subdivision is about Operative provisions 293-65 When tax is payable—original assessments 293-70 When tax is payable—amended assessments 293-75 General interest charge Division 294 - Transfer balance cap Guide to Division 294 294-1 What this Division is about Subdivision 294-A - Object of this Division Operative provisions 294-5 Object of this Division Subdivision 294-B - Transfer balance account Guide to Subdivision 294-B 294-10 What this Subdivision is about Operative provisions 294-15 When you have a transfer balance account 294-20 Meaning of retirement phase recipient 294-25 Transfer balance credits 294-30 Excess transfer balance 294-35 Your transfer balance cap 294-40 Proportionally indexed transfer balance cap 294-45 Transfer balance account ends 294-50 Assumptions about income streams 294-55 Repayment of limited recourse borrowing arrangement

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Income Tax Assessment Act 1997 Subdivision 294-C - Transfer balance debits Guide to Subdivision 294-C 294-75 What this Subdivision is about Operative provisions 294-80 Transfer balance debits 294-85 Certain events that result in reduced superannuation 294-90 Payment splits 294-95 Payment splits—no double debiting Subdivision 294-D - Modifications for certain defined benefit income streams Guide to Subdivision 294-D 294-120 What this Subdivision is about Operative provisions 294-125 When this Subdivision applies 294-130 Meaning of capped defined benefit income stream 294-135 Transfer balance credit—special rule for capped defined benefit income streams 294-140 Excess transfer balance—special rule for capped defined benefit income streams 294-145 Transfer balance debits—special rules for capped defined benefit income streams Subdivision 294-E - Modifications for death benefits dependants who are children Guide to Subdivision 294-E 294-170 What this Subdivision is about Operative provisions 294-175 When this Subdivision applies 294-180 Transfer balance account ends 294-185 Transfer balance cap—special rule for child recipient 294-190 Cap increment—child recipient just before 1 July 2017 294-195 Cap increment—child recipient on or after 1 July 2017, deceased had no transfer balance account 294-200 Cap increment—child recipient on or after 1 July 2017, deceased had transfer balance account Subdivision 294-F - Excess transfer balance tax Guide to Subdivision 294-F 294-225 What this Subdivision is about Operative provisions 294-230 Excess transfer balance tax 294-235 Your excess transfer balance earnings 294-240 When tax is payable—original assessments 294-245 When tax is payable—amended assessments 294-250 General interest charge Division 295 - Taxation of superannuation entities Guide to Division 295 295-1 What this Division is about Subdivision 295-A - Provisions of general operation 295-5 Entities to which Division applies 295-10 How to work out the tax payable by superannuation entities 295-15 Division does not impose a tax on property of a State 295-20 Exempting laws ineffective 295-25 Assessments on basis of anticipated SIS Act notice 295-30 Effect of revocation etc. of SIS Act notices 295-35 Acronyms used in tables Subdivision 295-B - Modifications of provisions of this Act 295-85 CGT to be primary code for calculating gains or losses 295-90 CGT rules for pre-30 June 1988 assets 295-95 Deductions related to contributions

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Table of provisions 295-100 Deductions for investing in PSTs and life policies 295-105 Distributions to PST unitholders Subdivision 295-C - Contributions included Guide to Subdivision 295-C 295-155 What this Subdivision is about Contributions and payments 295-160 Contributions and payments 295-165 Exception—spouse contributions 295-170 Exception—Government co-contributions and contributions for a child 295-173 Exception—trustee contributions 295-175 Exception—payments by a member spouse 295-180 Exception—choice to exclude certain contributions 295-185 Exception—temporary residents Personal contributions and roll-over amounts 295-190 Personal contributions and roll-over amounts 295-195 Exclusion of personal contributions—contributions 295-197 Exclusion of personal contributions—successor funds Transfers from foreign funds 295-200 Transfers from foreign superannuation funds Application of tables to RSA providers 295-205 Application of tables to RSA providers

ITAA 1997

Former constitutionally protected funds 295-210 Former constitutionally protected funds Subdivision 295-D - Contributions excluded 295-260 Transfer of liability to investment vehicle 295-265 Application of pre-1 July 88 funding credits 295-270 Anticipated funding credits Subdivision 295-E - Other income amounts Amounts included 295-320 Other amounts included in assessable income 295-325 Previously complying funds 295-330 Previously foreign funds Amounts excluded 295-335 Amounts excluded from assessable income Subdivision 295-F - Exempt income 295-385 Income from assets set aside to meet current pension liabilities 295-387 Disregarded small fund assets 295-390 Income from other assets used to meet current pension liabilities 295-395 Meaning of segregated non-current assets 295-400 Income of a PST attributable to current pension liabilities 295-405 Other exempt income 295-407 Covered superannuation income streams—RSAs 295-410 Amount credited to RSA Subdivision 295-G - Deductions Death or disability benefits 295-460 Benefits for which deductions are available 295-465 Complying funds—deductions for insurance premiums 295-470 Complying funds—deductions for future liability to pay benefits 295-475 RSA providers—deductions for insurance premiums 295-480 Meaning of whole of life policy and endowment policy Other deductions 295-490 Other deductions Certain amounts cannot be deducted 295-495 Amounts that cannot be deducted

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Income Tax Assessment Act 1997 Subdivision 295-H - Components of taxable income 295-545 Components of taxable income—complying superannuation funds, complying ADFs and PSTs 295-550 Meaning of non-arm’s length income 295-555 Components of taxable income—RSA providers Subdivision 295-I - No-TFN contributions 295-605 Liability for tax on no-TFN contributions income 295-610 No-TFN contributions income 295-615 Meaning of quoted (for superannuation purposes) 295-620 No reduction under Subdivision 295-D 295-625 Assessments Subdivision 295-J - Tax offset for no-TFN contributions income (TFN quoted within 4 years) 295-675 Entitlement to a tax offset 295-680 Amount of the tax offset Division 301 - Superannuation member benefits paid from complying plans etc. Guide to Division 301 301-1 What this Division is about Subdivision 301-A - Application 301-5 Division applies to superannuation member benefits paid from complying plans etc. Subdivision 301-B - Member benefits: general rules Member benefits—recipient aged 60 or above 301-10 All superannuation benefits are tax free Member benefits—recipient aged over preservation age and under 60 301-15 Tax free status of tax free component 301-20 Superannuation lump sum—taxable component taxed at 0% up to low rate cap amount, 15% on remainder 301-25 Superannuation income stream—taxable component attracts 15% offset Member benefits—recipient aged under preservation age 301-30 Tax free status of tax free component 301-35 Superannuation lump sum—taxable component taxed at 20% 301-40 Superannuation income stream—taxable component is assessable income, 15% offset for disability benefit Subdivision 301-C - Member benefits: elements untaxed in fund 301-90 Tax free component and element taxed in fund dealt with under Subdivision 301-B, but element untaxed in the fund dealt with under this Subdivision Member benefits (element untaxed in fund)—recipient aged 60 or above 301-95 Superannuation lump sum—element untaxed in fund taxed at 15% up to untaxed plan cap amount, top rate on remainder 301-100 Superannuation income stream—element untaxed in fund attracts 10% offset Member benefits (element untaxed in fund)—recipient aged over preservation age and under 60 301-105 Superannuation lump sum—element untaxed in fund taxed at 15% up to low rate cap amount, 30% up to untaxed plan cap amount, top rate on remainder 301-110 Superannuation income stream—element untaxed in fund is assessable income Member benefits (element untaxed in fund)—recipient aged under preservation age 301-115 Superannuation lump sum—element untaxed in fund taxed at 30% up to untaxed plan cap amount, top rate on remainder 301-120 Superannuation income stream—element untaxed in fund is assessable income Miscellaneous 301-125 Unclaimed money payments by the Commissioner Subdivision 301-D - Departing Australia superannuation payments 301-170 Departing Australia superannuation payments 301-175 Treatment of departing Australia superannuation benefits Subdivision 301-E - Superannuation lump sum member benefits less than $200 301-225 Superannuation lump sum member benefits less than $200 are tax free

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Table of provisions Division 302 - Superannuation death benefits paid from complying plans etc. Guide to Division 302 302-1 What this Division is about Subdivision 302-A - Application 302-5 Division applies to superannuation death benefits paid from complying plans etc. 302-10 Superannuation death benefits paid to trustee of deceased estate Subdivision 302-B - Death benefits to dependant Lump sum death benefits to dependants are tax free 302-60 All of superannuation lump sum is tax free Superannuation income stream—either deceased died aged 60 or above or dependant aged 60 or above 302-65 Superannuation income stream benefits are tax free Superannuation income stream—deceased died aged under 60 and dependant aged under 60 302-70 Superannuation income stream—tax free status of tax free component 302-75 Superannuation income stream—taxable component attracts 15% offset

ITAA 1997

Death benefits to dependant—elements untaxed in fund 302-80 Treatment of element untaxed in the fund of superannuation income stream death benefit to dependant 302-85 Deceased died aged 60 or above or dependant aged 60 years or above—superannuation income stream: element untaxed in fund attracts 10% offset 302-90 Deceased died aged under 60 and dependant aged under 60—superannuation income stream: element untaxed in fund is assessable income Subdivision 302-C - Death benefits to non-dependant Superannuation lump sum 302-140 Superannuation lump sum—tax free status of tax free component 302-145 Superannuation lump sum—element taxed in the fund taxed at 15%, element untaxed in the fund taxed at 30% Subdivision 302-D - Definitions relating to dependants 302-195 Meaning of death benefits dependant 302-200 What is an interdependency relationship? Division 303 - Superannuation benefits paid in special circumstances Guide to Division 303 303-1 What this Division is about Subdivision 303-A - Modifications for defined benefit income Operative provisions 303-2 Effect of exceeding defined benefit income cap on assessable income 303-3 Effect of exceeding defined benefit income cap on tax offsets 303-4 Meaning of defined benefit income cap Division 304 - Superannuation benefits in breach of legislative requirements etc. Guide to Division 304 304-1 What this Division is about Operative provisions 304-5 Application 304-10 Superannuation benefits in breach of legislative requirements etc. Division 305 - Superannuation benefits paid from non-complying superannuation plans Guide to Division 305 305-1 What this Division is about Subdivision 305-A - Superannuation benefits from Australian non-complying superannuation funds 305-5 Tax treatment of superannuation benefits from certain Australian non-complying superannuation funds

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Income Tax Assessment Act 1997 Subdivision 305-B - Superannuation benefits from foreign superannuation funds Application of Subdivision 305-55 Restriction to lump sums received from certain foreign superannuation funds Lump sums received within 6 months after Australian residency or termination of foreign employment etc. 305-60 Lump sums tax free—foreign resident period 305-65 Lump sums tax free—Australian resident period Lump sums to which sections 305-60 and 305-65 do not apply 305-70 Lump sums received more than 6 months after Australian residency or termination of foreign employment etc. 305-75 Lump sums—applicable fund earnings 305-80 Lump sums paid into complying superannuation plans—choice Division 306 - Roll-overs etc. Guide to Division 306 306-1 What this Division is about Operative provisions 306-5 Effect of a roll-over superannuation benefit Roll-over superannuation benefit 306-10 306-15 Tax on excess untaxed roll-over amounts 306-20 Effect of payment to government of unclaimed superannuation money Division 307 - Key concepts relating to superannuation benefits Guide to Division 307 307-1 What this Division is about Subdivision 307-A - Superannuation benefits generally 307-5 What is a superannuation benefit? 307-10 Payments that are not superannuation benefits 307-15 Payments for your benefit or at your direction or request Subdivision 307-B - Superannuation lump sums and superannuation income stream benefits 307-65 Meaning of superannuation lump sum 307-70 Meaning of superannuation income stream and superannuation income stream benefit 307-75 Meaning of retirement phase superannuation income stream benefit 307-80 When a superannuation income stream is in the retirement phase Subdivision 307-C - Components of a superannuation benefit 307-120 Components of superannuation benefit 307-125 Proportioning rule 307-130 Superannuation guarantee payment consists entirely of taxable component 307-135 Superannuation co-contribution benefit payment consists entirely of tax free component 307-140 Contributions-splitting superannuation benefit consists entirely of taxable component 307-142 Components of certain unclaimed money payments 307-145 Modification for disability benefits 307-150 Modification in respect of superannuation lump sum with element untaxed in fund Subdivision 307-D - Superannuation interests 307-200 Regulations relating to meaning of superannuation interests 307-205 Value of superannuation interest 307-210 Tax free component of superannuation interest 307-215 Taxable component of superannuation interest 307-220 What is the contributions segment? 307-225 What is the crystallised segment? 307-230 Total superannuation balance Subdivision 307-E - Elements taxed and untaxed in the fund of the taxable component of superannuation benefit 307-275 Element taxed in the fund and element untaxed in the fund of superannuation benefits

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Table of provisions 307-280 307-285

Superannuation benefits from constitutionally protected funds etc. Trustee can choose to convert element taxed in the fund to element untaxed in the fund 307-290 Taxed and untaxed elements of death benefit superannuation lump sums 307-295 Superannuation benefits from public sector superannuation schemes may include untaxed element 307-297 Public sector superannuation schemes—elements set by regulations 307-300 Certain unclaimed money payments Subdivision 307-F - Low rate cap and untaxed plan cap amounts 307-345 Low rate cap amount 307-350 Untaxed plan cap amount Subdivision 307-G - Other concepts 307-400 Meaning of service period for a superannuation lump sum Division 310 - Loss relief for merging superannuation funds Guide to Division 310 310-1 What this Division is about

ITAA 1997

Operative provisions Subdivision 310-A - Object of this Division 310-5 Object Subdivision 310-B - Choice to transfer losses 310-10 Original fund’s assets extend beyond life insurance policies and units in pooled superannuation trusts 310-15 Original fund’s assets include a complying superannuation life insurance policy 310-20 Original fund’s assets include units in a pooled superannuation trust Subdivision 310-C - Consequences of choosing to transfer losses 310-25 Who losses can be transferred to 310-30 Losses that can be transferred 310-35 Effect of transferring a net capital loss 310-40 Effect of transferring a tax loss Subdivision 310-D - Choice for assets roll-over 310-45 Choosing the assets roll-over 310-50 Choosing the form of the assets roll-over Subdivision 310-E - Consequences of choosing assets roll-over 310-55 CGT assets—if global asset approach chosen 310-60 CGT assets—individual asset approach 310-65 Revenue assets—if global asset approach chosen 310-70 Revenue assets—individual asset approach 310-75 Further consequences for roll-overs involving life insurance companies Subdivision 310-F - Choices 310-85 Choices

Part 3-45 - Rules for particular industries and occupations Division 328 - Small business entities Guide to Division 328 328-5 What this Division is about 328-10 Concessions available to small business entities Subdivision 328-B - Objects of this Division 328-50 Objects of this Division Subdivision 328-C - What is a small business entity Guide to Subdivision 328-C 328-105 What this Subdivision is about Operative provisions 328-110 Meaning of small business entity 328-115 Meaning of aggregated turnover 328-120 Meaning of annual turnover

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Income Tax Assessment Act 1997 328-125 Meaning of connected with an entity 328-130 Meaning of affiliate Subdivision 328-D - Capital allowances for small business entities Guide to Subdivision 328-D 328-170 What this Subdivision is about Operative provisions 328-175 Calculations for depreciating assets 328-180 Assets costing less than $1,000 328-185 Pooling 328-190 Calculation 328-195 Opening pool balance 328-200 Closing pool balance 328-205 Estimate of taxable use 328-210 Low pool value 328-215 Disposal etc. of depreciating assets 328-220 What happens if you are not a small business entity or do not choose to use this Subdivision for an income year 328-225 Change in business use 328-230 Estimate where deduction denied 328-235 Interaction with Divisions 85 and 86 Special rules about roll-overs 328-243 Roll-over relief 328-245 Consequences of roll-over 328-247 Pool deductions 328-250 Deductions for assets first used in BAE year 328-253 Deductions for cost addition amounts 328-255 Closing pool balance etc. below zero 328-257 Taxable use Subdivision 328-E - Trading stock for small business entities Guide to Subdivision 328-E 328-280 What this Subdivision is about Operative provisions 328-285 Trading stock for small business entities 328-295 Value of trading stock on hand Subdivision 328-F - Small business income tax offset Guide to Subdivision 328-F 328-350 What this Subdivision is about Operative provisions 328-355 Entitlement to the small business income tax offset 328-357 Special meaning of small business entity for the purposes of this Subdivision—$5 million turnover threshold 328-360 Amount of your tax offset 328-365 Net small business income 328-370 Relevant attributable deductions 328-375 Modification if you are under 18 years old Subdivision 328-G - Restructures of small businesses Guide to Subdivision 328-G 328-420 What this Subdivision is about Object of this Subdivision 328-425 Object of this Subdivision Requirements for a roll-over under this Subdivision 328-430 When a roll-over is available 328-435 Genuine restructures—safe harbour rule 328-440 Ultimate economic ownership—discretionary trusts 328-445 Residency requirement

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Consequences 328-450 328-455 328-460 328-465 328-470 328-475

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Table of provisions of a roll-over under this Subdivision Small business transfers not to affect income tax positions Effect of small business restructures on transferred cost of assets Effect of small business restructures on acquisition times of pre-CGT assets New membership interests as consideration for transfer of assets Membership interests affected by transfers of assets Small business restructures involving assets already subject to small business roll-over

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ITAA 1997

Division 355 - Research and Development Guide to Division 355 355-1 What this Division is about Subdivision 355-A - Object 355-5 Object Subdivision 355-B - Meaning of R&D activities and other terms 355-20 R&D activities 355-25 Core R&D activities 355-30 Supporting R&D activities 355-35 R&D entities Subdivision 355-C - Entitlement to tax offset 355-100 Entitlement to tax offset 355-105 Deductions under this Division are notional only 355-110 Notional deductions include prepaid expenditure Subdivision 355-D - Notional deductions for R&D expenditure 355-200 What this Subdivision is about 355-205 When notional deductions for R&D expenditure arise 355-210 Conditions for R&D activities 355-215 R&D activities conducted by a permanent establishment for other parts of the body corporate 355-220 R&D activities conducted for a foreign entity 355-225 Expenditure that cannot be notionally deducted Subdivision 355-E - Notional deductions for decline in value of depreciating assets used for R&D activities 355-300 What this Subdivision is about 355-305 When notional deductions for decline in value arise 355-310 Notional application of Division 40 355-315 Balancing adjustments—assets only used for R&D activities Subdivision 355-F - Integrity Rules 355-400 Expenditure incurred while not at arm’s length 355-405 Expenditure not at risk 355-410 Disposal of R&D results 355-415 Reducing deductions to reflect mark-ups within groups Subdivision 355-G - Clawback of R&D recoupments 355-430 What this Subdivision is about 355-435 When extra income tax is payable 355-440 Entity receives government recoupment 355-445 Recoupment could relate to R&D activities 355-450 Amount on which extra income tax is payable Subdivision 355-H - Feedstock adjustments 355-460 What this Subdivision is about 355-465 Feedstock adjustment to assessable income 355-470 Feedstock revenue 355-475 Application to connected entities and affiliates Subdivision 355-I - Application to earlier income year R&D expenditure incurred to associates 355-480 Notional deductions for expenditure incurred to associate in earlier income years Subdivision 355-J - Application to R&D partnerships 355-500 What this Subdivision is about

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Income Tax Assessment Act 1997 355-505 355-510 355-515 355-520

Meaning of R&D partnership and partner’s proportion R&D partnership expenditure on R&D activities R&D activities conducted by or for an R&D partnership When notional deductions arise for decline in value of depreciating assets of R&D partnerships 355-525 Balancing adjustments for R&D partnership assets only used for R&D activities 355-530 Implications for partner’s aggregated turnover 355-535 Disposal of R&D results for R&D partnerships 355-540 Application of recoupment rules 355-545 Relevance for net income, and losses, of the R&D partnership Subdivision 355-K - Application to Cooperative Research Centres 355-580 When notional deductions for CRC contributions arise Subdivision 355-W - Other matters 355-705 Effect of findings by Innovation and Science Australia 355-710 Amendment of assessments 355-715 Implications for other deductions and tax offsets Division 360 - Early stage investors in innovation companies Subdivision 360-A - Tax incentives for early stage investors in innovation companies Guide to Subdivision 360-A 360-5 What this Subdivision is about Operative provisions 360-10 Object of this Subdivision 360-15 Entitlement to the tax offset 360-20 Limited entitlement for certain kinds of investors 360-25 Amount of the tax offset—general case 360-30 Amount of the tax offset—members of trusts or partnerships 360-35 Amount of the tax offset—trustees 360-40 Early stage innovation companies 360-45 100 point innovation test 360-50 Modified CGT treatment 360-55 Modified CGT treatment—partnerships 360-60 Modified CGT treatment—not affected by certain roll-overs 360-65 Separate modified CGT treatment for roll-overs about wholly-owned companies or scrip for scrip roll-overs Division 385 - Primary production Guide to Division 385 385-1 What this Division is about 385-5 Where to find some other rules relevant to primary producers Subdivision 385-E - Primary producer can elect to spread or defer tax on profit from forced disposal or death of live stock Guide to Subdivision 385-E 385-90 What this Subdivision is about 385-95 Basic principles for elections under this Subdivision Operative provisions 385-100 Cases where you can make an election 385-105 Election to spread tax profit over 5 years 385-110 Alternative election to defer tax profit and reduce cost of replacement live stock 385-115 Your assessable income includes an amount for replacement live stock you breed 385-120 Purchase price of replacement live stock is reduced 385-125 Alternative election because of bovine tuberculosis has effect over 10 years not 5 Division 392 - Long-term averaging of primary producers’ tax liability Guide to Division 392 392-1 What this Division is about 392-5 Overview of averaging process

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Table of provisions Subdivision 392-A - Is your income tax affected by averaging? 392-10 Individuals who carry on a primary production business 392-15 Meaning of basic taxable income 392-20 Trust beneficiaries taken to be carrying on primary production business 392-25 Choosing not to have your income tax averaged Subdivision 392-B - What kind of averaging adjustment must you make? Guide to Subdivision 392-B 392-30 What this Subdivision is about Tax offset or extra income tax 392-35 Will you get a tax offset or have to pay extra income tax? How to work out the comparison rate 392-40 Identify income years for averaging your basic taxable income 392-45 Work out your average income for those years 392-50 Work out the income tax on your average income at basic rates 392-55 Work out the comparison rate Subdivision 392-C - How big is your averaging adjustment? Guide to Subdivision 392-C 392-60 What this Subdivision is about 392-65 What your averaging adjustment reflects Your gross averaging amount 392-70 Working out your gross averaging amount

ITAA 1997

Your averaging adjustment 392-75 Working out your averaging adjustment How to work out your averaging component 392-80 Work out your taxable primary production income 392-85 Work out your taxable non-primary production income 392-90 Work out your averaging component Subdivision 392-D - Effect of permanent reduction of your basic taxable income 392-95 You are treated as if you had not carried on business before

Part 3-90 - Consolidated groups Division 700 - Guide and objects Objects 700-10

Objects of this Part

Division 701 - Core rules Common rule 701-1 Head company 701-5 701-10 701-15 701-20 701-25 Entity rules 701-30 701-35 701-40 701-45 701-50

Single entity rule rules Entry history rule Cost to head company of assets of joining entity Cost to head company of membership interests in entity that leaves group Cost to head company of assets consisting of certain liabilities owed by entity that leaves group Tax-neutral consequence for head company of ceasing to hold assets when entity leaves group Where entity not subsidiary member for whole of income year Tax-neutral consequence for entity of ceasing to hold assets when it joins group Exit history rule Cost of assets consisting of liabilities owed to entity by members of the group Cost of certain membership interests of which entity becomes holder on leaving group

Supporting provisions 701-55 Setting the tax cost of an asset

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Income Tax Assessment Act 1997 701-56 701-58 701-60 701-61 701-63 701-65 701-67 Exceptions 701-70 701-75 701-80 701-85

Application of subsection 701-55(6) Effect of setting the tax cost of an asset that the head company does not hold under the single entity rule Tax cost setting amount Assets in relation to Division 230 financial arrangement—head company’s assessable income or deduction Right to future income and WIP amount asset Net income and losses for trusts and partnerships Assets in this Part are CGT assets, etc. Adjustments to taxable income where identities of parties to arrangement merge on joining group Adjustments to taxable income where identities of parties to arrangement re-emerge on leaving group Accelerated depreciation Other exceptions etc. to the rules

Division 703 - Consolidated groups and their members Guide to Division 703 703-1 What this Division is about Basic concepts 703-5 703-10 703-15 703-20 703-25 703-30 703-33 703-35 703-37 703-40 703-45

What is a consolidated group? What is a consolidatable group? Members of a consolidated group or consolidatable group Certain entities that cannot be members of a consolidated group or consolidatable group Australian residence requirements for trusts When is one entity a wholly-owned subsidiary of another? Transfer time for sale of shares in company Treating entities as wholly-owned subsidiaries by disregarding employee shares Disregarding certain preference shares following an ADI restructure Treating entities held through non-fixed trusts as wholly-owned subsidiaries Subsidiary members or nominees interposed between the head company and a subsidiary member of a consolidated group or a consolidatable group

Choice to consolidate a consolidatable group 703-50 Choice to consolidate a consolidatable group Consolidated group created when MEC group ceases to exist 703-55 Creating consolidated groups from certain MEC groups Notice of events affecting consolidated group 703-58 Notice of choice to consolidate 703-60 Notice of events affecting consolidated group Effects of choice to continue group after shelf company becomes new head company 703-65 Application 703-70 Consolidated group continues in existence with interposed company as head company and original entity as a subsidiary member 703-75 Interposed company treated as substituted for original entity at all times before the completion time 703-80 Effects on the original entity’s tax position Division 705 - Tax cost setting amount for assets where entities become subsidiary members of consolidated groups Guide to Division 705 705-1 What this Division is about Subdivision 705-A - Basic case: a single entity joining an existing consolidated group Guide to Subdivision 705-A 705-5 What this Subdivision is about

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CORE TAX

Table of provisions

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Application and object 705-10 Application and object of this Subdivision 705-15 Cases where this Subdivision does not have effect Tax cost setting amount for assets that joining entity brings into joined group 705-20 Tax cost setting amount worked out under this Subdivision 705-25 Tax cost setting amount for retained cost base assets 705-27 Reduction in tax cost setting amount that exceeds market value of certain retained cost base assets 705-30 What is the joining entity’s terminating value for an asset? 705-35 Tax cost setting amount for reset cost base assets 705-40 Tax cost setting amount for reset cost base assets held on revenue account etc. 705-45 Reduction in tax cost setting amount for accelerated depreciation assets 705-47 Reduction in tax cost setting amount for some privatised assets 705-55 Order of application of sections 705-40, 705-45 and 705-47 705-56 Modification for tax cost setting in relation to finance leases 705-57 Adjustment to tax cost setting amount where loss of pre-CGT status of membership interests in joining entity 705-58 Assets and liabilities not set off against each other 705-59 Exception: treatment of linked assets and liabilities How to work out the allocable cost amount 705-60 What is the joined group’s allocable cost amount for the joining entity? 705-62 No double counting of amounts in allocable cost amount 705-65 Cost of membership interests in the joining entity—step 1 in working out allocable cost amount 705-70 Liabilities of the joining entity—step 2 in working out allocable cost amount 705-75 Liabilities of the joining entity—reductions for purposes of step 2 in working out allocable cost amount 705-80 Liabilities of the joining entity—reductions/increases for purposes of step 2 in working out allocable cost amount 705-85 Liabilities of the joining entity—increases for purposes of step 2 in working out allocable cost amount 705-90 Undistributed, taxed profits accruing to joined group before joining time—step 3 in working out allocable cost amount 705-93 If pre-joining time roll-over from foreign resident company or head company—step 3A in working out allocable cost amount 705-95 Pre-joining time distributions out of certain profits—step 4 in working out allocable cost amount 705-100 Losses accruing to joined group before joining time—step 5 in working out allocable cost amount 705-105 Continuity of holding membership interests—steps 3 to 5 in working out allocable cost amount 705-110 If joining entity transfers a loss to the head company—step 6 in working out allocable cost amount 705-115 If head company becomes entitled to certain deductions—step 7 in working out allocable cost amount How to work out a pre-CGT factor for assets of joining entity 705-125 Pre-CGT proportion for joining entity Subdivision 705-B - Case of group formation Guide to Subdivision 705-B 705-130 What this Subdivision is about Application and object 705-135 Application and object of this Subdivision Modified application of Subdivision 705-A 705-140 Subdivision 705-A has effect with modifications 705-145 Order in which tax cost setting amounts are to be worked out where subsidiary members have membership interests in other subsidiary members 705-147 Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by subsidiary members in other such members

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Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests 705-160 Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain entities that become subsidiary members 705-163 Modified application of section 705-57 Subdivision 705-C - Case where a consolidated group is acquired by another Guide to Subdivision 705-C 705-170 What this Subdivision is about Application and object 705-175 Application and object of this Subdivision Modified application of Division 701 in relation to acquired group etc. 705-180 Modifications of Division 701 Modified application of Subdivision 705-A in relation to acquiring group 705-185 Subdivision 705-A has effect with modifications Modifications of Subdivision 705-A for the purposes of this Subdivision 705-195 Modified application of subsection 705-65(6) 705-200 Modified application of section 705-85 Subdivision 705-D - Where multiple entities are linked by membership interests Guide to Subdivision 705-D 705-210 What this Subdivision is about Application and object 705-215 Application and object of this Subdivision Modified application of Subdivision 705-A 705-220 Subdivision 705-A has effect with modifications 705-225 Order in which tax cost setting amounts are to be worked out where linked entities have membership interests in other linked entities 705-227 Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by linked entities in other linked entities 705-230 Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests 705-235 Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain linked entities 705-240 Modified application of section 705-57 Subdivision 705-E - Adjustments for errors etc. Guide to Subdivision 705-E 705-300 What this Subdivision is about Operative provisions 705-305 Object of this Subdivision 705-310 Operation of Part IVA of the Income Tax Assessment Act 1936 705-315 Errors that attract special adjustment action 705-320 Tax cost setting amounts taken to be correct Division 707 - Losses for head companies when entities become members etc. Subdivision 707-A - Transfer of losses to head company Guide to Subdivision 707-A 707-100 What this Subdivision is about 707-105 Who can utilise the loss? Objects 707-110

Objects of this Subdivision

Application 707-115

What losses this Subdivision applies to

Transfer of loss from joining entity to head company 707-120 Transfer of loss from joining entity to head company 707-125 Modified business continuity test for companies’ post-1999 losses 707-130 Modified pattern of distributions test

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707-135

CORE TAX

Table of provisions Transferring loss transferred to joining entity because business continuity test was satisfied

Effect of transfer of loss 707-140 Effect of transfer of loss Cancelling the transfer of the loss 707-145 Cancelling the transfer of the loss What happens if the loss is not transferred? 707-150 Loss cannot be utilised for income year ending after the joining time Subdivision 707-B - Can a transferred loss be utilised? Guide to Subdivision 707-B 707-200 What this Subdivision is about Operative provisions 707-205 Modified period for test for maintaining same ownership 707-210 Utilisation of certain losses transferred from a company depends on company that made the losses earlier Subdivision 707-C - Amount of transferred losses that can be utilised Guide to Subdivision 707-C 707-300 What this Subdivision is about Object 707-305

Object of this Subdivision

ITAA 1997

How much of a transferred loss can be utilised? 707-310 How much of a transferred loss can be utilised? 707-315 What is a bundle of losses? 707-320 What is the available fraction for a bundle of losses? 707-325 Modified market value of an entity becoming a member of a consolidated group 707-330 Losses transferred from former head company 707-335 Limit on utilising transferred losses if circumstances change during income year 707-340 Utilising transferred losses while exempt income remains 707-345 Other provisions are subject to this Subdivision Subdivision 707-D - Special rules about losses 707-400 Head company’s business before and after consolidation not compared 707-410 Exit history rule does not treat entity as having made a loss 707-415 Application of losses with nil available fraction for certain purposes Division 709 - Other rules applying when entities become subsidiary members etc. Subdivision 709-A - Franking accounts Guide to Subdivision 709-A 709-50 What this Subdivision is about Object 709-55

Object of this Subdivision

Treatment of franking accounts at joining time 709-60 Nil balance franking account for joining entity Treatment of subsidiary member’s franking account 709-65 Subsidiary member’s franking account does not operate Treatment of head company’s franking account 709-70 Credits arising in head company’s franking account 709-75 Debits arising in head company’s franking account Franking distributions by subsidiary member 709-80 Subsidiary member’s distributions on employee shares and certain preference shares taken to be distributions by the head company 709-85 Non-share distributions by subsidiary members taken to be distributions by head company 709-90 Subsidiary member’s distributions to foreign resident taken to be distributions by head company

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Income Tax Assessment Act 1997 Payment of group liability by former subsidiary member 709-95 Payment of group liability by former subsidiary member 709-100 Refund of income tax to former subsidiary member Subdivision 709-B - Imputation issues Guide to Subdivision 709-B 709-150 What this Subdivision is about Operative provisions 709-155 Testing consolidated groups 709-160 Subsidiary member is exempting entity 709-165 Subsidiary member is former exempting entity 709-170 Head company and subsidiary are exempting entities 709-175 Head company is former exempting entity Subdivision 709-C - Treatment of excess franking deficit tax offsets when entity becomes a subsidiary member of a consolidated group Guide to Subdivision 709-C 709-180 What this Subdivision is about 709-185 Joining entity’s excess franking deficit tax offsets transferred to head company 709-190 Exit history rule not to treat leaving entity as having a franking deficit tax offset excess Subdivision 709-D - Deducting bad debts Guide to Subdivision 709-D 709-200 What this Subdivision is about Application and object 709-205 Application of this Subdivision 709-210 Object of this Subdivision Limit on deduction of bad debt 709-215 Limit on deduction of bad debt Extension of Subdivision to debt/equity swap loss 709-220 Limit on deduction of swap loss Division 711 - Tax cost setting amount for membership interests where entities cease to be subsidiary members of consolidated groups Guide to Division 711 711-1 What this Division is about Application and object of this Division 711-5 Application and object of this Division Tax cost setting amount for membership interests etc. 711-10 Tax cost setting amount worked out under this Division 711-15 Tax cost setting amount where no multiple exit 711-20 What is the old group’s allocable cost amount for the leaving entity? 711-25 Terminating values of the leaving entity’s assets—step 1 in working out allocable cost amount 711-30 What is the head company’s terminating value for an asset? 711-35 If head company becomes entitled to certain deductions—step 2 in working out allocable cost amount 711-40 Liabilities owed to the leaving entity by members of the old group—step 3 in working out allocable cost amount 711-45 Liabilities etc. owed by the leaving entity—step 4 in working out allocable cost amount 711-46 Liability arising from transfer or assignment of securitised assets 711-55 Tax cost setting amount for membership interests where multiple exit 711-65 Membership interests treated as having been acquired before 20 September 1985 711-70 Additional integrity rule if membership interests treated as having been acquired before 20 September 1985 under section 711-65—application of Division 149 to head company

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711-75

CORE TAX

Table of provisions Additional integrity rule if membership interests treated as having been acquired before 20 September 1985 under section 711-65—application of CGT event K6

Division 713 - Rules for particular kinds of entities Subdivision 713-C - Some unit trusts treated like head companies of consolidated groups Choice to form a consolidated group 713-130 Choosing to form a consolidated group Division 719 - MEC groups Subdivision 719-A - Modified application of Part 3-90 to MEC groups 719-2 Modified application of Part 3-90 to MEC groups Subdivision 719-B - MEC groups and their members 719-4 What this Subdivision is about Basic concepts 719-5 719-10 719-15 719-20 719-25 719-30 719-35 719-40 719-45

What is a MEC group? What is a potential MEC group? What is an eligible tier-1 company? What is a top company and a tier-1 company? Head company, subsidiary members and members of a MEC group Treating entities as wholly-owned subsidiaries by disregarding employee shares Treating entities held through non-fixed trusts as wholly-owned subsidiaries Special conversion event—potential MEC group Application of sections 703-20 and 703-25

ITAA 1997

Choice to consolidate a potential MEC group 719-50 Eligible tier-1 companies may choose to consolidate a potential MEC group 719-55 When choice starts to have effect Provisional head company 719-60 Appointment of provisional head company 719-65 Qualifications for the provisional head company of a MEC group 719-70 Income year of new provisional head company to be the same as that of former provisional head company Head company 719-75 Head company Notice of events affecting group 719-76 Notice of choice to consolidate 719-77 Notice in relation to new eligible tier-1 members etc. 719-78 Notice of special conversion event 719-79 Notice of appointment of provisional head company after formation of group 719-80 Notice of events affecting MEC group Effects of change of head company 719-85 Application 719-90 New head company treated as substituted for old head company at all times before the transition time 719-95 No consequences of old head company becoming, and new head company ceasing to be, subsidiary member of the group Subdivision 719-C - MEC group cost setting rules: joining cases Guide to Subdivision 719-C 719-150 What this Subdivision is about Application and object 719-155 Object of this Subdivision Modified application of tax cost setting rules for joining 719-160 Tax cost setting rules for joining have effect with modifications 719-165 Trading stock value and registered emissions unit value not set for assets of eligible tier-1 companies 719-170 Modified effect of subsections 705-175(1) and 705-185(1)

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Income Tax Assessment Act 1997 Subdivision 719-F - Losses Guide to Subdivision 719-F 719-250 What this Subdivision is about Maintaining the same ownership to be able to utilise loss 719-255 Special rules 719-260 Special test for utilising a loss because a company maintains the same owners 719-265 What is the test company? 719-270 Assumptions about the test company having made the loss for an income year 719-275 Assumptions about nothing happening to affect direct and indirect ownership of the test company 719-280 Assumptions about the test company failing to meet the conditions in section 165-12 Business continuity test and change of head company 719-285 Business continuity test and change of head company Bundles of losses and their available fractions 719-300 Application 719-305 Subdivision 707-C affects utilisation of losses made by ongoing head company while it was head company 719-310 Adjustment of available fractions for bundles of losses previously transferred to ongoing head company 719-315 Further adjustment of available fractions for all bundles 719-320 Limit on utilising losses other than the prior group losses 719-325 Cancellation of all losses in a bundle Division 721 - Liability for payment of tax where head company fails to pay on time Guide to Division 721 721-1 What this Division is about Object 721-5

Object of this Division

When this Division operates 721-10 When this Division operates Joint and several liability of contributing member 721-15 Head company and contributing members jointly and severally liable to pay group liability 721-17 Notice of joint and several liability for general interest charge 721-20 Limit on liability where group first comes into existence Tax sharing agreements 721-25 When a group liability is covered by a tax sharing agreement 721-30 TSA contributing members liable for contribution amounts 721-32 Notice of general interest charge liability under TSA 721-35 When a TSA contributing member has left the group clear of the group liability 721-40 TSA liability and group liability are linked

Part 3-95 - Value shifting Division 723 - Direct value shifting by creating right over non-depreciating asset Subdivision 723-A - Reduction in loss from realising non-depreciating asset 723-1 Object 723-10 Reduction in loss from realising non-depreciating asset over which right has been created 723-15 Reduction in loss from realising non-depreciating asset at the same time as right is created over it 723-20 Exceptions 723-25 Realisation event that is only a partial realisation 723-35 Multiple rights created to take advantage of the $50,000 threshold 723-40 Application to CGT asset that is also trading stock or revenue asset

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723-50

CORE TAX

Table of provisions Effects if right created over underlying asset is also trading stock or a revenue asset

Subdivision 723-B - Reducing reduced cost base of interests in entity that acquires non-depreciating asset under roll-over 723-105 Reduced cost base of interest reduced when interest realised at a loss Direct and indirect roll-over replacement for underlying asset 723-110 Division 725 - Direct value shifting affecting interests in companies and trusts Guide to Division 725 725-1 What this Division is about Subdivision 725-A - Scope of the direct value shifting rules 725-45 Main object 725-50 When a direct value shift has consequences under this Division 725-55 Controlling entity test 725-65 Cause of the value shift 725-70 Consequences for down interest only if there is a material decrease in its market value 725-80 Who is an affected owner of a down interest? 725-85 Who is an affected owner of an up interest? 725-90 Direct value shift that will be reversed 725-95 Direct value shift resulting from reversal

ITAA 1997

Subdivision 725-B - What is a direct value shift 725-145 When there is a direct value shift 725-150 Issue of equity or loan interests at a discount 725-155 Meaning of down interests, decrease time, up interests and increase time 725-160 What is the nature of a direct value shift? 725-165 If market value decrease or increase is only partly attributable to the scheme Subdivision 725-C - Consequences of a direct value shift General 725-205 725-210

Consequences depend on character of down interests and up interests Consequences for down interests depend on pre-shift gains and losses

Special cases 725-220 725-225 725-230

Neutral direct value shifts Issue of bonus shares or units Off-market buy-backs

Subdivision 725-D - Consequences for down interest or up interest as CGT asset 725-240 CGT consequences; meaning of adjustable value 725-245 Table of taxing events generating a gain for interests as CGT assets 725-250 Table of consequences for adjustable values of interests as CGT assets 725-255 Multiple CGT consequences for the same down interest or up interest Subdivision 725-E - Consequences for down interest or up interest as trading stock or a revenue asset 725-310 Consequences for down interest or up interest as trading stock 725-315 Adjustable value of trading stock 725-320 Consequences for down interest or up interest as a revenue asset 725-325 Adjustable value of revenue asset 725-335 How to work out those consequences 725-340 Multiple trading stock or revenue asset consequences for the same down interest or up interest Subdivision 725-F - Value adjustments and taxed gains 725-365 Decreases in adjustable values of down interests (with pre-shift gains), and taxing events generating a gain 725-370 Uplifts in adjustable values of up interests under certain table items 725-375 Uplifts in adjustable values of up interests under other table items 725-380 Decreases in adjustable value of down interests (with pre-shift losses)

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CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX Part 4-5 - General Division 768 - Foreign non-assessable income and gains Subdivision 768-A - Returns on foreign investment Guide to Subdivision 768-A 768-1 What this Subdivision is about Foreign equity distributions on participation interests 768-5 Foreign equity distributions on participation interests 768-10 Meaning of foreign equity distribution 768-15 Participation test—minimum 10% participation Subdivision 768-G - Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies Guide to Subdivision 768-G 768-500 What this Subdivision is about Operative provisions 768-505 Reducing a capital gain or loss from certain CGT events in relation to certain voting interests Active foreign business asset percentage 768-510 Active foreign business asset percentage 768-515 Choices to apply market value method or book value method 768-520 Market value method—choice made under subsection 768-515(1) 768-525 Book value method—choice made under subsection 768-515(2) 768-530 Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies 768-533 Foreign company that is a FIF using CFC calculation method—treatment as AFI subsidiary under this Subdivision 768-535 Modified rules for foreign wholly-owned groups Types of assets of a foreign company 768-540 Active foreign business assets of a foreign company 768-545 Assets included in the total assets of a foreign company Voting percentages in a company 768-550 Direct voting percentage in a company 768-555 Indirect voting percentage in a company 768-560 Total voting percentage in a company Subdivision 768-R - Temporary residents Guide to Subdivision 768-R 768-900 What this Subdivision is about Operative provisions 768-905 Objects 768-910 Income derived by temporary resident 768-915 Certain capital gains and capital losses of temporary resident to be disregarded 768-950 Individual becoming an Australian resident 768-955 Temporary resident who ceases to be temporary resident but remains an Australian resident 768-960 Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules 768-970 Modification of rules for accruals system of taxation of certain non-resident trust estates 768-980 Interest paid by temporary resident Division 770 - Foreign income tax offsets Guide to Division 770 770-1 What this Division is about 770-5 Object

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Table of provisions Subdivision 770-A - Entitlement rules for foreign income tax offsets Basic entitlement rule for foreign income tax offset 770-10 Entitlement to foreign income tax offset 770-15 Meaning of foreign income tax, credit absorption tax and unitary tax Subdivision 770-B - Amount of foreign income tax offset Guide to Subdivision 770-B 770-65 What this Subdivision is about Operative provisions 770-70 Amount of foreign income tax offset 770-75 Foreign income tax offset limit 770-80 Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply Subdivision 770-C - Rules about payment of foreign income tax Rules about when foreign tax is paid 770-130 When foreign income tax is considered paid—taxes paid by someone else 770-135 Foreign income tax paid by CFCs on attributed amounts Rules about when foreign tax is considered not paid 770-140 When foreign income tax is considered not paid—anti-avoidance rule Subdivision 770-D - Administration 770-190 Amendment of assessments

ITAA 1997

Division 775 - Foreign currency gains and losses Guide to Division 775 775-5 What this Division is about Subdivision 775-B - Realisation of forex gains or losses 775-15 Forex realisation gains are assessable 775-20 Certain forex realisation gains are exempt income 775-25 Certain forex realisation gains are non-assessable non-exempt income 775-27 Certain forex realisation gains are non-assessable non-exempt income 775-30 Forex realisation losses are deductible 775-35 Certain forex realisation losses are disregarded 775-40 Disposal of foreign currency or right to receive foreign currency—forex realisation event 1 775-45 Ceasing to have a right to receive foreign currency—forex realisation event 2 775-50 Ceasing to have an obligation to receive foreign currency—forex realisation event 3 775-55 Ceasing to have an obligation to pay foreign currency—forex realisation event 4 775-60 Ceasing to have a right to pay foreign currency—forex realisation event 5 775-65 Only one forex realisation event to be counted 775-70 Tax consequences of certain short-term forex realisation gains 775-75 Tax consequences of certain short-term forex realisation losses 775-80 You may choose not to have sections 775-70 and 775-75 apply to you 775-85 Forex cost base of a right to receive foreign currency 775-90 Forex entitlement base of a right to pay foreign currency 775-95 Proceeds of assuming an obligation to pay foreign currency 775-100 Net costs of assuming an obligation to receive foreign currency 775-105 Currency exchange rate effect 775-110 Constructive receipts and payments 775-115 Economic set-off to be treated as legal set-off 775-120 Non-arm’s length transactions 775-125 CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3 775-130 Certain deductions not allowable 775-135 Right to receive or pay foreign currency 775-140 Obligation to pay or receive foreign currency

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Application of forex realisation events to currency and fungible rights and obligations 775-150 Transitional election 775-155 Applicable commencement date 775-160 Exception—event happens before the applicable commencement date 775-165 Exception—currency or right acquired, or obligation incurred, before the applicable commencement date 775-168 Exception—disposal or redemption of traditional securities 775-175 Application to things happening before commencement Subdivision 775-F - Retranslation under foreign exchange retranslation election under Subdivision 230-D Guide to Subdivision 775-F 775-290 What this Subdivision is about 775-295 When this Subdivision applies 775-300 Tax consequences of choosing retranslation for arrangement 775-305 Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies—forex realisation event 9 775-310 When election ceases to apply to arrangement 775-315 Balancing adjustment when election ceases to apply to arrangement Division 815 - Cross-border transfer pricing Subdivision 815-A - Treaty-equivalent cross-border transfer pricing rules Guide to Subdivision 815-A 815-1 What this Subdivision is about Operative provisions 815-5 Object 815-10 Transfer pricing benefit may be negated 815-15 When an entity gets a transfer pricing benefit 815-20 Cross-border transfer pricing guidance 815-25 Modified transfer pricing benefit for thin capitalisation 815-30 Determinations negating transfer pricing benefit 815-35 Consequential adjustments 815-40 No double taxation Subdivision 815-B - Arm’s length principle for cross-border conditions between entities Guide to Subdivision 815-B 815-101 What this Subdivision is about Operative provisions 815-105 Object 815-110 Operation of Subdivision 815-115 Substitution of arm’s length conditions 815-120 When an entity gets a transfer pricing benefit 815-125 Meaning of arm’s length conditions 815-130 Relevance of actual commercial or financial relations 815-135 Guidance 815-140 Modification for thin capitalisation 815-145 Consequential adjustments 815-150 Amendment of assessments Subdivision 815-C - Arm’s length principle for permanent establishments Guide to Subdivision 815-C 815-201 What this Subdivision is about Operative provisions 815-205 Object 815-210 Operation of Subdivision 815-215 Substitution of arm’s length profits 815-220 When an entity gets a transfer pricing benefit 815-225 Meaning of arm’s length profits

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Table of provisions 815-230 Source rules for certain arm’s length profits 815-235 Guidance 815-240 Amendment of assessments Subdivision 815-D - Special rules for trusts and partnerships Guide to Subdivision 815-D 815-301 What this Subdivision is about Operative provisions 815-305 Special rule for trusts 815-310 Special rules for partnerships Subdivision 815-E - Reporting obligations for significant global entities Guide to Subdivision 815-E 815-350 What this Subdivision is about Operative provisions 815-355 Requirement to give statements 815-360 Replacement reporting periods 815-365 Exemptions Division 820 - Thin capitalisation rules

ITAA 1997

Guide to Division 820 820-1 What this Division is about 820-5 Does this Division apply to an entity? 820-10 Map of Division Subdivision 820-A - Preliminary 820-30 Object of Division 820-32 Exemption for private or domestic assets and non-debt liabilities 820-35 Application—$2 million threshold 820-37 Application—assets threshold 820-39 Exemption of certain special purpose entities 820-40 Meaning of debt deduction Subdivision 820-B - Thin capitalisation rules for outward investing entities (non-ADI) Guide to Subdivision 820-B 820-65 What this Subdivision is about Operative provisions 820-85 Thin capitalisation rule for outward investing entities (non-ADI) 820-90 Maximum allowable debt 820-95 Safe harbour debt amount—outward investor (general) 820-100 Safe harbour debt amount—outward investor (financial) 820-105 Arm’s length debt amount 820-110 Worldwide gearing debt amount—outward investor that is not also an inward investment vehicle 820-111 Worldwide gearing debt amount—outward investor that is also an inward investment vehicle 820-115 Amount of debt deduction disallowed 820-120 Application to part year periods Subdivision 820-C - Thin capitalisation rules for inward investing entities (non-ADI) Guide to Subdivision 820-C 820-180 What this Subdivision is about Operative provisions 820-185 Thin capitalisation rule for inward investing entities (non-ADI) 820-190 Maximum allowable debt 820-195 Safe harbour debt amount—inward investment vehicle (general) 820-200 Safe harbour debt amount—inward investment vehicle (financial) 820-205 Safe harbour debt amount—inward investor (general) 820-210 Safe harbour debt amount—inward investor (financial) 820-215 Arm’s length debt amount

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Income Tax Assessment Act 1997 820-216 Worldwide gearing debt amount—inward investment vehicle (general) 820-217 Worldwide gearing debt amount—inward investment vehicle (financial) 820-218 Worldwide gearing debt amount—inward investor (general) 820-219 Worldwide gearing debt amount—inward investor (financial) 820-220 Amount of debt deduction disallowed 820-225 Application to part year periods Subdivision 820-D - Thin capitalisation rules for outward investing entities (ADI) Guide to Subdivision 820-D 820-295 What this Subdivision is about Operative provisions 820-300 Thin capitalisation rule for outward investing entities (ADI) 820-305 Minimum capital amount 820-310 Safe harbour capital amount 820-315 Arm’s length capital amount 820-320 Worldwide capital amount 820-325 Amount of debt deduction disallowed 820-330 Application to part year periods Subdivision 820-E - Thin capitalisation rules for inward investing entities (ADI) Guide to Subdivision 820-E 820-390 What this Subdivision is about Operative provisions 820-395 Thin capitalisation rule for inward investing entities (ADI) 820-400 Minimum capital amount 820-405 Safe harbour capital amount 820-410 Arm’s length capital amount 820-415 Amount of debt deduction disallowed 820-420 Application to part year periods Subdivision 820-JA - Worldwide debt and equity concepts Guide to Subdivision 820-JA 820-931 What this Subdivision is about Operative provisions 820-932 Worldwide debt and worldwide equity 820-933 Statement worldwide debt, statement worldwide equity and statement worldwide assets 820-935 Meaning of audited consolidated financial statements Division 840 - Withholding taxes Guide to Division 840 840-1 What this Division is about Subdivision 840-M - Managed investment trust withholding tax Guide to Subdivision 840-M 840-800 What this Subdivision is about Operative provisions 840-805 Liability for managed investment trust withholding tax 840-810 When managed investment trust withholding tax is payable 840-815 Certain income is non-assessable non-exempt income 840-820 Agency rules Subdivision 840-S - Seasonal Labour Mobility Program withholding tax Guide to Subdivision 840-S 840-900 What this Subdivision is about Operative provisions 840-905 Liability for Seasonal Labour Mobility Program withholding tax 840-910 When Seasonal Labour Mobility Program withholding tax is payable 840-915 Certain income is non-assessable non-exempt income 840-920 Overpayment of Seasonal Labour Mobility Program withholding tax

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Table of provisions Division 842 - Exempt Australian source income and gains of foreign residents Subdivision 842-B - Some items of Australian source income of foreign residents that are exempt from income tax Guide to Subdivision 842-B 842-100 What this Subdivision is about 842-105 Amounts of Australian source ordinary income and statutory income that are exempt Subdivision 842-I - Investment manager regime Guide to Subdivision 842-I 842-200 What this Subdivision is about Object of this Subdivision 842-205 Object of this Subdivision IMR concessions 842-210 IMR concessions apply only to foreign residents etc. 842-215 IMR concessions 842-220 Meaning of IMR entity 842-225 Meaning of IMR financial arrangement

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IMR widely held entities 842-230 Meaning of IMR widely held entity 842-235 Rules for determining total participation interests for the purposes of the widely held test 842-240 Extended meaning of IMR widely held entity—temporary circumstances outside entity’s control Independent Australian fund managers 842-245 Meaning of independent Australian fund manager 842-250 Reductions in IMR concessions if independent Australian fund manager entitled to substantial share of IMR entity’s income Division 855 - Capital gains and foreign residents Guide to Division 855 855-1 What this Division is about Subdivision 855-A - Disregarding a capital gain or loss by foreign residents 855-5 Objects of this Subdivision 855-10 Disregarding a capital gain or loss from CGT events 855-15 When an asset is taxable Australian property 855-16 Meaning of permanent establishment article 855-20 Taxable Australian real property 855-25 Indirect Australian real property interests 855-30 Principal asset test 855-32 Disregard market value of duplicated non-TARP assets 855-35 Reducing a capital gain or loss from a business asset—Australian permanent establishments 855-40 Capital gains and losses of foreign residents through fixed trusts Subdivision 855-B - Becoming an Australian resident 855-45 Individual or company becomes an Australian resident 855-50 Trust becomes a resident trust 855-55 CFC becomes an Australian resident

CHAPTER 5 - ADMINISTRATION Part 5-30 - Record-keeping and other obligations Division 900 - Substantiation rules Guide to Division 900 900-1 What this Division is about Subdivision 900-A - Application of Division 900-5 Application of the requirements of Division 900

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Substantiation requirement Application to recipients and payers of certain withholding payments

Subdivision 900-B - Substantiating work expenses 900-15 Getting written evidence 900-20 Keeping travel records 900-25 Retaining the written evidence and travel records 900-30 Meaning of work expense 900-35 Exception for small total of expenses 900-40 Exception for laundry expenses below a certain limit 900-45 Exception for work expense related to award transport payment 900-50 Exception for domestic travel allowance expenses 900-55 Exception for overseas travel allowance expenses 900-60 Exception for reasonable overtime meal allowance 900-65 Crew members on international flights need not keep travel records Subdivision 900-C - Substantiating car expenses 900-70 Getting written evidence 900-75 Retaining the written evidence and odometer records Subdivision 900-D - Substantiating business travel expenses 900-80 Getting written evidence 900-85 Keeping travel records 900-90 Retaining the written evidence and travel records 900-95 Meaning of business travel expense Subdivision 900-E - Written evidence Guide to Subdivision 900-E 900-100 What this Subdivision is about Operative provisions 900-105 Ways of getting written evidence 900-110 Time limits 900-115 Written evidence from supplier 900-120 Written evidence of depreciating asset expense 900-125 Evidence of small expenses 900-130 Evidence of expenses considered otherwise too hard to substantiate 900-135 Evidence on a payment summary Subdivision 900-F - Travel records Guide to Subdivision 900-F 900-140 What this Subdivision is about 900-145 Purpose of a travel record Operative provisions 900-150 Recording activities in travel records 900-155 Showing which of your activities were income-producing activities Subdivision 900-G - Retaining and producing records Guide to Subdivision 900-G 900-160 What this Subdivision is about 900-165 The retention period Operative provisions 900-170 Extending the retention period if an expense is disputed 900-175 Commissioner may tell you to produce your records 900-180 How to comply with a notice 900-185 What happens if you don’t comply Subdivision 900-H - Relief from effects of failing to substantiate 900-195 Commissioner’s discretion to review failure to substantiate 900-200 Reasonable expectation that substantiation would not be required 900-205 What if your documents are lost or destroyed?

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Table of provisions Subdivision 900-I - Award transport payments Guide to Subdivision 900-I 900-210 What this Subdivision is about Operative provisions 900-215 Deducting an expense related to an award transport payment 900-220 Definition of award transport payment 900-225 Substituted industrial instruments 900-230 Changes to industrial instruments applied for before 29 October 1986 900-235 Changes to industrial instruments solely referable to matters in the instrument 900-240 Deducting in anticipation of receiving award transport payment 900-245 Effect of exception in this Subdivision on exception for small total of expenses 900-250 Effect of exception in this Subdivision on methods of calculating car expense deductions

CHAPTER 6 - THE DICTIONARY Part 6-1 - Concepts and topics Division 950 - Rules for interpreting this Act 950-100 What forms part of this Act 950-105 What does not form part of this Act 950-150 Guides, and their role in interpreting this Act

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Division 960 - General Subdivision 960-B - Utilisation of tax attributes 960-20 Utilisation Subdivision 960-C - Foreign currency 960-49 Objects of this Subdivision 960-50 Translation of amounts into Australian currency 960-55 Application of translation rules Subdivision 960-D - Functional currency Guide to Subdivision 960-D 960-56 What this Subdivision is about Operative provisions 960-59 Object of this Subdivision 960-60 You may choose a functional currency 960-61 Functional currency for calculating capital gains and losses on indirect Australian real property interests 960-65 Backdated startup choice 960-70 What is the applicable functional currency? 960-75 What is a transferor trust? 960-80 Translation rules 960-85 Special rule about translation—events that happened before the current choice took effect 960-90 Withdrawal of choice Subdivision 960-E - Entities 960-100 Entities 960-105 Certain entities treated as agents Subdivision 960-F - Distribution by corporate tax entities 960-115 Meaning of corporate tax entity 960-120 Meaning of distribution Subdivision 960-G - Membership of entities 960-130 Members of entities 960-135 Membership interest in an entity 960-140 Ordinary membership interest Subdivision 960-GP - Participation interests in entities 960-180 Total participation interest

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Income Tax Assessment Act 1997 960-185 Indirect participation interest 960-190 Direct participation interest 960-195 Non-portfolio interest test Subdivision 960-H - Abnormal trading in shares or units 960-220 Meaning of trading 960-225 Abnormal trading 960-230 Abnormal trading—5% of shares or units in one transaction 960-235 Abnormal trading—suspected 5% of shares or units in a series of transactions 960-240 Abnormal trading—suspected acquisition or merger 960-245 Abnormal trading—20% of shares or units traded over 60 day period Subdivision 960-J - Family relationships Guide to Subdivision 960-J 960-250 What this Subdivision is about Operative provisions 960-252 Object of this Subdivision 960-255 Family relationships Subdivision 960-M - Indexation Guide to Subdivision 960-M 960-260 What this Subdivision is about 960-265 The provisions for which indexation is relevant Operative provisions 960-270 Indexing amounts 960-275 Indexation factor 960-280 Index number 960-285 Indexation—superannuation and employment termination 960-290 Indexation—levy threshold for the major bank levy Subdivision 960-S - Market value Guide to Subdivision 960-S 960-400 What this Subdivision is about Operative provisions 960-405 Effect of GST on market value of an asset 960-410 Market value of non-cash benefits 960-412 Working out market value using an approved method 960-415 Amounts that depend on market value Subdivision 960-T - Meaning of Australia Guide to Subdivision 960-T 960-500 What this Subdivision is about Operative provisions 960-505 Meaning of Australia Subdivision 960-U - Significant global entities Guide to Subdivision 960-U 960-550 What this Subdivision is about Operative provisions 960-555 Meaning 960-560 Meaning 960-565 Meaning 960-570 Meaning

of of of of

significant global entity global parent entity annual global income global financial statements

Division 961 - Notional tax offsets Subdivision 961-A - Dependant (non-student child under 21 or student) notional tax offset Guide to Subdivision 961-A 961-1 What this Subdivision is about Entitlement to the notional tax offset 961-5 Who is entitled to the notional tax offset

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Table of provisions Amount of the notional tax offset 961-10 Amount of the dependant (non-student child under 21 or student) notional tax offset 961-15 Reduced amounts of the dependant (non-student child under 21 or student) notional tax offset 961-20 Reductions to take account of the dependant’s income Subdivision 961-B - Dependant (sole parent of a non-student child under 21 or student) notional tax offset Guide to Subdivision 961-B 961-50 What this Subdivision is about Operative provisions 961-55 Who is entitled to the notional tax offset 961-60 Amount of the dependant (sole parent of a non-student child under 21 or student) notional tax offset 961-65 Reductions to take account of change in circumstances Division 974 - Debt and equity interests Subdivision 974-A - General Guide to Division 974 974-1 What this Division is about 974-5 Overview of Division

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Operative provisions 974-10 Object Subdivision 974-B - Debt interests 974-15 Meaning of debt interest 974-20 The test for a debt interest 974-25 Exceptions to the debt test 974-30 Providing a financial benefit 974-35 Valuation of financial benefits—general rules 974-40 Valuation of financial benefits—rights and options to terminate early 974-45 Valuation of financial benefits—convertible interests 974-50 Valuation of financial benefits—value in present value terms 974-55 The debt interest and its issue 974-60 Debt interest arising out of obligations owed by a number of entities 974-65 Commissioner’s power Subdivision 974-C - Equity interests in companies 974-70 Meaning of equity interest in a company 974-75 The test for an equity interest 974-80 Equity interest arising from arrangement funding return through connected entities 974-85 Right or return contingent on aspects of economic performance 974-90 Right or return at discretion of company or connected entity 974-95 The equity interest Subdivision 974-D - Common provisions 974-100 Treatment of convertible and converting interests 974-105 Effect of action taken in relation to interest arising from related schemes 974-110 Effect of material change 974-112 Determinations by Commissioner Subdivision 974-E - Non-share distributions by a company 974-115 Meaning of non-share distribution 974-120 Meaning of non-share dividend 974-125 Meaning of non-share capital return Subdivision 974-F - Related concepts 974-130 Financing arrangement 974-135 Effectively non-contingent obligation 974-140 Ordinary debt interest

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Benchmark rate of return Schemes Related schemes Financial benefit Convertible and converting interests

Division 975 - Concepts about companies Subdivision 975-A - General 975-150 Position to affect rights in relation to a company 975-155 When is an entity a controller (for CGT purposes) of a company? 975-160 When an entity has an associate-inclusive control interest Subdivision 975-G - What is a company’s share capital account? 975-300 Meaning of share capital account Subdivision 975-W - Wholly-owned groups of companies 975-500 Wholly-owned groups 975-505 What is a 100% subsidiary? Division 976 - Imputation 976-1 Franked part of a distribution 976-5 Unfranked part of a distribution 976-10 The part of a distribution that is franked with an exempting credit 976-15 The part of a distribution that is franked with a venture capital credit Division 977 - Realisation events, and the gains and losses they realise for income tax purposes CGT assets 977-5 Realisation event 977-10 Loss realised for income tax purposes 977-15 Gain realised for income tax purposes Trading stock 977-20 Realisation event 977-25 Disposal of trading stock: loss realised for income tax purposes 977-30 Ending of an income year: loss realised for income tax purposes 977-35 Disposal of trading stock: gain realised for income tax purposes 977-40 Ending of an income year: gain realised for income tax purposes Revenue assets 977-50 Meaning of revenue asset 977-55 Loss or gain realised for income tax purposes Division 980 - Affordable housing Guide to Division 980 980-1 What this Division is about Subdivision 980-A - Providing affordable housing Operative provisions 980-5 Providing affordable housing 980-10 Eligible community housing providers 980-15 Affordable housing certificates

Part 6-5 - Dictionary definitions Division 995 - Definitions 995-1 Definitions

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INCOME TAX ASSESSMENT ACT 1997

CORE TAX

Part 1-2 – A Guide to this Act Division 2 – How to use this Act

Act 38 of 1997 An Act about income tax and related matters

CHAPTER 1 – INTRODUCTION AND CORE PROVISIONS Part 1-1 – Preliminary DIVISION 1 – PRELIMINARY 1-1 1-2 1-3 1-4 1-7 1-1

Table of sections Short title Commencement Differences in style not to affect meaning Application Administration of this Act

Short title

This Act may be cited as the Income Tax Assessment Act 1997. 1-2

Commencement

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ITAA 1997

This Act commences on 1 July 1997. Differences in style not to affect meaning

(1) This Act contains provisions of the Income Tax Assessment Act 1936 in a rewritten form. (2) If: (a) that Act expressed an idea in a particular form of words; and (b) this Act appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style; the ideas are not to be taken to be different just because different forms of words were used. Note: A public or private ruling about a provision of the Income Tax Assessment Act 1936 is taken also to be a ruling about the corresponding provision of this Act, so far as the 2 provisions express the same ideas: see section 357-85 in Schedule 1 to the Taxation Administration Act 1953. 1-4

Application

This Act extends to every external Territory referred to in the definition of Australia. 1-7

Administration of this Act

The Commissioner has the general administration of this Act. Note: An effect of this provision is that people who acquire information under this Act are subject to the confidentiality obligations and exceptions in Division 355 in Schedule 1 to the Taxation Administration Act 1953.

Part 1-2 – A Guide to this Act DIVISION 2 – HOW TO USE THIS ACT 2-A 2-B 2-C 2-D 2-E

Table of Subdivisions How to find your way around How the Act is arranged How to identify defined terms and find the definitions The numbering system Status of Guides and other non-operative material

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 2-1 SUBDIVISION 2-A – HOW TO FIND YOUR WAY AROUND 2-1

The design

This Act is designed to help you identify accurately and quickly the provisions that are relevant to your purpose in reading the income tax law. The Act contains tables, diagrams and signposts to help you navigate your way. You can start at Division 3 (What this Act is about) and follow the signposts as far into the Act as you need to go. You may also encounter signposts to several areas of the law that are relevant to you. Each one should be followed. Sometimes they will lead down through several levels of detail. At each successive level, the rules are structured in a similar way. They will often be preceded by a Guide to the rules at that level. The rules themselves will usually deal first with the general or most common case and then with the more particular or special cases. SUBDIVISION 2-B – HOW THE ACT IS ARRANGED 2-5

The pyramid

This Act is arranged in a way that reflects the principle of moving from the general case to the particular. In this respect, the conceptual structure of the Act is something like a pyramid. The pyramid shape illustrates the way the income tax law is organised, moving down from the central or core provisions at the top of the pyramid, to general rules of wide application and then to the more specialised topics.

SUBDIVISION 2-C – HOW TO IDENTIFY DEFINED TERMS AND FIND THE DEFINITIONS 2-10

Table of sections When defined terms are identified

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 2-25 2-15 2-20 2-10

When terms are not identified Identifying the defined term in a definition

CORE TAX

Part 1-2 – A Guide to this Act Division 2 – How to use this Act

When defined terms are identified

(1) Many of the terms used in the income tax law are defined. (2) Most defined terms in this Act are identified by an asterisk appearing at the start of the term: as in “*business”. The footnote that goes with the asterisk contains a signpost to the Dictionary definitions starting at section 995-1. 2-15

When terms are not identified

(1) Once a defined term has been identified by an asterisk, later occurrences of the term in the same subsection are not usually asterisked. (2) Terms are not asterisked in the non-operative material contained in this Act. Note: The non-operative material is described in Subdivision 2-E.

Key participants in the income tax system Item This term: 1. Australian resident 2. Commissioner 3. company 4. entity 4A. foreign resident 5. individual 6. partnership 7. person 8. trustee 9. you

is defined in: section 995-1 section 995-1 section 995-1 section 960-100 section 995-1 section 995-1 section 995-1 section 995-1 section 995-1 section 4-5

Core concepts Item This term: 1. amount 2. assessable income 3. assessment 3A. Australia 4. deduct, deduction 5. income tax 6. income year 7. taxable income 8. this Act

is defined in: section 995-1 Division 6 section 995-1 Subdivision 960-T Division 8 section 995-1 section 995-1 section 4-15 section 995-1

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(3) The following basic terms used throughout the Act are not identified with an asterisk. They fall into 2 groups:

Identifying the defined term in a definition

Within a definition, the defined term is identified by bold italics. SUBDIVISION 2-D – THE NUMBERING SYSTEM Table of sections 2-25 2-30 2-25

Purposes Gaps in the numbering

Purposes

Two main purposes of the numbering system in this Act are: • To indicate the relationship between units at different levels. For example, the number of Part 2-15 indicates that the Part is in Chapter 2. Similarly, the number of section 165-70 indicates that the section is in Division 165. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 2-25

• To allow for future expansion of the Act. The main technique here is leaving gaps between numbers. 2-30

Gaps in the numbering

There are gaps in the numbering system to allow for the insertion of new Divisions and sections. SUBDIVISION 2-E – STATUS OF GUIDES AND OTHER NON-OPERATIVE MATERIAL Table of sections 2-35 2-40 2-45 2-35

Non-operative material Guides Other material

Non-operative material

In addition to the operative provisions themselves, this Act contains other material to help you identify accurately and quickly the provisions that are relevant to you and to help you understand them. This other material falls into 2 main categories. 2-40

Guides

The first is the “Guides”. A Guide consists of sections under a heading indicating that what follows is a Guide to a particular Subdivision, Division etc. Guides form part of this Act but are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered for limited purposes. These are set out in section 950-150. 2-45

Other material

The other category consists of material such as notes and examples. These also form part of the Act. They are distinguished by type size from the operative provisions, but are not kept separate from them. DIVISION 3 – WHAT THIS ACT IS ABOUT 3-5 3-10 3-15 3-5

Table of sections Annual income tax Your other obligations as a taxpayer Your obligations other than as a taxpayer

Annual income tax

(1) Income tax is payable for each year by each individual and company, and by some other entities. Note 1: Individuals who are Australian residents, and some trustees, are also liable to pay Medicare levy for each year. See the Medicare Levy Act 1986 and Part VIIB of the Income Tax Assessment Act 1936. Note 2: Income tax is imposed by the Income Tax Act 1986 and the other Acts referred to in the definition of income tax in section 995-1.

(2) Most entities have to pay instalments of income tax before the income tax they actually have to pay can be worked out. (3) This Act answers these questions: 1. What instalments of income tax do you have to pay? When and how do you pay them? See Schedule 1 to the Taxation Administration Act 1953.

2. How do you work out how much income tax you must pay? See Division 4, starting at section 4-1.

3. What happens if your income tax is more than the instalments you have paid? When and how must you pay the rest? * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 4-1 See Division 5 of this Act and Part 4-15 in Schedule 1 to the Taxation Administration Act 1953.

CORE TAX

Part 1-3 – Core provisions Division 4 – How to work out the income tax payable on your taxable income

4. What happens if your income tax is less than the instalments you have paid? How do you get a refund? See Division 3A of Part IIB of the Taxation Administration Act 1953.

5. What are your other obligations as a taxpayer, besides paying instalments and the rest of your income tax? See section 3-10.

6. Do you have any other obligations under the income tax law? See section 3-15.

7. If a dispute between you and the Commissioner of Taxation cannot be settled by agreement, what procedures for objection, review and appeal are available? See Part IVC (sections 14ZL to 14ZZS) of the Taxation Administration Act 1953. Your other obligations as a taxpayer

(1) Besides paying instalments and the rest of your income tax, your main obligations as a taxpayer are: (a) to keep records and provide information as required by: • the Income Tax Assessment Act 1936; and • Division 900 (which sets out substantiation rules) of this Act; and (b) to lodge income tax returns as required by: • the Income Tax Assessment Act 1936. Tax file numbers

(2) Under Part VA of the Income Tax Assessment Act 1936, a tax file number can be issued to you. You are not obliged to apply for a tax file number. However, if you do not quote one in certain situations: • you may become liable for instalments of income tax that would not otherwise have been payable; • the amount of certain of your instalments of income tax may be increased. 3-15

Your obligations other than as a taxpayer

Your main obligations under the income tax law, other than as a taxpayer are: • in certain situations, to deduct from money you owe to another person, and to remit to the Commissioner, instalments of income tax payable by that person. See Part 4-5 (Collection of income tax instalments), starting at section 750-1.

Part 1-3 – Core provisions DIVISION 4 – HOW TO WORK OUT THE INCOME TAX PAYABLE ON YOUR TAXABLE INCOME 4-1 4-5 4-10 4-15 4-25 4-1

Table of sections Who must pay income tax Meaning of you How to work out how much income tax you must pay How to work out your taxable income Special provisions for working out your basic income tax liability Who must pay income tax

Income tax is payable by each individual and company, and by some other entities. Note: The actual amount of income tax payable may be nil. For a list of the entities that must pay income tax, see Division 9, starting at section 9-1. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 4-5 4-5 Meaning of you

If a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited. Note 1: The expression you is not used in provisions that apply only to entities that are not individuals. Note 2: For circumstances in which the identity of an entity that is a managed investment scheme for the purposes of the Corporations Act 2001 is not affected by changes to the scheme, see Subdivision 960-E of the Income Tax (Transitional Provisions) Act 1997. 4-10

How to work out how much income tax you must pay

(1) You must pay income tax for each *financial year. (2) Your income tax is worked out by reference to your taxable income for the income year. The income year is the same as the *financial year, except in these cases: (a) for a company, the income year is the previous financial year; (b) if you have an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year. Note 1: The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936. Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an ESVCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936.

(3) Work out your income tax for the *financial year as follows:

Method statement Step 1. Work out your taxable income for the income year. To do this, see section 4-15. Step 2. Work out your basic income tax liability on your taxable income using: (a) the income tax rate or rates that apply to you for the income year; and (b) any special provisions that apply to working out that liability. See the Income Tax Rates Act 1986 and section 4-25. Step 3. Work out your tax offsets for the income year. A tax offset reduces the amount of income tax you have to pay. For the list of tax offsets, see section 13-1. Step 4. Subtract your *tax offsets from your basic income tax liability. The result is how much income tax you owe for the *financial year. Note 1: Division 63 explains what happens if your tax offsets exceed your basic income tax liability. How the excess is treated depends on the type of tax offset. Note 2: Section 4-11 of the Income Tax (Transitional Provisions) Act 1997 (which is about the temporary budget repair levy) may increase the amount of income tax worked out under this section.

(3A) [Repealed] (4) not reproduced 4-15

How to work out your taxable income

(1) Work out your taxable income for the income year like this: Taxable income = Assessable income − Deductions Method statement Step 1. Add up all your assessable income for the income year. To find out about your assessable income, see Division 6. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 5-5 Step 2. Add up your deductions for the income year. To find out what you can deduct, see Division 8. Step 3. Subtract your deductions from your assessable income (unless they exceed it). The result is your taxable income. (If the deductions equal or exceed the assessable income, you don’t have a taxable income.)

CORE TAX

Part 1-3 – Core provisions Division 5 – How to work out when to pay your income tax

Note: If the deductions exceed the assessable income, you may have a tax loss which you may be able to utilise in that or a later income year: see Division 36. (2) not reproduced 4-25

Special provisions for working out your basic income tax liability

The following provisions may increase your basic income tax liability beyond the liability worked out simply by applying the income tax rates to your taxable income: (a) Subdivision 355-G; (b) subsection 392-35(3). Note 1: Subdivision 355-G increases some entities’ tax liability by requiring them to pay extra income tax on government recoupments relating to R&D activities for which entitlements to tax offsets arise under Division 355. Note 2: Subsection 392-35(3) increases some primary producers’ tax liability by requiring them to pay extra income tax on their averaging components worked out under Subdivision 392-C. DIVISION 5 – HOW TO WORK OUT WHEN TO PAY YOUR INCOME TAX

5-A

ITAA 1997

Table of Subdivisions Guide to Division 5 How to work out when to pay your income tax

GUIDE TO DIVISION 5 5-1

What this Division is about

If your assessed income tax liability exceeds the credits available to you under the PAYG system, this Division explains when you must pay the excess to the Commissioner. If your assessment is amended so that you must pay income tax, or pay more income tax than under the previous assessment, this Division explains: (a) when you must pay the additional tax; and (b) when any associated interest charges must be paid. Note: For provisions about the collection and recovery of income tax and other tax-related liabilities, see Part 4-15 in Schedule 1 to the Taxation Administration Act 1953. SUBDIVISION 5-A – HOW TO WORK OUT WHEN TO PAY YOUR INCOME TAX 5-5 5-10 5-15

Table of sections When income tax is payable When shortfall interest charge is payable General interest charge payable on unpaid income tax or shortfall interest charge

5-5 When income tax is payable Scope

(1) This section tells you when income tax you must pay for a *financial year is due and payable. Note: The Commissioner may defer the time at which the income tax is due and payable: see section 255-10 in Schedule 1 to the Taxation Administration Act 1953.

(2) The income tax is only due and payable if the Commissioner makes an *assessment of your income tax for the year. (3) However, if the Commissioner does make an *assessment of your income tax for the year, the tax may be taken to have been due and payable at a time before your assessment was made. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 5-5 Note: This is to ensure that general interest charge begins to accrue from the same date for all like entities. General interest charge on unpaid income tax is calculated from when the tax is due and payable, not from when the assessment is made: see section 5-15. Original assessments—self-assessment entities

(4) If you are a *self-assessment entity, the income tax is due and payable on the first day of the sixth month after the end of the income year. Example: If your income year is the same as the financial year, your income tax would be due and payable on 1 December. Original assessments—other entities

(5) If you are not a *self-assessment entity, the income tax is due and payable 21 days after the day (the return day) on or before which you are required to lodge your *income tax return with the Commissioner. Note: For rules about income tax returns and when they are due, see Part IV of the Income Tax Assessment Act 1936.

(6) However, if you lodge your return on or before the return day and the Commissioner gives you a notice of *assessment (other than an amended assessment) after the return day, the income tax is due and payable 21 days after the Commissioner gives you the notice. Amended assessments

(7) If the Commissioner amends your *assessment, any extra income tax resulting from the amendment is due and payable 21 days after the day on which the Commissioner gives you notice of the amended assessment. Note: Shortfall interest charge may be payable, on any amount of extra income tax payable as a result of the amended assessment, for each day in the period that: (a) starts at the time income tax was due and payable on your original assessment; and (b) ends the day before the day on which the Commissioner gives you notice of the amended assessment. 5-10

When shortfall interest charge is payable

An amount of *shortfall interest charge that you are liable to pay is due and payable 21 days after the day on which the Commissioner gives you notice of the charge. Note: Shortfall interest charge is imposed if the Commissioner amends an assessment and the amended assessment results in an increase in some tax payable. For provisions about liability for shortfall interest charge, see Division 280 in Schedule 1 to the Taxation Administration Act 1953. 5-15

General interest charge payable on unpaid income tax or shortfall interest charge

If an amount of income tax or *shortfall interest charge that you are liable to pay remains unpaid after the time by which it is due to be paid, you are liable to pay the *general interest charge on the unpaid amount for each day in the period that: (a) starts at the beginning of the day on which the amount was due to be paid; and (b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

(i) the income tax or shortfall interest charge; (ii) general interest charge on any of the income tax or shortfall interest charge. Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953. Note 2: Shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act. DIVISION 6 – ASSESSABLE INCOME AND EXEMPT INCOME GUIDE TO DIVISION 6 Table of sections 6-1 Diagram showing relationships among concepts in this Division Operative provisions 6-5 Income according to ordinary concepts (ordinary income) * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 6-5 6-10 6-15 6-20 6-23 6-25

Diagram showing relationships among concepts in this Division

ITAA 1997

6-1

Other assessable income (statutory income) What is not assessable income Exempt income Non-assessable non-exempt income Relationships among various rules about ordinary income

CORE TAX

Part 1-3 – Core provisions Division 6 – Assessable income and exempt income

(1) Assessable income consists of ordinary income and statutory income. (2) Some ordinary income, and some statutory income, is exempt income. (3) Exempt income is not assessable income. (4) Some ordinary income, and some statutory income, is neither assessable income nor exempt income. For the effect of the GST in working out assessable income, see Division 17.

(5) An amount of ordinary income or statutory income can have only one status (that is, assessable income, exempt income or non-assessable non-exempt income) in the hands of a particular entity. OPERATIVE PROVISIONS 6-5

Income according to ordinary concepts (ordinary income)

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income. Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.

(2) If you are an Australian resident, your assessable income includes the *ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year. (3) If you are a foreign resident, your assessable income includes:

*

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 6-5

(a) the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and (b) other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source. (4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. 6-10

Other assessable income (statutory income)

(1) Your assessable income also includes some amounts that are not *ordinary income. Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5.

(2) Amounts that are not *ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income. Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non-assessable non-exempt income under another provision: see sections 6-20 and 6-23. Note 2: Many provisions in the summary list in section 10-5 contain rules about ordinary income. These rules do not change its character as ordinary income.

(3) If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct. (4) If you are an Australian resident, your assessable income includes your *statutory income from all sources, whether in or out of Australia. (5) If you are a foreign resident, your assessable income includes: (a) your *statutory income from all *Australian sources; and (b) other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source. 6-15

What is not assessable income

(1) If an amount is not *ordinary income, and is not *statutory income, it is not assessable income (so you do not have to pay income tax on it). (2) If an amount is *exempt income, it is not assessable income. Note: If an amount is exempt income, there are other consequences besides it being exempt from income tax. For example: • the amount may be taken into account in working out the amount of a tax loss (see section 36-10); • you cannot deduct as a general deduction a loss or outgoing incurred in deriving the amount (see Division 8); • capital gains and losses on assets used solely to produce exempt income are disregarded (see section 118-12).

(3) If an amount is *non-assessable non-exempt income, it is not assessable income. Note 1: You cannot deduct as a general deduction a loss or outgoing incurred in deriving an amount of non-assessable non-exempt income (see Division 8). Note 2: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12). 6-20

Exempt income

(1) An amount of *ordinary income or *statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another *Commonwealth law. For summary lists of provisions about exempt income, see sections 11-5 and 11-15. *

(2) Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by implication) from being assessable income. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 8-1

(3) By contrast, an amount of *statutory income is exempt income only if it is made exempt from income tax by a provision of this Act outside this Division or another *Commonwealth law. (4) If an amount of *ordinary income or *statutory income is *non-assessable non-exempt income, it is not exempt income.

CORE TAX

Part 1-3 – Core provisions Division 8 – Deductions

Note: An amount of non-assessable non-exempt income is not taken into account in working out the amount of a tax loss. 6-23

Non-assessable non-exempt income

An amount of *ordinary income or *statutory income is non-assessable non-exempt income if a provision of this Act or of another *Commonwealth law states that it is not assessable income and is not *exempt income. Note: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12). For a summary list of provisions about non-assessable non-exempt income, see Subdivision 11-B. 6-25

Relationships among various rules about ordinary income

For a summary list of the provisions about assessable income, see section 10-5.

However, the amount is included only once in your assessable income for an income year, and is then not included in your assessable income for any other income year. (2) Unless the contrary intention appears, the provisions of this Act (outside this Part) prevail over the rules about *ordinary income. Note: This Act contains some specific provisions about how far the rules about ordinary income prevail over the other provisions of this Act. DIVISION 8 – DEDUCTIONS Table of sections 8-1 8-5 8-10 8-1

General deductions Specific deductions No double deductions

General deductions

(1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income. Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your *exempt income or your * non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. For a summary list of provisions about deductions, see section 12-5.

(3) A loss or outgoing that you can deduct under this section is called a general deduction. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) Sometimes more than one rule includes an amount in your assessable income: • the same amount may be *ordinary income and may also be included in your assessable income by one or more provisions about assessable income; or • the same amount may be included in your assessable income by more than one provision about assessable income.

Income Tax Assessment Act 1997

s 8-1 For the effect of the GST in working out deductions, see Division 27. Note: If you receive an amount as insurance, indemnity or other recoupment of a loss or outgoing that you can deduct under this section, the amount may be included in your assessable income: see Subdivision 20-A. 8-5

Specific deductions

(1) You can also deduct from your assessable income an amount that a provision of this Act (outside this Division) allows you to deduct. (2) Some provisions of this Act prevent you from deducting an amount that you could otherwise deduct, or limit the amount you can deduct. (3) An amount that you can deduct under a provision of this Act (outside this Division) is called a specific deduction. Note: If you receive an amount as insurance, indemnity or other recoupment of a deductible expense, the amount may be included in your assessable income: see Subdivision 20-A. For a summary list of provisions about deductions, see section 12-5. 8-10

No double deductions

If 2 or more provisions of this Act allow you deductions in respect of the same amount (whether for the same income year or different income years), you can deduct only under the provision that is most appropriate.

Part 1-4 – Checklists of what is covered by concepts used in the core provisions DIVISION 9 – ENTITIES THAT MUST PAY INCOME TAX 9-1A 9-1 9-5 9-1A

Table of sections Effect of this Division List of entities Entities that work out their income tax by reference to something other than taxable income

Effect of this Division

This Division is a *Guide. 9-1

List of entities

Income tax is payable by the entities listed in the table. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Item Income tax is payable by this kind of entity: because of this provision: 1 An individual section 4-1 2 A company, that is: section 4-1 • a body corporate; or • an unincorporated body (except a partnership) 3 A company that was a member of a wholly-owned section 45-25 group if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment 4 A superannuation provider in relation to a sections 295-5 and 295-605 complying superannuation fund 5 A superannuation provider in relation to a sections 295-5 and 295-605 non-complying superannuation fund 6 A superannuation provider in relation to a section 295-5 complying approved deposit fund * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 9-5 Item 7 8 8A 9 10 11 13

Income tax is payable by this kind of entity: A superannuation provider in relation to a non-complying approved deposit fund The trustee of a pooled superannuation trust A sovereign entity A corporate limited partnership A mutual insurance association (as described in section 121) A trustee (except one covered by another item in this table), but only in respect of some kinds of income of the trust The trustee of a public trading trust

because of this provision: section 295-5

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 9 – Entities that must pay income tax

section 295-5 section 880-55 section 94J section 121 sections 98, 99, 99A and 102 section 102S

9-5 Entities that work out their income tax by reference to something other than taxable income

(1) For some entities, some or all of their income tax for the *financial year is worked out as described in the table. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

1

2

3

4 4A

5

6

8

This kind of entity is liable to pay income tax worked out by reference to: A company that was a member of a wholly-owned group is jointly and severally liable to pay an amount of income tax if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment. A superannuation provider in relation to a complying superannuation fund is to be assessed and is liable to pay income tax on no-TFN contributions income as well as on taxable income. A superannuation provider in relation to a non-complying superannuation fund is to be assessed and is liable to pay income tax on no-TFN contributions income as well as on taxable income. An RSA provider is to be assessed and is liable to pay income tax on no-TFN contributions income as well as on taxable income. An entity is liable to pay extra income tax on government recoupments relating to R&D activities for which entitlements to tax offsets arise under Division 355. An Australian resident individual with: • eligible foreign remuneration under section 23AF; or • foreign earnings under section 23AG; (from working in a foreign country) is liable to pay income tax worked out by reference to his or her assessable income less some of his or her deductions. A trustee covered by item 11 in the table in section 9-1 is liable to pay income tax worked out by reference to the net income of the trust for the income year. The trustee of a public trading trust is liable to pay income tax worked out by reference to the net income of the trust for the income year.

See: section 45-25 ITAA 1997

Item

sections 295-5 and 295-605

sections 295-5 and 295-605

sections 295-5, 295-605 and 320-155 Subdivision 355-G

section 23AF or 23AG

sections 98, 99 and 99A

section 102S

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 9-5 Item 9

10

This kind of entity is liable to pay income tax See: worked out by reference to: An entity that is liable to pay income tax (worked section 121H out by reference to taxable income or otherwise) is also liable to pay income tax worked out by reference to diverted income or diverted trust income for the income year. An Australian insurer that re-insures overseas can section 148 elect to pay, as agent for the re-insurer, income tax worked out by reference to the amount of the re-insurance premiums.

(2) For entities covered by an item in the table in subsection (1), the income year is the same as the *financial year, except in these cases: (a) for a company, or an entity covered by item 2 or 3 in the table, the income year is the previous financial year; (b) if an entity has an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year. Note 1: The Commissioner can allow an entity to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936. Note 2: An accounting period ends, and a new accounting period starts, when a partnership becomes, or ceases to be, a VCLP, an ESVCLP, an AFOF or a VCMP. See section 18A of the Income Tax Assessment Act 1936. DIVISION 10 – PARTICULAR KINDS OF ASSESSABLE INCOME 10-1

Effect of this Division

This Division is a *Guide. 10-5

List of provisions about assessable income

The provisions set out in the table: • include in your assessable income amounts that are not *ordinary income; and • vary or replace the rules that would otherwise apply for certain kinds of *ordinary income. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Accrued leave transfer payments ............................................................................. 15-5 alienated personal services income ........................................................................... 86-15 allowances see employment annual leave see leave payments annuities ....................................................................................................................... 27H approved deposit fund (ADFs) see superannuation attributable income see controlled foreign corporations avoidance of tax general ........................................................................................ 177F diversion of income ................................................................... 121H see also transfers of income bad debts see recoupment balancing adjustment see capital allowances, investments, R&D, scientific research and tax exempt entities banking * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 10-5

ITAA 1997

offshore banking activities, income from ................................. 121EG(1) offshore banking unit, deemed interest on payments to by owner .......................................................................................... 121EK barter transactions ...................................................................................................... 21, 21A, 15-2 beneficiaries see trusts benefits business, non-cash ..................................................................... 21A consideration, non-cash ............................................................. 21 meals you provide in an in-house dining facility .................... 32-70 see also employment and superannuation bonus shares see shares bounties ........................................................................................................................ 15-10 capital allowances excess of termination value over adjustable value generally .................................................. 40-285 for some cars .......................................... 40-370 depreciating asset in low-value pool ........................................ 40-445(2) expenditure in software development pool ............................... 40-460 recovery of petroleum resource rent tax ................................... 40-750(3) capital gains ................................................................................................................. 102-5 see also insurance car expenses cents per kilometres reimbursement of ..................................... 15-70 carried interests carried interests, not ordinary income ...................................... 118-21 CFCs see controlled foreign corporations charters see shipping child non-trust income of, unearned .................................................. 102AE trust income of, unearned .......................................................... 102AG collecting societies payments of royalties by copyright collecting societies .......... 15-22 payments of royalties by resale royalty collecting society ........................................................................................ 15-23 company see controlled foreign corporations, co-operative company, directors, dividends, liquidation, shareholders and shares compensation live stock or trees, recoveries for loss of ................................. 385-130 profits or income, insurance or indemnity for loss of ............. 15-30 received by lessor for lessee’s non-compliance with lease obligation to repair .................................................................... 15-25 trading stock, insurance or indemnity for loss of .................... 70-115 see also insurance, live stock, recoupment and scientific research consideration see benefits consolidated groups and MEC groups Assets in relation to Division 230 financial arrangement ........ 701-61(3) controlled foreign corporations (CFCs) attributable income of ................................................................ 456 to 459A see also dividends and taxes co-operative company receipts of .................................................................................. 119 * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 10 – Particular kinds of assessable income

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s 10-5 credit union see co-operative company currency gains see foreign exchange currency losses see recoupment death see trusts debt/equity swap see shares and units defence forces allowances and benefits for service as a member of ............... 15-2 depreciation see capital allowances directors excessive remuneration or retirement payment from company ..................................................................................................... 109 distributions see dividends dividends benefit of LIC capital gain through a trust or partnership ....... general ........................................................................................ distribution from a controlled foreign corporation ................... franked dividends, credits on ....................................................

115-280 44(1) 47A(1) 207-20(1), 207-35(1), 207-35(3)

see also liquidation elections local government, reimbursement of expenses of .................... 25-65 see also recoupment electricity connections see recoupment employees see shares employment allowances and benefits in relation to employment or rendering services ...................................................................... 15-2 employment termination payment ............................................. 82-10 82-65 82-70 other payments for employment termination ............................ 83-295 return to work payments ........................................................... 15-3 see accrued leave transfer payments, leave payments, superannuation and sections 82-10A and 82-10C of the Income Tax (Transitional Provisions) Act 1997 environment see recoupment farm management deposits repayments of ............................................................................ 393-10 films Australian, proceeds of investment in ...................................... 26AG financial arrangements gains from .................................................................................. 230-15(1) foreign exchange gains ........................................................................................... 775-15 see also recoupment * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 10-5 forestry agreement 15-45 82KZMGB 15-46 394-25(2) 394-30(2)

15-55 321-45 321-10 and 321-80 321-50 15-40

ITAA 1997

amount where section 82KZMG of the 1936 Act applies ....... CGT event in relation to forestry interest in agreement .......... forestry managed investment schemes forestry manager’s receipts under scheme ................................ CGT event in relation to forestry interest in scheme for initial participant ........................................................................ CGT event in relation to forestry interest in scheme for subsequent participant ............................................................... franked dividends see dividends funeral policy benefit under .............................................................................. general insurance companies and companies that self insure gross premiums .......................................................................... reduction in value of outstanding claims liability .................... reduction in value of unearned premium reserve ..................... geothermal energy providing geothermal exploration information ......................... grapevines see recoupment horticultural plants see recoupment improvements see leases imputation see dividends indemnity see compensation and recoupment insurance bonuses ....................................................................................... company, demutualisation of ..................................................... life insurance, transfer of contributions by superannuation fund or approved deposit fund to ............................................. payments from a non-resident reinsurer in respect of a loss ... premiums in respect of Australian business received by non-resident insurers .................................................................. premiums paid to a non-resident for reinsurance ..................... premiums paid to mutual insurance association ....................... premiums payable to a non-resident for insurance of property in Australia ................................................................................. premiums payable to a non-resident for insuring an event that can only happen in Australia ............................................. premiums payable to a non-resident under an insurance contract with a resident ............................................................. rebates and premiums refunded to a superannuation fund trustee ......................................................................................... see also compensation, life insurance companies and recoupment interest overpaid tax, on ......................................................................... qualifying securities, on ............................................................ see also co-operative companies and leases investments prizes from investment-related lotteries .................................... qualifying securities, payments to partial residents made under ..........................................................................................

26AH, 15-75 121AT 295-260 148 143 148 121 142(1) 142(1) 142(2) 295-320 (table item 4)

15-35 159GQ, 159GW(1) 26AJ 159GW(2)

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 10 – Particular kinds of assessable income

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Income Tax Assessment Act 1997

s 10-5 qualifying securities, amount assessable to issuer of ............... qualifying securities, balancing adjustment on the transfer of ..................................................................................................... securities, variation in terms of ................................................. securities lending arrangements ................................................ traditional securities, gains on the disposal or redemption of . see also films and interest

159GT(1B) 159GS 159GV(2) 26BC 26BB

landcare operations see recoupment leased plant .................................................................................................................. leases amounts received by lessor from lessee for non-compliance with lease obligation to repair .................................................. interest component of payments under non-leveraged finance leases .......................................................................................... partnership leasing property under non-leveraged finance lease, new partner or contribution of capital since 14 May 1985 ............................................................................................ premiums relating to assignment of a lease granted before 20 September 1985 .................................................................... profit on disposal of previously leased motor vehicles ............ leases of luxury cars accrual amounts ......................................................................... adjustment amounts (lessee) ...................................................... adjustment amounts (lessor) ...................................................... leave payments accrued leave transfer payment ................................................. unused annual leave payment ................................................... unused long service leave payment .......................................... see employment life insurance companies limited recourse debt excessive deduction amount (debtor) ........................................ excessive deduction amount (partner) ...................................... liquidation distribution to a shareholder in winding up a company .......... live stock death or destruction of .............................................................. departing Australia and .............................................................. insolvency, and .......................................................................... profits on death or disposal of ..................................................

Division 45 15-25 159GK 159GO 26AB Subdivision 20-B 242-35 242-70 242-65 15-5 83-10 83-80 Subdivision 320-B 243-40 243-65 47(1) Subdivision 385-E 385-160, 385-163 385-160, 385-163 Subdivision 385-E, 385-160

see also compensation and trading stock long service leave see leave payments losses see compensation lotteries see investments managed investment trusts gains etc. from carried interests ................................................ 275-200(2) meals see benefits Mining providing mining, quarrying or prospecting information ......... 15-40 minors see child * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 10-5 motor vehicles

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Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 10 – Particular kinds of assessable income

see car expenses and leases mutual insurance see insurance non-cash benefits 240-110(2) 240-105(2) 240-35(1) 240-35(3) 240-35(2)

92(1) 94 20-30(1)

ITAA 1997

see benefits and employment notional sales and loans adjustment amounts (lessee) ...................................................... adjustment amounts (lessor) ...................................................... notional interest ......................................................................... profit on actual sale ................................................................... profit on notional sale ................................................................ offshore banking units see banking partnerships net income of, partner’s interest in ........................................... uncontrolled partnership income, effect of ............................... see also leases petroleum resource rent tax, recovery of ................................................... see also capital allowances premiums see insurance, leases and superannuation primary production see recoupment prizes see investments profits cross-border transfer pricing ..................................................... profit-making undertaking or plan ............................................ sale of property acquired before 20 September 1985 for profit-making by sale ................................................................. see also avoidance of tax Project pools An amount received for the abandonment, sale or other disposal of a project .................................................................. property see profits and trusts quarrying see mining and recoupment R&D balancing adjustment .................................................................

815-30 15-15 25A

40-830, 40-832

40-292, 40-293, 355-315 and 355-525 disposal of R&D results ............................................................ 355-410 feedstock adjustment ................................................................. 355-465

rates see recoupment recoupment insurance or indemnity for deductible losses or outgoings ..... other recoupment for certain deductible losses or outgoings .. see also car expenses, compensation, elections and petroleum registered emissions units disposal of .................................................................................. disposal for a non-commercial purpose .................................... difference between opening and closing value of ....................

Subdivision 20-A Subdivision 20-A 420-25 420-40 420-45

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 10-5 reimbursements see car expenses, dividends, elections, petroleum and recoupment reinsurance see insurance retirement payments see directors, leave payments and shareholders rights to income see transfers of income roads see timber royalties ........................................................................................................................ schemes see avoidance of tax scholarship plan benefit under .............................................................................. scientific research consideration for disposal or destruction of buildings acquired for scientific research ................................................. securities see investments services see co-operative companies, employment, loans and trusts shareholders excessive remuneration or retirement payment from company ..................................................................................................... loans, payments and credits from company .............................

15-20

15-60 73A(4)

109 Division 7A of Part III

see also dividends shares acquired in a debt/equity swap, profit on the disposal cancellation or redemption of ................................................... 63E(4) bonus shares, cost of ................................................................. 6BA buy-backs ................................................................................... 159GZZZJ to 159GZZZT employee share schemes ........................................................... Subdivisions 83A-B and 83A-C holding company shares held by a subsidiary, cancellation of 159GZZZC to ..................................................................................................... 159GZZZI see also dividends shipping goods shipped in Australia, amounts paid to foreign shipowners and charterers for ................................................... subsidies ....................................................................................................................... superannuation associated earnings on non-concessional contributions ........... benefits generally ....................................................................... benefits in breach of legislative requirements .......................... benefits received from older superannuation funds .................. complying fund becomes non-complying, effect of ................. contributions to an approved deposit fund ............................... contributions to an RSA ............................................................ contributions to a superannuation fund .................................... death benefits .............................................................................

129 15-10 Subdivision 292-B Divisions 301 to 306 Division 304 26AF, 26AFA 295-320 (table item 2) Subdivisions 295-C and 295-D Subdivision 295-C Subdivisions 295-C and 295-D 302-75

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 10-5

excess concessional contributions ............................................. first home super saver scheme .................................................. foreign superannuation funds and schemes, benefits from ...... member benefits .........................................................................

foreign fund becoming Australian, effect of ............................. no-TFN contributions income ................................................... release authorities, payments from ........................................... returned contributions ................................................................ trustee’s liability to pay tax ...................................................... see insurance

302-85 302-90 302-145 291-15(a) 313-20 305-70 301-20 301-25 301-35 301-40 Subdivision 301-C 295-320 (table item 3) 295-605 304-20 290-100 295-5(2) and (3)

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 10 – Particular kinds of assessable income

tax avoidance see avoidance of tax and transfers of income tax exempt entities treatment of income and gains on becoming taxable .............. Schedule 2D see dividends, foreign investment funds, interest and recoupment termination of employment see directors, eligible termination payments, leave payments and shareholders theft see recoupment trading stock change in interests in ................................................................. death of trader and .................................................................... difference between opening and closing value of .................... disposal not at arm’s length ...................................................... disposal of outside ordinary course of business ....................... see also compensation and tax exempt entities transfer pricing arm’s length principle for cross-border conditions between entities ........................................................................................ arm’s length principle for permanent establishments .............. transfers of income consideration for transfer of right to income ........................... payments for transfer or disposal of property .......................... transferee, effect on of transfer of right to income .................. transferor, effect on of transfer of right to income .................. travel expenses see car expenses trusts beneficiary under legal disability or with a vested and indefeasible interest in trust income ......................................... deceased estates, income of ...................................................... discretionary trusts ..................................................................... net income of a trust estate, your present entitlement to ......... non-resident beneficiaries, liability to tax of ............................ non-resident trust estates to which you have transferred property or services, income of ................................................

ITAA 1997

taxes

70-100 70-105 70-35 70-20 70-90, 70-95

Subdivision 815-B Subdivision 815-C 102CA 262 102C 102B

100 101A 101 97, 101 98A 102AAZD

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 10-5 property of applied for benefit of beneficiaries ........................ 99B trust estate includes income from another trust estate ............. 94(5) trustees’ liability to tax .............................................................. 98, 99, 99A, 102, 102S see also avoidance of tax and superannuation unearned income see child units acquired in a debt/equity swap, profit on the disposal, cancellation or redemption of ................................................... 63E(4) water conservation see recoupment winding-up see insurance and liquidation wool clips double wool clips, treatment of ................................................ 385-135, 385-155 work in progress receipt of a work in progress amount ....................................... 15-50 DIVISION 11 – PARTICULAR KINDS OF NON-ASSESSABLE INCOME 11-A 11-B

Table of Subdivisions Lists of classes of exempt income Particular kinds of non-assessable non-exempt income

SUBDIVISION 11-A – LISTS OF CLASSES OF EXEMPT INCOME 11-1A 11-1 11-5 11-15 11-1A

Table of sections Effect of this Subdivision Overview Entities that are exempt, no matter what kind of ordinary or statutory income they have Ordinary or statutory income which is exempt Effect of this Subdivision

This Subdivision is a *Guide. 11-1

Overview

Ordinary income or statutory income which is exempt from income tax can be divided into 2 main classes: (a) ordinary or statutory income of entities that are exempt, no matter what kind of ordinary or statutory income they have (see table in section 11-5); (b) ordinary or statutory income of a kind that is exempt (see table in section 11-15). 11-5 Entities that are exempt, no matter what kind of ordinary or statutory income they have

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Note: Special rules apply to entities that cease to be exempt. See Schedule 2D to the Income Tax Assessment Act 1936. charity, education or science educational institution, public ................................................... 50-5 registered charity ....................................................................... 50-5 scientific institution ................................................................... 50-5 scientific research fund ............................................................. 50-5 scientific society etc .................................................................. 50-5 * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-15

11-15

50-10 50-15 50-15 50-15 50-25 50-25 50-25 50-25 24AK to 24AZ 50-30 50-30 50-30 322-10 50-35 50-40 50-40 50-40 50-40 50-40 50-40 50-40 50-40 50-40

ITAA 1997

community service community service society etc .................................................. employees and employers employee association ................................................................ employer association ................................................................. trade union ................................................................................. government constitutionally protected fund ................................................. local governing body ................................................................ municipal corporation ............................................................... public authority ......................................................................... state/territory bodies .................................................................. health health benefits organisation ....................................................... hospital ...................................................................................... medical benefits organisation .................................................... HIH rescue package HIH Claims Support Trust ........................................................ mining British Phosphate Commissioners Banaba Contingency Fund .................................................................................................... primary or secondary resources, and tourism agricultural society etc .............................................................. aviation society etc .................................................................... Global Infrastructure Hub Ltd .................................................. horticultural society etc ............................................................. industrial society etc ................................................................. manufacturing society etc .......................................................... pastoral society etc .................................................................... tourism society etc .................................................................... viticultural society etc ................................................................ sports, culture or recreation animal racing society etc .......................................................... art society etc ............................................................................ game society etc ........................................................................ ICC Business Corporation FZ-LLC ......................................... literature society etc .................................................................. music society etc ....................................................................... sport society etc ........................................................................

50-45 50-45 50-45 50-45 50-45 50-45 50-45

Ordinary or statutory income which is exempt

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. agricultural industry exit grants tobacco industry exit grants ..................................................... copyright collecting societies credit unions interest ....................................................................................... defence Defence Force member, allowances ......................................... Defence Force member, compensation payments for loss of deployment allowance for warlike service .............................. Defence Force Ombudsman recommendation, reparation payments and additional payments in relation to .................... F-111 Deseal/Reseal Ex-gratia Lump Sum Payments .............

53-10 51-43 23G 51-5 51-5 51-5 51-5

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-15 Former Reserve Defence Force member, compensation payments for loss of pay and/or allowances ............................ 51-5 Reserve Defence Force member, pay and allowances ............ 51-5 disasters 2018 storms—relief payments .................................................. dividends or shares pooled development fund company dividend .......................... pooled development fund company shares, income from sale of ............................................................................................... education and training Apprenticeship Wage Top-Up payment, recipient of .............. bursary, educational allowance etc ........................................... Commonwealth Trade Learning Scholarship, recipient of ...... CRAFT scheme, employer’s income from .............................. early completion bonuses for apprentices ................................ Endeavour Awards, research fellowship under ........................ Endeavour Executive Award ..................................................... foreign student, scholarship and bursary to ............................. full-time student, income from a scholarship, bursary, other educational allowance or educational assistance ..................... isolated child, income for the provision of education of ........ secondary student, income for the provision of education of . Skills for Sustainability for Australian Apprentices payment, recipient of ................................................................................ Tools for Your Trade payment (under the program known as the Australian Apprenticeships Incentives Program), recipient of ............................................................................................... family assistance additional child care subsidy .................................................... back to school bonus or single income family bonus ............. child care subsidy ..................................................................... clean energy advance ................................................................ economic security strategy payment to families ...................... ETR payment ............................................................................ ETR payment, payments under the scheme determined under Part 2 of Schedule 1 to the Family Assistance and Other Legislation Amendment (Schoolkids Bonus Budget Measures) Act 2012 .................................................................................... families, payments to, under the scheme determined under Schedule 4 to the Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008 ............... family tax benefit ...................................................................... Household Stimulus Package Act (No. 2) 2009, payments under scheme determined under Schedule 4 to the ................. single income family supplement ............................................. stillborn baby payment ............................................................. financial arrangements gains related to exempt income ................................................ financial transactions pooled development fund company dividends ........................ pooled development fund company shares, income from sale of ............................................................................................... foreign aspects of income taxation approved overseas project, income from ................................. Australian-American Education Foundation, grant from ........ Commonwealth of Nations country officer, official salary and foreign income ..........................................................................

51-125 124ZM 124ZN 51-10 51-10 and 51-35 51-10 51-10 51-10 and 51-42 51-10 51-10 842-105 51-10 and 51-35 51-10 and 51-40 51-10 and 51-40 51-10 51-10 52-150 52-150 52-150 52-150 52-150 52-150

52-162 52-160 52-150 52-165 52-150 52-150 230-30 124ZM 124ZN 23AF 51-10 768-100

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-15 768-100 842-105 23AD 842-105 768-100 842-105 842-105 842-105 775-20 842-105 121EL(2) 121EL 121ELA(1) 23AG 768-105 842-105

ITAA 1997

consul and official staff member, official salary and foreign income ....................................................................................... Defence Force member, foreign resident, pay and allowances of ............................................................................................... Defence Force member, pay and allowances from being on eligible duty .............................................................................. defence of Australia, overseas person’s income from assisting in Australia’s defence ................................................ diplomat and official staff member, official salary and foreign income ....................................................................................... educational, scientific, religious or philanthropic society, income of a visiting representative of ...................................... expert, foreign resident, remuneration of ................................. foreign society or association representative, income of ........ forex realisation gains, certain ................................................. government representative and members of the entourage, foreign resident, income of ...................................................... OBU investment trusts for overseas charitable institutions .... OBU off-shore investment trusts, income to which subsection 121D(6) applies ...................................................... overseas charitable institutions, income from OBUs .............. overseas employment income, resident, income of ................. persecution victim, payments to ............................................... press representative, foreign, income of .................................. resistance fighter and victim of wartime persecution, payments to ............................................................................... United Nations, income from service with .............................. United States projects, income from approved overseas projects ......................................................................................

768-105 23AB 23AA

health Continence Aids Payment Scheme, payments under ............... 52-175 interest judgement debt, personal injury ............................................... unclaimed money and property ................................................ life insurance companies National Disability Insurance Scheme NDIS amounts ........................................................................... non-cash benefits business benefit ......................................................................... exempt fringe benefit ................................................................ prizes Prime Minister’s Literary Awards ............................................ Prime Minister’s Prize for Australian History ......................... Prime Minister’s Prize for Science .......................................... resale royalty collecting societies shipping income from shipping activities ............................................... social security or like payments ABSTUDY scheme, payment under ........................................ Australian Victim of Terrorism Overseas Payment ................. Better Start for Children with Disability initiative, Outer Regional and Remote payment under ...................................... carer adjustment payment ......................................................... carers, 2005 one-off payment to, (carer payment related), 2005 one-off payment to carers (carer service pension related) or 2005 one-off payment to carers (carer allowance related) .......................................................................................

51-57 51-120 Subdivision 320-B 52-180 23L(2) 23L(1A) 51-60 51-60 51-60 51-45 51-100 Subdivision 52-E 52-10 52-172 53-10

52-10

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-15 carers, 2006 one-off payment to, (carer payment related), 2006 one-off payment to carers (wife pension related), 2006 one-off payment to carers (partner service pension related), 2006 one-off payment to carers (carer service pension related) or 2006 one-off payment to carers (carer allowance related) ....................................................................................... carers, 2007 one-off payment to, (carer payment related), 2007 one-off payment to carers (wife pension related), 2007 one-off payment to carers (partner service pension related), 2007 one-off payment to carers (carer service pension related) or 2007 one-off payment to carers (carer allowance related) ....................................................................................... carers, 2008 one-off payment to, (carer payment related), 2008 one-off payment to carers (wife pension related), 2008 one-off payment to carers (partner service pension related), 2008 one-off payment to carers (carer service pension related) or 2008 one-off payment to carers (carer allowance related) ....................................................................................... carers, one-off payment to, (carer allowance related) or one-off payment to carers (carer payment related) .................. carers, payments to, under the scheme determined under Schedule 3 to the Family Assistance Legislation Amendment (More Help for Families—One-off Payments) Act 2004 ......... carer supplement ....................................................................... child disability assistance ......................................................... clean energy payment under the Social Security Act 1991 ..... clean energy payment under the Veterans’ Entitlements Act 1986 ........................................................................................... clean energy payment under the scheme prepared under Part VII of the Veterans’ Entitlements Act 1986 ..................... clean energy payment under the Military Rehabilitation and Compensation Act 2004 ............................................................ clean energy payment under the scheme determined under section 258 of the Military Rehabilitation and Compensation Act 2004 .................................................................................... Commonwealth education or training payment ....................... DFISA bonus and DFISA bonus bereavement payment ......... disability services payment ....................................................... economic security strategy payment under the Social Security Act 1991 ...................................................................... education entry payment supplement under the Social Security Act 1991 ...................................................................... energy assistance payment, one-off payment under the Social Security Act 1991 ...................................................................... energy assistance payment, one-off payment under the Veterans’ Entitlements Act 1986 .............................................. ETR payment, payments under the scheme determined under Part 2 of Schedule 1 to the Family Assistance and Other Legislation Amendment (Schoolkids Bonus Budget Measures) Act 2012 .................................................................................... farm household allowance under the Farm Household Support Act 2014........................................................................ Helping Children with Autism package, Outer Regional and Remote payment under ............................................................. Household Stimulus Package Act (No. 2) 2009, payments under the scheme determined under Schedule 4 to the .......... older Australians, 2006 one-off payment to, under the Social Security Act 1991 ......................................................................

52-10

52-10

52-10 52-10 52-10 52-10 Subdivision 52-A 52-10 52-65 52-65 52-114 52-114 Subdivision 52-F 52-65 53-10 52-10 52-10 52-10 52-65

52-162 Subdivision 52-A 52-170 52-165 52-10

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-15 52-10 52-10 52-10 and 52-65 768-105 Subdivision 52-CB Subdivision 52-CC 768-105 52-160

52-10

52-10 ITAA 1997

older Australians, 2007 one-off payment to, under the Social Security Act 1991 ...................................................................... older Australians, 2008 one-off payment to, under the Social Security Act 1991 ...................................................................... pension bonus and pension bonus bereavement payment ....... persecution victim, payments to ............................................... pharmaceutical supplement for Australian participants in British nuclear tests or in the British Commonwealth Occupation Force ...................................................................... pharmaceutical supplement for Australian surgical-medical team members ........................................................................... resistance fighter and victim of wartime persecution, payments to ............................................................................... Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008, payments under the scheme determined under Schedule 4 to the ........................................ Social Security and Veterans’ Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007, payments under a scheme determined under item 1 of Schedule 2 to the ...................................................................... Social Security and Veterans’ Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007, payments under the scheme determined under Schedule 4 to the ...................................................................... Social Security and Veterans’ Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008, payments under a scheme determined under item 1 of Schedule 2 to the ...................................................... Social Security and Veterans’ Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008, payments under the scheme determined under Schedule 4 to the ...................................................................... Social Security and Veterans’ Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006, payments under the scheme determined under item 1 of Schedule 2 to the ................................................................. Social Security and Veterans’ Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006, payments under the scheme determined under Schedule 4 to the ...................................................................... Social Security Legislation Amendment (One-off Payments for Carers) Act 2005, payments under the scheme determined under Schedule 2 to the ........................................ social security payments ........................................................... training and learning bonus under the Social Security Act 1991 ........................................................................................... travelling expenses for Australian participants in British nuclear tests or in the British Commonwealth Occupation Force .......................................................................................... travelling expenses for Australian surgical-medical team members .................................................................................... veteran, Australian and United Kingdom, payment to ............

52-10

52-10

52-10

52-10 52-10 Subdivision 52-A 52-10 Subdivision 52-CB

Subdivision 52-CC 53-20 Subdivisions 52-B and veteran, payment to .................................................................. 52-C Veterans’ Entitlements Act 1986, lump sum payment under section 198N of the .................................................................. 52-65 * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-15 wounds and disability pension ................................................. 53-10 see also welfare structured settlements and structured orders Subdivisions 54-B, 54-C annuities and lump sums .......................................................... and 54-D student see education and training superannuation and related business 295-390 of the Income Tax (Transitional approved deposit fund, continuously complying fixed interest, income from 25 May 1988 deposits .......................... Provisions) Act 1997 approved deposit fund, income from a grant of financial assistance under Part 23 of the Superannuation Industry (Supervision) Act 1993 ............................................................. 295-405 (table item 1) approved deposit fund, non-reversionary bonuses on policies of life assurance ........................................................................ 295-335 (table item 1) benefits from non-complying funds ......................................... 305-5 pooled superannuation trust, income from constitutionally protected funds .......................................................................... 295-335 (table item 2) pooled superannuation trust, income from current pension liabilities of complying superannuation funds ......................... 295-400 pooled superannuation trust, non-reversionary bonuses on policies of life assurance .......................................................... 295-335 (table item 1) superannuation fund, income from other assets used to meet current pension liabilities ......................................................... 295-390 superannuation fund, income from segregated current pensions assets .......................................................................... 295-385 superannuation fund, non-reversionary bonuses on policies of life assurance ........................................................................ 295-335 (table item 1) superannuation fund, regulated, income from a grant of financial assistance under Part 23 of the Superannuation Industry (Supervision) Act 1993 ............................................... 295-405 (table item 1) United Nations United Nations Service, income from ...................................... 23AB venture capital eligible venture capital investments, gain or profit from realisation of ............................................................................. 51-54 eligible venture capital investments by ESVCLPs, income derived from .............................................................................. 51-52 venture capital equity, gain or profit from realisation of ........ 51-55 welfare Disaster recovery payments to special category visa (subclass 444) holders .............................................................. 51-30 maintenance payment ............................................................... 51-30 and 51-50 thalidomide payment—payment by the Thalidomide Australia Fixed Trust ................................................................ 51-30 see also social security or like payments Note: The following provisions of the Income Tax Assessment Act 1936 give rise to notional exempt income and not exempt income. For this reason the provisions do not appear in the lists of kinds of exempt income. The provisions are: paragraphs 384(1)(b) and 385(1)(b), subsection 402(2) and section 403. SUBDIVISION 11-B – PARTICULAR KINDS OF NON-ASSESSABLE NON-EXEMPT INCOME 11-50 11-55

Table of sections Effect of this Subdivision List of non-assessable non-exempt income provisions

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 11-55 11-50

Effect of this Subdivision

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 11 – Particular kinds of non-assessable income

This Subdivision is a *Guide. 11-55

List of non-assessable non-exempt income provisions

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. alienated personal services income associate, non-deductible payment or obligation to ................ 85-20(3) entitlements to a share of net income that is personal services income already assessable to an individual ............... 86-35(2) payments by personal services entity or associate of personal services income already assessable to an individual ............... 86-35(1) personal services entity, amounts of personal services income assessable to an individual ....................................................... 86-30 bonds see securities capital gains tax small business retirement exemption, payments made directly or indirectly to CGT concession stakeholder so company or trust complies with section 152-325 ........................................ 152-310 demutualisation of friendly society health or life insurers amounts related to issue, or transfer from lost policy holders trust, of demutualisation assets ................................................. 316-255 payments received directly, or from lost policy holders trust, in exchange for cancellation or variation of interests under the demutualisation ................................................................... 316-255 demutualisation of private health insurers market value of shares and rights at time of issue .................. 315-310 payments received in exchange for cancellation or variation of interests under the demutualisation ..................................... 315-310 disasters 2019 floods—recovery grants ................................................... 59-85 2019 floods—on‑farm grant program ....................................... 59-86 dividends demerger dividends ................................................................... 44(4) later dividend set off against amount taken to be dividend .... 109ZC(3), 109ZCA(4) employment early retirement scheme payment, tax free amount of ............ 83-170 employment termination payment ............................................ 82-10 82-65 82-70 foreign termination payment ..................................................... 83-235 83-240 genuine redundancy payment, tax free amount of .................. 83-170 unused long service leave payment, pre-16/8/78 period ......... 83-80 see superannuation and sections 82-10A and 82-10C of the Income Tax (Transitional Provisions) Act 1997 environment water infrastructure improvement payments ............................ 59-65 farm-in farm-out arrangements rewards for providing exploration benefits .............................. 40-1135 financial arrangements gains related to non-assessable non-exempt income ............... 230-30 firearms surrender arrangements compensation under .................................................................. 59-10 foreign aspects of income taxation * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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ITAA 1997

The provisions set out in the list make amounts non-assessable non-exempt income.

Income Tax Assessment Act 1997

s 11-55 attributed controlled foreign company income, amounts paid out of ......................................................................................... attributed foreign investment fund income, amounts paid out of ................................................................................................ certain forex realisation gains ................................................... branch profits of Australian companies .................................... distributions of conduit foreign income ................................... income derived by foreign residents in exclusive economic zone or on or above continental shelf ...................................... foreign equity distributions on participation interests ............. income derived by temporary residents ................................... interest paid by temporary residents ........................................ managed investment trust withholding tax, amount subject to .................................................................................................... Seasonal Labour Mobility Program withholding tax, amount subject to ................................................................................... superannuation fund, foreign, interest and dividend income of ................................................................................................ withholding tax, dividend royalty or interest subject to ..........

23AI 23AK 775-25 23AH 802-20 768-110 768-5 768-910 768-980 840-815 840-915 128B(3)(jb) 128D

GST GST payable on a taxable supply ............................................ increasing adjustments .............................................................. investment manager regime IMR concessions ....................................................................... life insurance companies ................................................................................... mining withholding tax, payments to Indigenous persons and distributing bodies subject to .................................................... mutual receipts amounts that would be mutual receipts but for prohibition on distributions to members or issue of MCIs ............................. National Rental Affordability Scheme payments made, and non-cash benefits provided, by a State or Territory governmental body in relation to participation in the National Rental Affordability Scheme ............................... native title benefits native title benefits .................................................................... non-cash benefits fringe benefits ............................................................................ notional sale and loan arrangement payments a notional seller receives or is entitled to receive ................................................................................... luxury car leases, lease payments that the lessor receives or is entitled to receive .................................................................. deemed loan treatment for financial benefits provided for tax preferred use of asset ................................................................ offshore banking units assessable OB income other than eligible fraction .................. related entities amounts from, where deduction reduced for ........................... repayable amounts previously assessable amounts ................................................. rights to acquire shares or units market value of at time of issue ............................................... small business assets income arising from CGT event, company or trust owned asset continuously for 15 years ................................................ sovereign entities..................................................................................................

17-5(a) 17-5(b) and (c) 842-215 Subdivision 320-B 59-15 59-35

380-35 59-50 23L(1) 240-40 242-40 250-160 121EG 26-35(4) 59-30 59-40 152-110(2) Subdivision 880-C

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5 superannuation

ITAA 1997

benefits generally ...................................................................... Divisions 301 to 306 commutation of income stream, under 25 years ...................... 303-5 death benefits ............................................................................. 302-60 302-65 302-70 302-140 departing Australia superannuation benefits ............................. 301-175 foreign superannuation funds, lump sum benefits ................... 305-60 305-65 305-70 KiwiSaver schemes, contributions to complying superannuation funds from ......................................................................... 312-10 KiwiSaver schemes, superannuation benefits paid from complying superannuation funds to ......................................... 312-15 member benefits ........................................................................ 301-10 301-15 301-30 301-225 release authorities, payments from ........................................... 303-15 303-20 roll-over superannuation benefits ............................................. 306-5 superannuation lump sum for recipient having terminal medical condition ...................................................................... 303-10 unclaimed money payment ....................................................... 306-20 tax loss transfers consideration received by loss company from income company, generally ................................................................... 170-25(1) consideration received by loss company from income company, net capital loss .......................................................... 170-125(1) consideration received for transfer of tax losses relating to transitioned petroleum activities ............................................... 417-70 temporary residents see foreign aspects of income taxation trading stock disposal outside ordinary course of business, amounts received upon ............................................................................ 70-90(2) transfer of entitlements to deductions consideration received for transfer of entitlements to deductions relating to transitioned petroleum activities .......... 417-70 trusts attributable income, amounts representing ............................... 99B(2A) family trust distribution tax, amounts subject to ..................... 271-105(3) in Schedule 2F windfall amounts business franchise fees, refund of when invalid ...................... 59-20 State tax on Commonwealth place, refund of when invalid ... 59-25 withholding taxes see foreign aspects of income taxation and mining DIVISION 12 – PARTICULAR KINDS OF DEDUCTIONS 12-1

Effect of this Division

This Division is a *Guide. 12-5

List of provisions about deductions

The provisions set out in the table contain rules about specific types of deduction. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5 Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. accrued leave transfer payments ...................................................................... advance expenditure generally ..................................................................................... avoidance arrangements ............................................................. when deductible ......................................................................... bad debts deduction reduced because of forgiveness of debt if debtor and creditor are companies under common ownership and agree on the reduction ............................................................... general ........................................................................................ companies ...................................................................................

26-10 82KZL to 82KZO 82KJ 82KZM to 82KZN

245-90 25-35, 63F Subdivisions 165-C, 166-C and 175-C debt/equity swaps ....................................................................... 63E, 63F, 709-220 deduction of a debt that used to be owed to a member of a consolidated group or MEC group by an entity that used to Subdivisions 709-D and be a member of the group ......................................................... 719-I money lenders, listed country branches, no deduction for ...... 63D see also losses balancing adjustment see buildings, capital allowances, industrial property, R&D and tax exempt entities banks foreign banks, Australian branches of ...................................... 160ZZVA to 160ZZZJ boats deferral of deductions ................................................................ 26-47 borrowing expenses.............................................................................................. 25-25 bribes to foreign public officials ....................................................................... 26-52 bribes to public officials ..................................................................................... 26-53 buildings income producing buildings, capital allowances ...................... Division 43 see also heritage conservation work capital allowances generally ..................................................................................... Division 40 balancing adjustments ................................................................ 40-285(2), 40-370 business related costs ................................................................. 40-880 electricity and telephone lines ................................................... 40-645 environmental protection activities ........................................... 40-755 exploration or prospecting ......................................................... 40-80(1), 40-730 in-house software ....................................................................... 40-335, 40-455 intellectual property ................................................................... Subdivisions 40-B and 40-I IRUs ........................................................................................... Subdivision 40-B landcare operations .................................................................... 40-630 low-value and software development pools ............................. Subdivision 40-E mining and quarrying ................................................................ Subdivision 40-H and Subdivision 40-I new business investment, additional deduction ........................ Division 41 Petroleum Resource Rent Tax ................................................... 40-750 project pools ............................................................................... 40-830, 40-832 reducing deductions ................................................................... 40-25, 40-27, 40-290 and 40-291 spectrum licences ....................................................................... Subdivision 40-B tax preferred use of asset .......................................................... Division 250 telecommunications site access rights ....................................... Subdivision 40-B trees in carbon sink forests ....................................................... Subdivision 40-J * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5 water facilities, horticultural plants, fodder storage assets and fencing assets ............................................................................. Subdivision 40-F

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 12 – Particular kinds of deductions

capital gains no deduction for an amount that would otherwise be deductible only because a net capital gain is included in assessable income ...................................................................... 51AAA small business retirement exemption, no deduction for payments made directly or indirectly to CGT concession stakeholder so company or trust complies with section 152-325 .......................................................................... 152-310 see also foreign residents capital loss net capital loss, no deduction for .............................................. 102-10 net capital loss, transfer within company group ....................... Subdivision 170-B car disposal see capital allowances generally ..................................................................................... Division 28 “cents per kilometre” method ................................................... Subdivision 28-C “log book” method .................................................................... Subdivisions 28-F and 28-G substantiation of car expenses ................................................... Division 900 see also transport expenses car expenses of employee employee’s car expenses where car provided by employer can be used for private purposes, no deduction for ................. 51AF carried interests carried interests, no deduction for ............................................ 118-21 car parking employee’s car parking expenses, no deduction for ................ 51AGA children’s income generally ..................................................................................... 102AA to 102AH taxable income of a child, deductions taken into consideration in calculating .................................................................... 102AD club fees club fees, no deduction for ........................................................ 26-45 see also subscriptions to associations Commonwealth places windfall tax .................................................................. 26-17 companies, co-operative and mutual generally ..................................................................................... 117 to 121 distributions of assessable income ............................................ 120 companies, private excessive payments to shareholders directors and associates, reduced deduction ...................................................................... 109 conservation covenants........................................................................................ Division 31 consolidated groups and MEC groups assets in relation to Division 230 financial arrangement ......... 701-61(4) controlled foreign companies generally ..................................................................................... 316 to 468 bad debts .................................................................................... 399A decline in value of depreciating assets ..................................... 398 finance share dividends ............................................................. 394 taxes paid ................................................................................... 393 convertible notes see interest copyrights

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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ITAA 1997

car expenses

Income Tax Assessment Act 1997

s 12-5 expenditure in obtaining registration ........................................ Subdivisions 40-B and 40-I cross staple arrangements rent from land investment ......................................................... 25-115, 25-120 currency exchange gains and losses see foreign exchange death of timber owner see timber debt interests certain returns in respect of debt interests ................................ 25-85 depreciation see capital allowances designs expenditure in obtaining or extending registration ................... Subdivisions 40-B and 40-I disposal of depreciating assets see capital allowances dividends dividends including LIC capital gain component ..................... 115-280 franking credits, companies and foreign residents ................... 207-95(2), 207-95(3), 220-405(3) franking credits, pooled development funds (PDFs) ................ 124ZM non-share equity interests, no deduction for return in respect of ................................................................................................ 26-26 unfranked non-portfolio dividends ............................................ 46FA education expenses Higher Education Contribution Scheme, no deduction unless provided as fringe benefit .......................................................... 26-20 limit on deduction ...................................................................... 82A see also overseas debtors repayment levy see also student start-up loans see also VET student loans election expenses Federal and State Parliament election expenses ....................... 25-60, 25-70 local government election expenses, limited deduction for ..... 25-65, 25-70 electricity connections see capital allowances embezzlement see theft employees pensions, gratuities or retiring allowances for ex-employees .. 25-50 Seasonal Labour Mobility Program, delayed deduction for salary, wages etc. paid to employees under program until Seasonal Labour Mobility Program withholding tax payable has been paid ............................................................................. 26-25A see also shares entertainment expenditure, no deduction for some .......................................... Division 32 meal entertainment, calculation of deductible amount ............. 51AEA to 51AEC environment see capital allowances excess non-concessional contributions tax no deduction ............................................................................... 26-75 exploration and prospecting see capital allowances family no deduction for maintaining spouse or child .......................... 26-40 * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5

forestry managed investment schemes payments under scheme ............................................................. franchise fees windfall tax ................................................................................. freight freight for shipped goods .......................................................... fringe benefits contributions for private component, no deduction for ............ employee’s car expenses where car provided by employer can be used for private purposes, no deduction for ................. employee’s car parking expenses, no deduction for ................ expense payment fringe benefits, reduced deduction ............... general insurance companies and companies that self insure claims paid ................................................................................. increase in value of outstanding claims liability ...................... increase in value of unearned premium reserve ....................... gifts general ........................................................................................ limit on deduction ...................................................................... see also tax avoidance schemes horticultural plants see capital allowances higher education assistance ............................................................................... hybrid mismatch rules disallowing of deductions .......................................................... illegal activities .................................................................................................... income equalisation deposits see primary production industrial property see intellectual property and R&D infrastructure see tax losses insurance with non-residents generally ..................................................................................... insurance premiums, no deduction unless arrangement to pay tax ............................................................................................... reinsurance, no deduction for resident carrying on insurance business in Australia for reinsurance premiums paid to a non-resident ................................................................................ intellectual property see capital allowances interest convertible notes, interest on, generally ................................... foreign residents, debt creation involving, generally ...............

230-15(2) and (3) 775-30 Part IIIB Subdivision 820-FB Subdivisions 170-A and 170-B 394-10(1) 26-15 135A 51AJ 51AF 51AGA 51AH

ITAA 1997

farm management deposits see primary production film licensed investment companies (FLICs) see shares financial arrangements losses from ................................................................................. see also borrowing expenses, interest, leases and securities foreign exchange losses .......................................................................................... foreign financial entities’ Australian permanent establishments generally ..................................................................................... thin capitalisation ....................................................................... transfer of losses ........................................................................

321-25 and 321-95 321-15 and 321-85 321-55 Division 30 26-55

26-20 Division 832 26-54

141 to 148 145 148

82L to 82T 159GZY to 159GZZF

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 12 – Particular kinds of deductions

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Income Tax Assessment Act 1997

s 12-5 foreign residents, delayed deduction for interest paid to until withholding tax payable has been paid ..................................... life assurance premiums, interest etc. on loans to finance, no deduction for .............................................................................. superannuation contributions, interest etc. on loans to finance, no deduction for ......................................................................... underpayment or late payment of tax, interest for ................... international agreements see transfer pricing international profit shifting see transfer pricing investment company see shares IRUs see capital allowances land land degradation, see primary production vacant land, limit on deduction ................................................. lease document expenses .................................................................................... lease, authority, licence, permit or quota expenditure to terminate ............................................................ leases finance leases and arrangements, use of property if end-user an exempt public body or use outside Australia to produce exempt income ........................................................................... leases of assets being put to tax preferred use ......................... leveraged arrangements, property used: • other than to produce assessable income; or • by a non-resident outside Australia; or • by a previous owner ..................................................................................................... payment for failure to comply with lease obligation to repair premises ..................................................................................... leases of luxury cars accrual amounts ......................................................................... adjustment amounts (lessee) ...................................................... adjustment amounts (lessor) ...................................................... lease payments not deductible ................................................... payments to acquire car not deductible .................................... leave payments accrued leave transfer payments ............................................... no deduction for leave payments until paid ............................. leisure facilities no deduction for ......................................................................... life insurance companies .................................................................................... limited recourse debt later payments ............................................................................ later payments (replacement debt) ............................................ loans see borrowing expenses, interest and securities losses foreign exchange ........................................................................ profit-making undertaking or scheme ....................................... property sale ............................................................................... traditional securities, loss on disposal or redemption of .......... see also tax losses managed investment trusts

26-25 26-85 26-80 25-5

26-102 25-20 25-110

159GE to 159GO Division 250

51AD 25-15 242-35 242-70 242-65 242-55 242-85 26-10 26-10 26-50 Subdivision 320-C 243-45 243-50

775-30 25-40 25-40 70B

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5 275-200(4)

25-47 25-30

26-97 51AK 21 Division 35 102AAA to 102AAZG 102AAY 102AAZ 102AAZC 240-110(1) 240-105(3) 240-55 240-50, 250-155 Subdivision 250-C 240-85 121A to 121EL 121EG 82A

26-20 830-50 90, 92 Subdivisions 40-B and 40-I

penalties no deduction for penalties ......................................................... personal services income alienated personal services income ........................................... general ........................................................................................ political contributions and gifts denial of certain deductions ...................................................... deductions for individuals .........................................................

26-5 Subdivision 86-B Division 85 26-22 Subdivision 30-DA

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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ITAA 1997

losses from carried interests ...................................................... management and investment company shares see shares membership of associations see subscriptions to associations mining see capital allowances misappropriation by employee or agent ................................................................ mortgage expenses of discharging a mortgage ......................................... motor vehicles see car expenses and leases National Disability Insurance Scheme National Disability Insurance Scheme expenditure .................. non-cash transactions non-cash business benefits ......................................................... non-cash consideration, money value deemed to have been paid or given .............................................................................. non-commercial business activities deferral of non-commercial losses ............................................ non-resident trust estates generally ..................................................................................... modified application of depreciation provisions ....................... modified application of trading stock provisions ..................... no deductions allowable under Division 36 ............................. notional sales and loans adjustment amounts (lessee) ...................................................... adjustment amounts (lessor) ...................................................... arrangement payments, no deduction for .................................. notional interest ......................................................................... deemed loan treatment for financial benefits provided for tax preferred use of asset ................................................................. payments to acquire property, no deduction for ....................... offshore banking units generally ..................................................................................... deductions for ............................................................................ overseas debtors repayment levy limit on deduction ...................................................................... payment made to reduce a liability to overseas debtors repayment levy under the Student Loans (Overseas Debtors Repayment Levy) Act 2015, no deduction unless provided as fringe benefit .............................................................................. partnerships foreign hybrid loss exposure adjustment .................................. losses, partner’s share of partnership loss ................................ patents expenditure relating to grant of patents, etc .............................

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 12 – Particular kinds of deductions

Income Tax Assessment Act 1997

s 12-5 pooled development funds (PDFs) .................................................................... prepaid expenditure see advance expenditure primary production farm management deposits ........................................................ see also capital allowances and timber property arrangements relating to assets being put to tax preferred use ..................................................................................................... arrangements relating to use of property if end-user an exempt public body or use outside Australia to produce exempt income ........................................................................... leveraged arrangements, property used: • other than to produce assessable income; or • by a non-resident outside Australia; or • by a previous owner ..................................................................................................... sale of property, profit or loss ................................................... see also capital allowances and losses public trading trusts generally ..................................................................................... qualifying securities see securities R&D rates and land taxes premises used to produce mutual receipts ................................ rebatable benefits no deduction for ......................................................................... registered emissions units expenditure incurred in becoming the holder of ...................... expenditure incurred in ceasing to hold ................................... excess of opening over closing value of .................................. reimbursements expense payment fringe benefits, reduced deduction ............... reinsurance see insurance with non-residents related entities (including relatives) reduction of deduction for payment or liability to ................... repairs general ........................................................................................ repair covenants, payment for non-compliance with covenant to repair under lease .................................................................. roads see timber royalties royalty, no deduction for royalty paid to a foreign resident until the withholding tax payable has been paid ...................... scientific research see R&D securities qualifying securities ................................................................... substituted securities .................................................................. traditional securities, loss on disposal or redemption of ........... shares buy-backs ...................................................................................

124ZM to 124ZZD

Division 393

Division 250 159GE to 159GO

51AD 82(2) 102M to 102T Division 355 25-75 26-19 420-15 420-42 420-45 51AH

26-35, 65(1B) and (1C) 25-10 25-15

26-25

159GP to 159GZ 23K 70B 159GZZZJ to 159GZZZT

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5 cancellation of subsidiary’s shares in holding company .......... 159GZZZC to 159GZZZI employee share schemes, deduction for provider of ESS interests ...................................................................................... Subdivision 83A-D see also dividends and securities

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 12 – Particular kinds of deductions

Software

first home super saver scheme re-contribution ......................... limit on deduction ...................................................................... no deduction under any other provision of the Act ................. personal contributions ................................................................ superannuation guarantee charge no deduction for ......................................................................... late contribution offset, no deduction for ................................. superannuation supervisory levy late lodgment amount, no deduction for ................................... tax agent’s fees see tax related expenses tax avoidance schemes companies, use of tax losses or deductions to avoid tax ......... diverted assessable income ........................................................ dividend stripping ...................................................................... gifts ............................................................................................. imputation, manipulation of ......................................................

24AW to 24AYA 82A

26-20

26-20 25-55 Division 900 ITAA 1997

see capital allowances spectrum licences see capital allowances State or Territory bodies (STBs) body ceasing to be STB, some deductions not allowed .......... student start-up loans limit on deduction ...................................................................... payment made to reduce a debt to the Commonwealth under Chapter 2AA of the Social Security Act 1991 (student start-up loans), no deduction unless provided as fringe benefit ..................................................................................................... payment made to reduce a debt to the Commonwealth under Part 2 of the Student Assistance Act 1973 (ABSTUDY student start-up loans), no deduction unless provided as fringe benefit .............................................................................. subscriptions to associations .............................................................................. substantiation work, travel and car expenses ................................................... superannuation see insurance and annuity business and interest superannuation and related business generally ..................................................................................... asset disposals ............................................................................ death or disability benefits, deduction for future service element ....................................................................................... death or disability cover, premiums for .................................... financial assistance levy ............................................................ superannuation contributions surcharge no deduction ............................................................................... superannuation—deductibility of contributions generally ..................................................................................... contributions for employees etc ................................................ contributions to non-complying funds ......................................

Part 3-30 295-85 295-470 295-465 295-490(1) (table item 3) 26-60 Division 290 Subdivision 290-B sections 290-10 and 290-75 section 290-168 26-55 section 290-10 Subdivision 290-C 26-95 290-95 26-90

Division 175 121F to 121L 177E 78A 207-150(2), 207-150(3)

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 12-5 prepaid outgoings to avoid tax .................................................. recouped expenditure ................................................................. tax avoidance scheme, no deduction allowable where deduction the result of ............................................................... trading stock ............................................................................... tax exempt entities treatment of losses and outgoings on becoming taxable .......... tax losses bad debts, companies ................................................................. change of ownership or control of a company generally .......................................................... for earlier income years .................................. for income year of the change ....................... designated infrastructure project entities .................................. earlier income years ................................................................... life insurance companies ........................................................... pooled development funds ......................................................... transfer between companies in same wholly-owned group ..... tax preferred asset financing generally ..................................................................................... denial of capital allowance deductions in relation to asset being put to tax preferred use ................................................... reduction in capital allowance deductions in relation to asset being put to tax preferred use ................................................... tax related expenses ............................................................................................ telecommunications site access rights see capital allowances telephone lines see primary production theft by employee or agent ................................................................ thin capitalisation disallowing of deductions .......................................................... timber death of owner of land carrying trees, deduction of the part of land cost attributable to trees ............................................... disposal of land carrying trees, deduction of the part of land cost attributable to trees ............................................................ felling trees, deduction of cost of land attributable to trees felled or of cost of right to fell trees ........................................ see also capital allowances trade support loan limit on deduction ...................................................................... payment made to reduce a debt to the Commonwealth under the Trade Support Loans Act 2014, no deduction unless provided as fringe benefit ........................................................... trading ships see capital allowances trading stock Commissioner may determine whether consideration paid for chose in action is reasonable ..................................................... excess of opening stock over closing value ............................. expenditure deemed not to be of a capital nature .................... prepayments, when stock becomes trading stock on hand ...... see also tax avoidance schemes and timber traditional securities see securities

82KJ 82KH to 82KL 177A to 177G 70-20, 52A Schedule 2D 165-120 Division 165 Subdivision 165-A Subdivision 165-B Division 415 Division 36 Subdivision 320-D Subdivision 195-A Subdivision 170-A Division 250 250-145 250-150 25-5

25-45 Division 820 70-120 70-120 70-120 82A 26-20

52A 70-35(3) 70-25 70-15

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 13-1 51(7) Subdivision 815-B Subdivision 815-C 25-100 26-30 26-31

95 to 102

Division 34 25-105 ITAA 1997

training guarantee training guarantee charge, no deduction for ............................. transfer pricing arm’s length principle for cross-border conditions between entities ........................................................................................ arm’s length principle for permanent establishments ............... transport expenses incurred in travel between workplaces ..................................... travel expenses accompanying relatives, no deduction for some travel expenses ..................................................................................... travel related to the use of residential premises as residential accommodation .......................................................................... see also substantiation trees in carbon sink forests see capital allowances trusts trust income, deductions considered in calculating .................. see also foreign residents, non-resident trust estates and public trading trusts uniforms non-compulsory uniforms .......................................................... United Medical Protection Limited support payments ................................. uranium mining see mining VET student loans limit on deduction ...................................................................... payment made to reduce a debt to the Commonwealth under Part 3A of the VET Student Loans Act 2016 (VETSL debts), no deduction unless provided as fringe benefit ........................ water facilities improvements ............................................................................. see also capital allowances work expenses see substantiation work in progress payment of a work in progress amount ....................................

82A 26-20 26-100

25-95

DIVISION 13 – TAX OFFSETS 13-1A

Effect of this Division

This Division is a *Guide. 13-1

List of tax offsets

The provisions set out in the list allow you a tax offset. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Aboriginal study assistance see social security and other benefit payments annual leave see leave payments annuity see superannuation approved deposit funds (ADFs) see dividends attribution managed investment trusts * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 13 – Tax offsets

141

Income Tax Assessment Act 1997

s 13-1 non-resident beneficiary ............................................................ 276-110 averaging see primary production bonuses see life assurance child increased tax payable under Part III Division 6AA, unreasonable .............................................................................. trust income ............................................................................... corporate unit trusts see dividends Cyclone Larry or Cyclone Monica income support payment see social security and other benefit payments defence force members serving overseas ........................................................ dependants invalid relative, invalid spouse or carer in receipt of carer benefit ........................................................................................ dividends general .......................................................................................

102AH 100(2)

79B Subdivision 61-A 207-20(2), 207-45, 207-110(2)(c), 210-170(1)

early stage venture capital limited partnerships contributions to ESVCLPs ........................................................ Subdivision 61-P employment termination employment termination payments ........................................... 82-10 82-70 see leave payments, superannuation and sections 82-10A and 82-10C of the Income Tax (Transitional Provisions) Act 1997 Equine Workers Hardship Wage Supplement Payment see social security and other benefit payments exploration for minerals junior minerals exploration incentive ....................................... Subdivision 418-B film .................................................................................................... Division 376 foreign income tax foreign income tax paid, tax offset for .................................... Division 770 franking deficit tax liabilities to pay ......................................................................... 205-70 franked dividends see dividends hardship see child housing National Rental Affordability Scheme ..................................... Division 380 imputation see dividends and franking deficit tax innovation companies certain shares issued to early stage investors .......................... Subdivision 360-A inter-corporate dividends see dividends interest tax paid on by company ........................................................... 127 interim income support payment see social security and other benefit payments invalid relative * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 13-1 see dependants

CORE TAX

Part 1-4 – Checklists of what is covered by concepts used in the core provisions Division 13 – Tax offsets

leave payments unused annual leave payment ................................................... 83-15 unused long service leave payment .......................................... 83-85 see employment termination legal disability see trusts life assurance

non-resident beneficiary see trusts non-resident trust estate see trusts overseas defence force service see defence force partnerships see dividends, housing and small business entities pension see social security and other benefit payments pooled superannuation trusts (PSTs) see dividends primary production averaging of income, trustees ................................................... averaging of tax liability, individuals ....................................... farm household allowance see social security and other benefit payments interim income support payments see social security and other benefit payments private health insurance .................................................................................... public trading trust see dividends public unit trust see dividends R&D residents of isolated areas see zone sickness benefits see social security and other benefit payments small business small business income .............................................................. social security and other benefit payments Aboriginal study assistance scheme ......................................... children, assistance for isolated ................................................

160AAB 713-545(5)

160AAAB 160AAAA Subdivision 61-D 159N 159ZRA, 159ZRB, Subdivision 61-L ITAA 1997

bonus, receipt of ........................................................................ life insurance company subsidiary joining consolidated group ...................................... long service leave see leave payments low income earner aged or pensioner beneficiary, trustee liable to be assessed for beneficiary’s share of net income of trust estate ............... aged person or pensioner .......................................................... general ....................................................................................... tax offset for 2021-22 income year and earlier income years .................................................................................................... lump sum income arrears receipt of ...................................................................................

156 392-35(2)

Subdivision 61-G

Division 355

Subdivision 328-F 160AAA(3) 160AAA(3)

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 13-1 Cyclone Larry or Cyclone Monica income support payment . Disaster income support allowance for special category visa (subclass 444) holders ............................................................... Equine Workers Hardship Wage Supplement Payment ........... farm household allowance under the Farm Household Support Act 2014 see unemployment, sickness and other benefit payments under the Social Security Act 1991 interim income support payment .............................................. pension, social security pension and veteran’s pension .......... textile, clothing and footwear allowance................................... unemployment, sickness and other benefit payments under the Social Security Act 1991 ....................................................

160AAA(3) 160AAA(3) 160AAA(3)

160AAA(3) 160AAAA 160AAA(3) 160AAA(3)

superannuation generally .................................................................................... associated earnings on non-concessional contributions ........... spouse contributions .................................................................. death benefits .............................................................................

Divisions 301 and 302 Subdivision 292-B Subdivision 290-D 302-75 302-85 302-145 excess concessional contributions ............................................ 291-15(b) first home super saver scheme ................................................. 313-25 member benefits ........................................................................ 301-20 301-25 301-35 301-40 301-95 301-100 301-105 301-115 TFN quoted to superannuation or RSA provider after no-TFN contributions tax paid ................................................. 295-675 termination payments see employment termination, leave payments and superannuation trustee see dividends, low income earner and trusts trusts beneficiary in a foreign trust .................................................... 98B non-resident beneficiary ............................................................ 98A(2)(a) trust income of beneficiary with legal disability ..................... 100(2) trust income (modifications for special disability trusts) ........ 95AB(5) see also dividends, housing and small business entities United Nations forces salary, wages and allowances from service as a member of ... 23AB(7) unemployment benefits see social security and other benefit payments unit trusts see dividends winding-up of non-resident trust estates see trusts withholding payments made by companies to Australian seafarers ............................. Subdivision 61-N zone residents of isolated areas ......................................................... 79A

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 15-3

CHAPTER 2 – LIABILITY RULES OF GENERAL APPLICATION Part 2-1 – Assessable income

CORE TAX

Part 2-1 – Assessable income Division 15 – Some items of assessable income

DIVISION 15 – SOME ITEMS OF ASSESSABLE INCOME GUIDE TO DIVISION 15 15-1

What this Division is about

This Division sets out some items that are included in your assessable income. Remember that the general rules about assessable income in Division 6 apply to these items.

15-45 15-46 15-50

Table of sections provisions Allowances and other things provided in respect of employment or services Return to work payments Accrued leave transfer payments Bounties and subsidies Profit-making undertaking or plan Royalties Payments made to members of a copyright collecting society Amount received for lease obligation to repair Insurance or indemnity for loss of assessable income Interest on overpayments and early payments of tax Providing mining, quarrying or prospecting information or geothermal exploration information Amounts paid under forestry agreements Amounts paid under forestry managed investment schemes Work in progress amounts

ITAA 1997

Operative 15-2 15-3 15-5 15-10 15-15 15-20 15-22 15-25 15-30 15-35 15-40

OPERATIVE PROVISIONS 15-2

Allowances and other things provided in respect of employment or services

(1) Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums *provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force). (2) This is so whether the things were *provided in money or in any other form. (3) However, the value of the following are not included in your assessable income under this section: (a) a *superannuation lump sum or an *employment termination payment; (b) an *unused annual leave payment or an *unused long service leave payment; (c) a *dividend or *non-share dividend; (d) an amount that is assessable as *ordinary income under section 6-5; (e) *ESS interests to which Subdivision 83A-B or 83A-C (about employee share schemes) applies. Note: Section 23L of the Income Tax Assessment Act 1936 provides that fringe benefits are non-assessable non-exempt income. 15-3

Return to work payments

Your assessable income includes an amount you receive under an *arrangement that an entity enters into for a purpose of inducing you to resume working for, or providing services to, any entity. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 15-5 15-5 Accrued leave transfer payments

Your assessable income includes an *accrued leave transfer payment that you receive. To find out if the payment is deductible to the payer, see section 26-10. 15-10

Bounties and subsidies

Your assessable income includes a bounty or subsidy that: (a) you receive in relation to carrying on a *business; and (b) is not assessable as *ordinary income under section 6-5. 15-15

Profit-making undertaking or plan

(1) Your assessable income includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan. (2) This section does not apply to a profit that: (a) is assessable as *ordinary income under section 6-5; or (b) arises in respect of the sale of property acquired on or after 20 September 1985. Note: If you sell property you acquired before 20 September 1985 for profit-making by sale, your assessable income includes the profit: see section 25A of the Income Tax Assessment Act 1936. 15-20

Royalties

(1) Your assessable income includes an amount that you receive as or by way of royalty within the ordinary meaning of “royalty” (disregarding the definition of royalty in subsection 995-1(1)) if the amount is not assessable as *ordinary income under section 6-5. (2) Subsection (1) does not apply to an amount of a payment to which section 15-22 or 15-23 applies. 15-22

Payments made to members of a copyright collecting society

(1) This section, instead of Division 6 of Part III of the Income Tax Assessment Act 1936, applies to a payment that a *copyright collecting society, to which section 51-43 applies, makes to you as a * member of the society. (2) Your assessable income includes the amount of the payment, except to the extent that the payment represents an amount on which the directors of the society are or have been assessed, and are liable to pay *tax, under section 98, 99 or 99A of the Income Tax Assessment Act 1936. Note: Section 410-5 of this Act requires a copyright collecting society to give you a notice at the time of payment. 15-23

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15-25

Amount received for lease obligation to repair

Your assessable income includes an amount you receive from an entity if: (a) you receive it as a lessor or former lessor of premises; and (b) the entity pays you the amount for failing to comply with a lease obligation to make repairs to the premises; and (c) the entity uses or has used the premises for the *purpose of producing assessable income; and (d) the amount is not assessable as *ordinary income under section 6-5. Note: The entity can deduct the amount: see section 25-15. 15-30

Insurance or indemnity for loss of assessable income

Your assessable income includes an amount you receive by way of insurance or indemnity for the loss of an amount (the lost amount) if: (a) the lost amount would have been included in your assessable income; and (b) the amount you receive is not assessable as *ordinary income under section 6-5. 15-35

Interest on overpayments and early payments of tax

Your assessable income includes interest payable to you under the Taxation (Interest on Overpayments and Early Payments) Act 1983. The interest becomes assessable when it is paid to you or applied to discharge a liability you have to the Commonwealth. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) Your assessable income includes an amount you receive for providing *mining, quarrying or prospecting information to another entity if: (a) you continue to *hold the information; and (b) the amount you receive is not assessable as *ordinary income under section 6-5. (2) Your assessable income includes an amount you receive for providing *geothermal exploration information you have to another entity if: (a) you continue to have the information; and (b) the information is, and continues to be, relevant to: (i) *geothermal energy extraction that you carry on or propose to carry on; or (ii) a *business that you carry on that includes *exploration or prospecting for * geothermal energy resources from which energy can be extracted by geothermal energy extraction; and (c) the amount you receive is not assessable as *ordinary income under section 6-5. It does not matter whether the information is generally available or not. (3) Geothermal exploration information is geological, geophysical or technical information that: (a) relates to the presence, absence or extent of *geothermal energy resources in an area; or (b) is likely to help in determining the presence, absence or extent of such resources in an area. (4) Geothermal energy extraction means operations that are for: (a) the extraction of energy from *geothermal energy resources; and (b) the *purpose of producing assessable income. 15-45

Amounts paid under forestry agreements

(1) Your assessable income includes an amount you receive under an agreement for the planting and tending of trees for felling if: (a) you are the manager of the agreement as mentioned in section 82KZMG of the Income Tax Assessment Act 1936; and (b) the amount satisfies, for the entity that paid it, the requirements of that section. The amount is included for the income year in which the entity can claim a deduction for the amount. (2) No part of an amount included under subsection (1) is included in your assessable income for a later income year. 15-46

Amounts paid under forestry managed investment schemes

(1) Your assessable income includes an amount you receive under a *forestry managed investment scheme if: (a) you are the *forestry manager of the scheme, or an *associate of the forestry manager; and (b) the entity that paid the amount can deduct or has deducted the amount under section 394-10 in relation to the scheme (disregarding subsection 394-10(5)). The amount is included for the income year for which the entity that paid the amount can or has claimed a deduction for it (disregarding subsection 394-10(5)). (2) No part of an amount included under subsection (1) is included in your assessable income for a later income year. 15-50

Work in progress amounts

Your assessable income includes a *work in progress amount that you receive. Note: To find out whether the amount is deductible to the payer, see section 25-95. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 15-50 15-40 Providing mining, quarrying or prospecting information or geothermal exploration information

ITAA 1997

Part 2-1 – Assessable income Division 15 – Some items of assessable income

Income Tax Assessment Act 1997

s 15-55 to 15-75 15-55 to 15-75 [not reproduced] DIVISION 17 – EFFECT OF GST ETC. ON ASSESSABLE INCOME GUIDE TO DIVISION 17 17-1

What this Division is about

This Division sets out the effect of the GST in working out assessable income. Generally speaking, GST, input tax credits and adjustments under the GST Act are disregarded.

17-5 17-10 17-15 17-20 17-30 17-35 17-5

Table of sections GST and increasing adjustments Certain decreasing adjustments Elements in calculation of amounts GST groups and GST joint ventures Special credits because of indirect tax transition Certain sections not to apply to certain assets or expenditure

GST and increasing adjustments

An amount is not assessable income, and is not *exempt income, to the extent that it includes an amount relating to: (a) *GST payable on a *taxable supply; or (b) an *increasing adjustment that relates to a *supply; or (c) an *increasing adjustment that:

(i) relates to an *acquisition; and (ii) arises in circumstances that also give rise to a *recoupment that is included in assessable income. 17-10

Certain decreasing adjustments

(1) An amount of a *decreasing adjustment that arises under Division 129 or 132 of the *GST Act is assessable income, unless the entity that has the adjustment is an *exempt entity. (2) However, the amount is not assessable income to the extent that, because it becomes a component of a *net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits). 17-15

Elements in calculation of amounts

In calculating an amount that may be included in assessable income: (a) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any *GST payable on a *taxable supply related to the amount received or receivable, or any *increasing adjustment related to that amount; and (b) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any *input tax credit for an *acquisition related to the amount paid or payable, or any *decreasing adjustment related to that amount. 17-20

GST groups and GST joint ventures

(1) A *member of a *GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the *GST Act (other than paragraph 48-40(2)(a) and subsection 48-40(3)) did not apply to that member. (2) A *participant in a *GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the *GST Act (other than subsections 51-30(2) and (3)) did not apply to that participant. 17-30

Special credits because of indirect tax transition

A special credit under section 19A of the A New Tax System (Goods and Services Tax Transition) Act 1999 is assessable income at the time it is attributed to a *tax period (for a credit under section 19A). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 20-5 17-35

Certain sections not to apply to certain assets or expenditure

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Part 2-1 – Assessable income Division 20 – Amounts included to reverse the effect of past deductions

Sections 17-5, 17-10 and 17-15 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or Division 328. Note: See instead Subdivision 27-B. DIVISION 20 – AMOUNTS INCLUDED TO REVERSE THE EFFECT OF PAST DEDUCTIONS

20-A 20-B

Table of Subdivisions Guide to Division 20 Insurance, indemnity or other recoupment for deductible expenses Disposal of a car for which lease payments have been deducted

GUIDE TO DIVISION 20 20-1

What this Division is about

This Division includes amounts in your assessable income to reverse the effect of certain kinds of deductions.

20-5

Other provisions that reverse the effect of deductions

The table lists other provisions that reverse the effect of certain kinds of deductions. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Provisions that adjust your tax position in respect of deductions Item In this situation: See: 1 A balancing adjustment for a depreciating asset 40-285(1) and 40-445(2) is included in your assessable income. 2 An amount you receive by way of insurance or 70-115 indemnity for a loss of trading stock is included in your assessable income. 2A Limited recourse debt that was used to finance 243-40 expenditure deductible under a capital allowance (or on property for which you have deducted or can deduct amounts under a capital allowance) terminates: an amount is included in your assessable income 3 Because of: 40-750(3) • petroleum resource rent tax; or • an instalment of petroleum resource rent tax; that you have deducted or can deduct, an amount is refunded, credited, paid or applied: the amount is included in your assessable income. 51AH 4 You receive a fringe benefit by way of reimbursement or payment of a loss or outgoing you incurred: your deduction for the loss or outgoing is reduced. 7 You receive an amount as recoupment for your 74A(4) local governing body election expenses: an amount is included in your assessable income. 8 You receive superannuation benefits as a result 290-100 of someone’s deductible contributions: the benefits are included in your assessable income. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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20-5

Table of sections Other provisions that reverse the effect of deductions

Income Tax Assessment Act 1997

s 20-5 Provisions that adjust your tax position in respect of deductions Item In this situation: See: 9 An R&D entity receives or becomes entitled to 355-410 receive an amount: • for, or relating to, the results of R&D activities; or • attributable to it incurring expenditure on R&D activities or to its use of a depreciating asset for the purpose of conducting R&D activities; and the entity is entitled under Division 355 to a tax offset relating to those R&D activities. The amount is included in its assessable income. 10 You receive a recoupment from government Subdivision 355-G relating to R&D activities for which entitlements to tax offsets under Division 355 arise. Extra income tax is payable on the recoupment. SUBDIVISION 20-A – INSURANCE, INDEMNITY OR OTHER RECOUPMENT FOR DEDUCTIBLE EXPENSES GUIDE TO SUBDIVISION 20-A 20-10

What this Subdivision is about

Recoupment of expenses you incurred and can deduct Your assessable income may include an amount that you receive by way of insurance, indemnity or other recoupment if: • it is for a deductible expense; and • it is not otherwise assessable income. Recoupment of expenses you did not incur but can deduct Your assessable income may include an amount that another entity receives by way of insurance, indemnity or other recoupment if: • it is for an expense that you can deduct; and • it is not otherwise your assessable income. Table of sections 20-15 How to use this Subdivision What is an assessable recoupment? 20-20 Assessable recoupments 20-25 What is recoupment ? 20-30 Tables of deductions for which recoupments are assessable How much is included in your assessable income? 20-35 If the expense is deductible in a single income year 20-40 If the expense is deductible over 2 or more income years 20-15 How to use this Subdivision If you incurred the deductible loss or outgoing

(1) First, read sections 20-20 to 20-30 to work out whether you have received an assessable recoupment. If not, you do not need to read the rest of the Subdivision. (2) If you have received one or more assessable recoupments, sections 20-35 to 20-55 tell you how much is included in your assessable income for an income year. If another entity incurred a loss or outgoing you can deduct

(3) Sections 20-60 and 20-65 tell you how to apply this Subdivision. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 20-25 WHAT IS AN ASSESSABLE RECOUPMENT?

CORE TAX

Part 2-1 – Assessable income Division 20 – Amounts included to reverse the effect of past deductions

20-20 Assessable recoupments Exclusion

(1) An amount is not an assessable recoupment to the extent that it is *ordinary income, or it is statutory income because of a provision outside this Subdivision.

*

Insurance or indemnity

(2) An amount you have received as *recoupment of a loss or outgoing is an assessable recoupment if: (a) you received the amount by way of insurance or indemnity; and (b) you can deduct an amount for the loss or outgoing for the *current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act. Other recoupment

ITAA 1997

(3) An amount you have received as *recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if: (a) you can deduct an amount for the loss or outgoing for the *current year; or (b) you have deducted or can deduct an amount for the loss or outgoing for an earlier income year; under a provision listed in section 20-30. 20-25 What is recoupment? General

(1) Recoupment of a loss or outgoing includes: (a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and (b) a grant in respect of the loss or outgoing. Amount paid for you

(2) If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing. Remission of general interest charge or shortfall interest charge

(2A) If: (a) you have incurred expenditure that consists of *general interest charge or *shortfall interest charge; and (b) the Commissioner remits any of that charge; then you are taken to receive the remitted amount as recoupment of that expenditure. Amount for disposing of right to recoupment

(3) If you dispose of your right to receive an amount as *recoupment of a loss or outgoing you are taken to receive as recoupment of the loss or outgoing any amount you receive for disposing of that right. (The disposal need not be to another entity.) Amount received that is recoupment to an unspecified extent

(4) If you receive an amount that is, to an unspecified extent, *recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable. Balancing adjustments not covered

(5) If a balancing adjustment is required for property on which you incurred a loss or outgoing, no part of the *termination value of the property is an amount you receive as recoupment of the loss or outgoing. Note: The termination value is usually the amount you receive because of disposal, loss or destruction of the property. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 20-30 20-30 Tables of deductions for which recoupments are assessable

(1) This table shows the deductions under the Income Tax Assessment Act 1997 for which recoupments are assessable. Note: References are to section numbers except where otherwise indicated. Provisions of the Income Tax Assessment Act 1997 Item Provision 1.1 8-1 (so far as it allows you to deduct a bad debt, or part of a debt that is bad) 1.2 8-1 (so far as it allows you to deduct rates or taxes) 1.3 25-5 1.4 25-35 1.5 25-45 1.5A 1.6 1.6A 1.7 1.8 1.8A 1.8B 1.8C 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.19A 1.20 1.21 1.22 1.23 1.24 1.25

Description of expense bad debts rates or taxes

tax-related expenses bad debts embezzlement or larceny by an employee 25-47 misappropriation by an employee or agent 25-60 election expenses, Commonwealth and State elections 25-65 election expenses, local governing body 25-75 rates and land taxes on premises used to produce mutual receipts The former 25-80 upgrading assets to meet GST obligations etc. 25-95 work in progress amount item 7 of the table in section 30-15 contributions relating to fund-raising events item 8 of the table in section 30-15 contributions relating to fund-raising auctions Division 40 capital allowances The former Division 42 (as it applied to *software expenditure on software because of the former Subdivision 46-B) The former Subdivision 46-C expenditure on software The former Subdivision 46-D expenditure on software, pooled The former Division 42 (as it applied to *IRUs expenditure on IRUs because of Division 44) The former 330-15 exploration or prospecting expenditure The former 330-80 allowable capital expenditure relating to mining or quarrying The former 330-350 petroleum resource rent tax The former 330-370 transport capital expenditure relating to mining or quarrying The former 330-435 rehabilitation expenditure relating to mining or quarrying The former 330-485 balancing adjustment deduction for expenditure relating to mining or quarrying Division 355 R&D The former Subdivisions 380-A and 380-C capital expenditure incurred in obtaining a spectrum licence The former Subdivision 387-A landcare operations expenditure The former Subdivision 387-B expenditure on facilities to conserve or convey water The former Subdivision 387-D grapevine establishment expenditure The former Subdivision 387-C horticultural plant establishment expenditure The former Subdivision 387-E mains electricity connection expenditure

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 20-30 Provisions of the Income Tax Assessment Act 1997 Item Provision 1.26 The former Subdivision 400-A 1.27

The former Subdivision 400-B

1.27A 1.28

420-15 775-30

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Part 2-1 – Assessable income Division 20 – Amounts included to reverse the effect of past deductions

Description of expense expenditure on environmental impact assessment expenditure on environmental protection activities registered emissions unit forex realisation loss

(2) This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable. Provisions of the Income Tax Assessment Act 1936 Item Provision Description of expense 2.1 Former 51(1) (so far as it allowed you to deduct a bad debts bad debt, or part of a debt that is bad) 2.2 Former 51(1) (so far as it allowed you to deduct rates or taxes rates or taxes) 2.3 63 bad debts 2.4 Former 69 tax-related expenses 2.5 Former 70A(3) mains electricity connection expenditure 2.6 Former 71 embezzlement or larceny by an employee 2.7 Former 72 rates and land tax 2.7A Former 72A a payment of petroleum resource rent tax, or an instalment of petroleum resource rent tax, or a credit under paragraph 99(d) of the Petroleum Resource Rent Tax Assessment Act 1987 in respect of a payment of such an instalment 2.8 Former 73B, 73BA or 73BH research and development activity expenditure 2.9 Former 74 election expenses, Commonwealth and State elections 2.9A Former 74A election expenses, local governing body 2.10 Former 75AA(1) or (6) grape vine establishment expenditure 2.11 Former 75B(2) or (3A) water conservation or conveyance expenditure 2.12 Former 75D(2) land degradation prevention expenditure 2.13 Former 82AB development allowance expenditure 2.14 Former 82BB environmental impact study expenditure 2.15 Former 82BK environmental protection expenditure 2.17 Former Division 10 of Part III mining and quarrying expenditure 2.18 Former Division 10AAA of Part III expenditure on transport of minerals and quarry materials 2.19 Former Division 10AA of Part III expenditure on prospecting and mining for petroleum 2.20 Former 124BA expenditure on rehabilitating mining, quarrying and petroleum sites 2.21 Former 124ZZF horticultural plant establishment expenditure (effective life of the plant less than 3 years) 2.22 Former 124ZZG horticultural plant establishment expenditure (effective life of the plant more than 3 years) 2.23 Former 628 drought mitigation property expenditure by a primary producer * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note: References are to section numbers except where otherwise indicated.

Income Tax Assessment Act 1997

s 20-30 Provisions of the Income Tax Assessment Act 1936 Item Provision 2.24 Former 636

Description of expense drought mitigation property expenditure by a leasing company

HOW MUCH IS INCLUDED IN YOUR ASSESSABLE INCOME? 20-35

If the expense is deductible in a single income year

(1) Your assessable income includes an *assessable recoupment of a loss or outgoing if: (a) you can deduct the whole of the loss or outgoing for the *current year; or (b) you have deducted or can deduct the whole of the loss or outgoing for an earlier income year. Note 1: The operation of this section may be affected if a balancing charge has been included in your assessable income because of a deduction for the loss or outgoing: see section 20-45. Note 2: Recoupment of a loss or outgoing for which you can deduct amounts over more than one income year is covered by section 20-40. Note 3: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50. Total assessed not to exceed the loss or outgoing

(2) The total of all amounts that subsection (1) includes in your assessable income for one or more income years in respect of a loss or outgoing cannot exceed the amount of the loss or outgoing. Recoupment received before income year of the deduction

(3) If: (a) you can deduct the whole of a loss or outgoing for the *current year; and (b) before the current year you received an *assessable recoupment of the loss or outgoing; your assessable income for the current year includes so much of the recoupment as subsection (1) would have included if you had instead received the recoupment at the start of the current year. 20-40

If the expense is deductible over 2 or more income years

(1) This section includes an amount in your assessable income if: (a) you receive in the *current year an *assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or (b) you received in an earlier income year an *assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a *previous recoupment law). (This section applies even if the recoupment was received before the first of those income years.) Note: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50.

(2) Work out as follows how much is included in your assessable income for the *current year because of one or more *assessable recoupments of the loss or outgoing. Note: The method statement ensures that assessable recoupments are included: • only so far as they have not already been included for an earlier income year; and • only to the extent of your total deductions to date for the loss or outgoing. Method statement Step 1. Add up all the *assessable recoupments of the loss or outgoing that you have received (in the *current year or earlier). The result is the total assessable recoupment. Step 2. Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a *previous recoupment law. The result is the recoupment already assessed. (If no amount was included, the recoupment already assessed is nil.) Step 3. Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Step 4.

Add up each amount that you can deduct for the loss or outgoing for the current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing. Note: The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions. The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead.

Step 5. Step 6.

Example: At the start of the 2002-03 income year, a company incurs $100,000 to start to hold a depreciating asset. The company uses the prime cost method, and the effective life is 10 years. $10,000 is deductible for the 2002-03 income year and for each of the following 9 income years under section 40-25. In the 2002-03 income year, the company receives $20,000 as recoupment. How much is assessable for the 2002-03 income year? Applying the method statement: After step 1: the total assessable recoupment is $20,000. After step 2: the recoupment already assessed is nil. After step 3: the unassessed recoupment is: total assessable recoupment minus recoupment already assessed, i.e. $20,000 minus 0 = $20,000. After step 4: the total deductions for the loss or outgoing are $10,000. After step 5: the outstanding deductions are: total deductions for the loss or outgoing minus recoupment already assessed, i.e. $10,000 minus 0 = $10,000. After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $10,000. Applying the method statement to the 2003-04 income year: a further $10,000 is included in the company’s assessable income. 20-45 to 20-65

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SUBDIVISION 20-B – DISPOSAL OF A CAR FOR WHICH LEASE PAYMENTS HAVE BEEN DEDUCTED GUIDE TO SUBDIVISION 20-B 20-100

What this Subdivision is about

This Subdivision reverses the effect of deductions for lease payments for a car leased to you (or to your associate), but only if you make a profit by disposing of the car after acquiring it from the lessor. The smallest of these amounts is included in your assessable income: • your profit on the disposal; • the total deductible lease payments for the period of the lease; • the total amounts you could have deducted for the car’s decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income.

20-105 The usual 20-110 20-115 20-120

Table of sections Map of this Subdivision case Disposal of a leased car for profit Working out the profit on the disposal Meaning of notional depreciation

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 20-100 *

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Income Tax Assessment Act 1997

s 20-105 20-105 Map of this Subdivision

THE USUAL CASE 20-110

Disposal of a leased car for profit

(1) Your assessable income includes the *profit you make on disposing of a *car if: (a) the car was designed mainly for carrying passengers; and (b) the car was leased to you and has been leased to no-one else; and (c) you or another entity can deduct for the income year any of the lease payments paid or payable by you, or have deducted or can deduct any of them for an earlier income year, under this Act; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 20-120

(d)

you acquired the car from the lessor.

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Part 2-1 – Assessable income Division 20 – Amounts included to reverse the effect of past deductions

Note 1: Even if subsection (1) does not apply, an amount may still be included in your assessable income: • under section 20-125 (which deals with more complicated cases that may involve your associate); or • if you disposed of an interest in a car (rather than the car itself): see section 20-160. Note 2: In some cases you do not include an amount in your assessable income: • if there has been an earlier disposal of the car for market value: see section 20-135; or • if you inherited the car: see section 20-145; or • if the car was let on hire in the circumstances set out in section 20-155.

(2) However, the amount included cannot exceed the smaller of these limits: (a) the total lease payments for the lease that you or another entity have deducted or can deduct under this Act for an income year; (b) the amount of *notional depreciation for the lease period.

(3) You increase those limits if you have previously leased the *car from the same lessor, or from an *associate of that lessor. You increase the first limit by the total lease payments for each previous lease of that kind that you or another entity have deducted or can deduct under this Act for an income year. You increase the second limit by the amount of *notional depreciation for the period of each previous lease of that kind. 20-115

Working out the profit on the disposal

(1) The profit on the disposal is the amount by which the *consideration receivable for the disposal exceeds: • the amount it cost you to acquire the *car; plus: • any capital expenditure you incurred on the car after acquiring it. (2) The consideration receivable is worked out using this table: Consideration receivable for the disposal of the car Item In this situation: the consideration receivable is: 1 you sell the *car for an amount specific the proceeds of the sale, less the expenses of the to it sale 2 you sell the *car with other property the part of the total proceeds of the sale that is without a specific amount being reasonably attributable to the car less the part of allocated to it the reasonably attributable expenses of the sale * 3 you trade the car in and buy another the value of the trade-in, plus any other car consideration you receive 4 you sell the *car and another entity buys the amount by which the cost of the other car is another car reduced by the sale, plus any other consideration you receive 5 you dispose of the *car to an insurer the amount or value received or receivable under because it is lost or destroyed the insurance policy

(3) However, if the disposal of the *car is a *taxable supply, the consideration receivable does not include an amount equal to the *GST payable on the supply. 20-120

Meaning of notional depreciation

This is how to work out the notional depreciation for a lease period: Method statement * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note 1: If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130. Note 2: In some cases you reduce the amount to be included: • if there has been an earlier disposal of the car, or of an interest in it: see section 20-140; or • if another provision requires you to include an amount because of the disposal: see section 20-150.

Income Tax Assessment Act 1997

s 20-120 Step 1.

Step 2.

Step 3. Step 4.

Compare: • the *car’s *cost to the lessor for the purposes of Subdivision 40-C (which is about working out the cost of *depreciating assets); with: • the car’s *termination value for the purposes of section 40-300 when the lessor disposed of it. If the car’s cost exceeds the car’s termination value, multiply the excess by: • the number of days in the lease period; divided by: • the number of days the lessor owned the car. The result is the notional depreciation for the lease period. If the car’s cost does not exceed the car’s termination value, the notional depreciation for the lease period is zero.

Note 1: The notional depreciation for the lease period represents: • the amount you could have deducted for the car’s decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income for that period; adjusted by: • the balancing adjustment you would have made if you had disposed of the car at the end of that period. Note 2: The car’s cost to the lessor is worked out differently if the lessor acquired it in the 1996-97 income year or an earlier income year: see section 20-105 of the Income Tax (Transitional Provisions) Act 1997. Note 3: The car’s termination value is worked out differently if the lessor disposed of it in the 1996-97 income year or an earlier income year: see section 20-110 of the Income Tax (Transitional Provisions) Act 1997. 20-125 to 20-160

[not reproduced]

Part 2-5 – Rules about deductibility of particular kinds of amounts DIVISION 25 – SOME AMOUNTS YOU CAN DEDUCT GUIDE TO DIVISION 25 25-1

What this Division is about

This Division sets out some amounts you can deduct. Remember that the general rules about deductions in Division 8 (which is about general deductions) apply to this Division.

Operative 25-5 25-10 25-15 25-20 25-25 25-30 25-35 25-40 25-45 25-47 25-50 25-55 25-60 25-70

Table of sections provisions Tax-related expenses Repairs Amount paid for lease obligation to repair Lease document expenses Borrowing expenses Expenses of discharging a mortgage Bad debts Loss from profit-making undertaking or plan Loss by theft etc. Misappropriation where a balancing adjustment event occurs Payments of pensions, gratuities or retiring allowances Payments to associations Parliament election expenses Deduction for election expenses does not extend to entertainment

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Certain returns in respect of debt interests Deduction relating to foreign non-assessable non-exempt income Deduction for work in progress amounts Travel between workplaces Capital expenditure to terminate lease etc.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 25 – Some amounts you can deduct

OPERATIVE PROVISIONS 25-5

Tax-related expenses

Note 1: To find out whether a trustee of a deceased estate can deduct expenditure under this section, see subsection 69(7) of the Income Tax Assessment Act 1936. Note 2: If you receive an amount as recoupment of the expenditure, the amount may be included in your assessable income: see Subdivision 20-A. No deduction for certain expenditure

(2) You cannot deduct under subsection (1): (a) *tax; or (b) an amount withheld or payable under Part 2-5 or Part 2-10 in Schedule 1 to the Taxation Administration Act 1953; or (c) expenditure for *borrowing money (including payments of interest) to pay an amount covered by paragraph (a) or (b); or (d) expenditure for a matter relating to the commission (or possible commission) of an offence against an *Australian law or a *foreign law; or (e) a fee or commission for advice about the operation of a *Commonwealth law relating to taxation, unless that advice is provided by a *recognised tax adviser. No deduction for expenditure excluded from general deductions

(3) You cannot deduct expenditure under subsection (1) to the extent that a provision of this Act (except section 8-1) expressly prevents or limits your deducting it under section 8-1 (about general deductions). It does not matter whether the provision specifically refers to section 8-1. No deduction for capital expenditure

(4) You cannot deduct capital expenditure under subsection (1). However, for this purpose, expenditure is not capital expenditure merely because the *tax affairs concerned relate to matters of a capital nature. Example: Under this section, you can deduct expenditure you incur in applying for a private ruling on whether you can depreciate an item of property. Use of property taken to be for income producing purpose

(5) Under some provisions of this Act it is important to decide whether you used property for the purpose of producing assessable income. For provisions of that kind, your use of property is taken to be for that purpose insofar as you use the property for: (a) managing your *tax affairs; or (b) complying with an obligation imposed on you by a *Commonwealth law, insofar as that obligation relates to the *tax affairs of another entity. *

Example: You buy a computer to prepare your tax returns. The expenditure you incur in buying the computer is capital expenditure and cannot be deducted under this section. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) You can deduct expenditure you incur to the extent that it is for: (a) managing your *tax affairs; or (b) complying with an obligation imposed on you by a *Commonwealth law, insofar as that obligation relates to the *tax affairs of an entity; or (c) the *general interest charge or the *shortfall interest charge; or (ca) a penalty under Subdivision 162-D of the *GST Act; or (cb) levy under the Major Bank Levy Act 2017; or (d) obtaining a valuation in accordance with section 30-212 or 31-15.

Income Tax Assessment Act 1997

s 25-5 However, to the extent that you use the computer in preparing your income tax return, you will be able to deduct the decline in value of your computer under Division 40. That is because, under this subsection, the computer is property that you are taken to use for the purpose of producing assessable income.

(6) If another provision of this Act expressly provides that a particular use of property is not taken to be for the *purpose of producing assessable income, that provision overrides subsection (5). No double deduction for general interest charge on a running balance account

(7) If you deduct *general interest charge that applies to an RBA deficit debt, you can’t also deduct the corresponding general interest charge on *tax debts that have been allocated to the RBA. Note: RBAs (running balance accounts) are dealt with in Part IIB of the Taxation Administration Act 1953. Expenditure by trustee of deceased estate

(8) If: (a) after you die, the trustee of your deceased estate incurs expenditure; and (b) had you incurred the expenditure before you died, you could have deducted it under subsection (1); for the purposes of assessing the trustee for the income year in which you died, the expenditure is a deduction under that subsection. 25-10

Repairs

(1) You can deduct expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the *purpose of producing assessable income.

*

Property held or used partly for that purpose

(2) If you held or used the property only partly for that purpose, you can deduct so much of the expenditure as is reasonable in the circumstances. No deduction for capital expenditure

(3) You cannot deduct capital expenditure under this section. 25-15

Amount paid for lease obligation to repair

You can deduct an amount that you pay for failing to comply with a lease obligation to make repairs to premises if you use or have used the premises for the *purpose of producing assessable income. Note: The amount is assessable income of the entity to which you pay it: either as ordinary income under section 6-5 or because it is included by section 15-25. 25-20

Lease document expenses

(1) You can deduct expenditure you incur for preparing, registering or stamping: (a) a lease of property; or (b) an assignment or surrender of a lease of property; if you have used or will use the property solely for the *purpose of producing assessable income. Property used partly for that purpose

(2) If you have used, or will use, the leased property only partly for that purpose, you can deduct the expenditure to the extent that you have used, or will use, the leased property for that purpose. 25-25

Borrowing expenses

(1) You can deduct expenditure you incur for *borrowing money, to the extent that you use the money for the *purpose of producing assessable income. In most cases the deduction is spread over the *period of the loan. For the cases where the deduction is not spread, see subsection (6). Note: Your deductions under this section may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 25-25 Income year when money used solely for the purpose of producing assessable income

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 25 – Some amounts you can deduct

(2) You can deduct for an income year the maximum amount worked out under subsection (4) if you use the *borrowed money during that income year solely for the *purpose of producing assessable income. Example: In 1997-98 you borrow $100,000 and incur expenditure of $1,500 for the borrowing. You use the money to buy a house. Throughout 1998-99 you rent the house to a tenant. You can deduct for the expenditure for 1998-99 the maximum amount worked out under subsection (4). Income year when borrowed money used partly for that purpose

(3) If you use the money only partly for that purpose during that income year, you can deduct the proportion of that maximum amount that is appropriate having regard to the extent that you used the * borrowed money for that purpose. Note: You cannot deduct anything for that income year if you do not use the money for that purpose at all during that income year. Maximum deduction for an income year

Method statement Step 1. Work out the remaining expenditure as follows: • For the income year in which the *period of the loan begins, it is the amount of the expenditure. • For a later income year, it is the amount of the expenditure reduced by the maximum amount that you can deduct for the expenditure for each earlier income year. Step 2. Work out the remaining loan period as follows: • For the income year in which the *period of the loan begins, it is the period of the loan (as determined at the end of the income year). • For a later income year, it is the period from the start of the income year until the end of the period of the loan (as determined at the end of the income year). Step 3. Divide the remaining expenditure by the number of days in the remaining loan period. Step 4. Multiply the result from Step 3 by the number of days in the remaining loan period that are in the income year. Example: To continue the example in subsection (2): suppose the original period of the loan is 4 years starting on 1 September 1997. What is the maximum amount you can deduct for the expenditure for 1997-98? Applying the method statement: After Step 1: the remaining expenditure is $1,500 (the amount of the expenditure). After Step 2: the remaining loan period is 4 years from 1 September 1997 (1,461 days). After Step 3: the result is $1,500 divided by 1,461 = $1.03. After Step 4: the result is $1.03 multiplied by 302 days = $310.06. Suppose you repay the loan early, on 31 December 1998. What is the maximum amount you can deduct for the expenditure for 1998-99? Applying the method statement: After Step 1: the remaining expenditure is $1,500 (the amount of the expenditure) reduced by $310.06 (the maximum amount you can deduct for 1997-98) = $1,189.94. After Step 2: the remaining loan period is the period from 1 July 1998 to 31 December 1998 (183 days). After Step 3: the result is $1,189.94 divided by 183 days = $6.50. After Step 4: the result is $6.50 multiplied by 183 days = $1,189.94. Meaning of period of the loan

(5) The period of the loan is the shortest of these periods: (a) the period of the loan as specified in the original loan contract; * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(4) You work out as follows the maximum amount that you can deduct for the expenditure for an income year:

Income Tax Assessment Act 1997

s 25-25

(b)

the period starting on the first day on which the money was borrowed and ending on the day the loan is repaid; (c) 5 years starting on the first day on which the money was borrowed.

When deduction not spread

(6) If the total of the following is $100 or less: (a) each amount of expenditure you incur in an income year for *borrowing money you use during that income year solely for the *purpose of producing assessable income; (b) for each amount of expenditure you incur in that income year for borrowing money you use during that income year only partly for that purpose—the proportion of that amount that is appropriate having regard to the extent that you use the money during that income year for that purpose; you can deduct for the income year: (c) each amount covered by paragraph (a); and (d) each proportion covered by paragraph (b). 25-30 Expenses of discharging a mortgage Mortgage for borrowed money

(1) You can deduct expenditure you incur to discharge a mortgage that you gave as security for the repayment of money that you *borrowed if you used the money solely for the *purpose of producing assessable income. Mortgage for property bought

(2) You can deduct expenditure you incur to discharge a mortgage that you gave as security for the payment of the whole or part of the purchase price of property that you bought if you used the property solely for the *purpose of producing assessable income. Money or property used partly for that purpose

(3) If you used the money you *borrowed, or the property you bought, only partly for the purpose of producing assessable income, you can deduct the expenditure to the extent that you used the money or property for that purpose. *

No deduction for payments of principal or interest

(4) You cannot deduct payments of principal or interest under this section. 25-35

Bad debts

(1) You can deduct a debt (or part of a debt) that you write off as bad in the income year if: (a) it was included in your assessable income for the income year or for an earlier income year; or (b) it is in respect of money that you lent in the ordinary course of your *business of lending money. Note: If a bad debt is in respect of a payment that is required to be made under a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936): see subsection 63(1A) of that Act. Writing off a debt you have bought

(2) You can deduct a debt that you write off as bad in the income year if you bought the debt in the ordinary course of your *business of lending money. However, you cannot deduct more than the expenditure you incurred in buying the debt. Writing off part of a debt you have bought

(3) You can deduct a part of a debt if: (a) you write off that part as bad in the income year; and (b) you bought the debt in the ordinary course of your *business of lending money. (4) However, the maximum that you can deduct under subsection (3) for one or more income years is the amount (if any) by which: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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• the expenditure you incurred in buying the debt; exceeds: • so much of the debt as has not yet been written off as bad.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 25 – Some amounts you can deduct

Limit on deductions for bad debts under leases of luxury cars

(4A) There is a limit to how much you can deduct under this section for debts you write off that relate to *luxury car lease payments that have become or will become liable to be made under a lease of a *car to which Division 242 (about luxury car leases) applies. (4B) The most you can deduct for an income year is: • the interest for the notional loan you are taken to have made to the lessee; reduced by: • each amount that you have deducted, or can deduct, for an earlier income year under this section (or section 63 of the Income Tax Assessment Act 1936) for debts relating to *luxury car lease payments that have become or will become liable to be made under the lease. (4C) [Repealed] Special rules affecting deductions under this section

(5) The rules described in the table may affect your entitlement to deductions under this section, or may result in a deduction being reversed. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. See: Subdivisions 165-C and 166-C

ITAA 1997

Rules affecting deductions for bad debts Item For the rules about this situation: 1 A company cannot deduct a bad debt if there has been a change in ownership or control of the company and the company has not satisfied the business continuity test. 2 A company cannot deduct a bad debt in various other cases that may involve trafficking in bad debts. 3 A deduction under this section is reduced if the debt is forgiven and the debtor and creditor are companies under common ownership and agree for the creditor to forgo the deduction to a specified extent. 4 If you receive an amount as recoupment of a bad debt that you can deduct under this section, the amount may be included in your assessable income. 5 Certain trusts cannot deduct a bad debt if there has been a change in ownership or control or an abnormal trading in their units 6 An entity that used to be a member of a consolidated group or MEC group can deduct a bad debt that used to be owed to a member of the group only if certain conditions are met

Subdivision 175-C and section 63D section 245-90

Subdivision 20-A

Divisions 266 and 267 in Schedule 2F Subdivisions 709-D and 719-I

Note: Subsections 230-180(3), (5) and (6) and 230-195(3), (5) and (6) provide that in certain circumstances a deduction for a loss in relation to a financial arrangement is to be treated, for the purposes of this Act, as a deduction of a bad debt. The rules referred to in this subsection apply to that deduction. 25-40

Loss from profit-making undertaking or plan

(1) You can deduct a loss arising from the carrying on or carrying out of a profit-making undertaking or plan if any profit from that plan would have been included in your assessable income by section 15-15 (which is about profit-making undertakings and plans). When section does not apply

(2) You cannot deduct a loss under subsection (1) if the loss arises in respect of the sale of property acquired on or after 20 September 1985. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 25-40 Note: If you sell property you acquired before 20 September 1985 for profit-making by sale, you may be able to deduct a loss on the sale: see section 52 of the Income Tax Assessment Act 1936. Notice to Commissioner

(3) You can deduct a loss under subsection (1), insofar as it arises in respect of property, only if: (a) you notified the Commissioner that you acquired the property for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or plan (however described); or (b) the Commissioner is satisfied that you acquired the property for either of those purposes. When notice must have been given

(4) The notice must have been given at or before the time you lodged your *income tax return: (a) for the income year in which you acquired the property; or (b) if you were not required to lodge an income tax return for that income year—for the first income year after that income year for which you were required to lodge one. 25-45

Loss by theft etc.

You can deduct a loss in respect of money if: (a) you discover the loss in the income year; and (b) the loss was caused by theft, stealing, embezzlement, larceny, defalcation or misappropriation by your employee or *agent (other than an individual you employ solely for private purposes); and (c) the money was included in your assessable income for the income year, or for an earlier income year. Note: If you receive an amount as recoupment of the loss, the amount may be included in your assessable income: see Subdivision 20-A. 25-47

Misappropriation where a balancing adjustment event occurs

(1) You can deduct an amount if: (a) a *balancing adjustment event occurs for a *depreciating asset you *held; and (b) your employee or *agent misappropriates (whether by theft, embezzlement, larceny or otherwise) all or part of the amount applicable to you under: (i) item 8 of the table in subsection 40-300(2); or (ii) item 1, 3, 4 or 6 of the table in subsection 40-305(1); in relation to the balancing adjustment event. Note 1: The amount applicable to you under subsection 40-300(2) or 40-305(1) may be the market value of an asset or of a non-cash benefit. Note 2: If you receive an amount as recoupment of the amount misappropriated, the amount may be included in your assessable income: see Subdivision 20-A.

(2) The amount you can deduct is so much of the amount misappropriated as represents an amount applicable to you under item 8 of the table in subsection 40-300(2) or item 1, 3, 4 or 6 of the table in subsection 40-305(1) in relation to the *balancing adjustment event. (3) You can deduct the amount for the income year in which the misappropriation happens. (4) You must reduce the amount you can deduct under this section if your deductions for the asset have been reduced under section 40-25 because of use for a purpose other than a *taxable purpose. The reduction is by the same proportion you reduce the balancing adjustment amount for the asset under section 40-290. (4A) You must further reduce the amount you can deduct under this section if your deductions for the asset have been reduced under section 40-27 (about second-hand assets in residential property). The reduction is by the same proportion you reduce the balancing adjustment amount for the asset under section 40-291. (5) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purposes of giving effect to this section for an income year if: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) you discover the misappropriation after you lodged your *income tax return for the income year; and (b) the amendment is made at any time during the period of 4 years starting immediately after you discover the misappropriation. 25-50

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 25 – Some amounts you can deduct

Payments of pensions, gratuities or retiring allowances

(1) You can deduct a payment of a pension, gratuity or retiring allowance that you make to: (a) an employee; or (b) a former employee; or (c) a dependant of an employee or a former employee. (2) However, you can deduct it only to the extent that it is made in good faith in consideration of the past services of the employee, or former employee, in any *business that you carried on for the purpose of gaining or producing assessable income. (3) You cannot deduct a payment under this section if you can deduct it under any other provision of this Act. 25-55

Payments to associations

Note: Alternatively, you can deduct the expense under section 8-1 (which is about general deductions) if you satisfy the requirements of that section. Maximum amount—$42

(2) However, $42 is the maximum amount you can deduct under this section for the payments that you make in the income year to any one association. If you deduct under section 8-1

(3) If you deduct a payment under section 8-1 (which is about general deductions) instead of this section: (a) the payment does not count towards the $42 limit; and (b) the amount that you can deduct for the payment is not limited to $42. 25-60

Parliament election expenses

(1) You (a) (b) (c) (d)

can the the the the

deduct expenditure you incur in contesting an election for membership of: Parliament of the Commonwealth; or Parliament of a State; or Legislative Assembly for the Australian Capital Territory; or Legislative Assembly of the Northern Territory of Australia.

Note 1: Entertainment expenses are excluded: see section 25-70. Note 2: If you receive an amount as recoupment of the expenditure, the amount may be included in your assessable income: see Subdivision 20-A.

(2) [Repealed] 25-65

[not reproduced]

25-70

Deduction for election expenses does not extend to entertainment

(1) To the extent that you incur expenditure in respect of providing *entertainment, you cannot deduct it under section 25-60 or 25-65. (2) However, subsection (1) does not stop you deducting expenditure to the extent that you incur it in respect of: (a) providing *entertainment that is available to the public generally; or (b) providing food or drink to yourself, unless it would be concluded that you have a purpose of enabling or facilitating *entertainment to be provided to someone else. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) You can deduct a payment you make for membership of a trade, business or professional association.

Income Tax Assessment Act 1997

s 25-75 25-75 [not reproduced] 25-85

Certain returns in respect of debt interests

(1) This section deals with a *return that an entity pays or provides on a *debt interest. (2) The *return is not prevented from being a *general deduction for an income year under section 8-1 merely because: (a) the return is *contingent on aspects of the economic performance (whether past, current or future) of: (i) the entity or a part of the entity’s activities; or (ii) a *connected entity of the entity or a part of the activities of a connected entity of the entity; or (b) the return secures a permanent or enduring benefit for the entity or a connected entity of the entity. (3) If the *return is a *dividend, the entity can deduct the return to the extent to which it would have been a *general deduction under section 8-1 if: (a) the payment of the return were the incurring by the entity of a liability to pay the same amount as interest; and (b) that interest were incurred in respect of the finance raised by the entity and in respect of which the return was paid or provided; and (c) the *debt interest retained its character as a debt interest for the purposes of subsection (2). (4) Subsections (2) and (3) do not apply to a *return to the extent to which it would be a *general deduction under section 8-1 apart from this section. (4A) Subsections (2) and (3) do not apply to a *return on a *debt interest that is a *Division 230 financial arrangement. (5) Subject to regulations made for the purposes of subsection (6), subsections (2) and (3) do not apply to the return to the extent to which the annually compounded internal rate of return exceeds the * benchmark rate of return for the interest increased by 150 basis points. (6) The regulations may provide that subsection (5) applies in the circumstances specified in the regulations as if the reference to 150 basis points were a reference to a greater or lesser number of basis points. 25-90

Deduction relating to foreign non-assessable non-exempt income

An *Australian entity can deduct an amount of loss or outgoing from its assessable income for an income year if: (a) the amount is incurred by the entity in deriving income from a foreign source; and (b) the income is *non-assessable non-exempt income under section 768-5, or section 23AI or 23AK of the Income Tax Assessment Act 1936; and (c) the amount is a cost in relation to a *debt interest issued by the entity that is covered by paragraph (1)(a) of the definition of debt deduction. Note: This section does not apply to a Division 230 financial arrangement. 25-95

Deduction for work in progress amounts

(1) You can deduct a *work in progress amount that you pay for the income year in which you pay it to the extent that, as at the end of that income year: (a) a recoverable debt has arisen in respect of the completion or partial completion of the work to which the amount related; or (b) you reasonably expect a recoverable debt to arise in respect of the completion or partial completion of that work within the period of 12 months after the amount was paid. (2) You can deduct the remainder (if any) of the *work in progress amount for the following income year. (3) An amount is a work in progress amount to the extent that: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) an entity agrees to pay the amount to another entity (the recipient); and (b) the amount can be identified as being in respect of work (but not goods) that has been partially performed by the recipient for a third entity but not yet completed to the stage where a recoverable debt has arisen in respect of the completion or partial completion of the work. (4) An amount does not stop being a work in progress amount merely because it is paid after a recoverable debt has arisen in respect of the completion or partial completion of the work to which the amount related. 25-105

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 25 – Some amounts you can deduct

[not reproduced]

25-100 Travel between workplaces When a deduction is allowed

(1) If you are an individual, you can deduct a *transport expense to the extent that it is incurred in your *travel between workplaces. (2) Your travel between workplaces is travel directly between 2 places, to the extent that: (a) while you were at the first place, you were: (i) engaged in activities to gain or produce your assessable income; or (ii) engaged in activities in the course of carrying on a *business for the purpose of gaining or producing your assessable income; and (b) the purpose of your travel to the second place was to: (i) engage in activities to gain or produce your assessable income; or (ii) engage in activities in the course of carrying on a business for the purpose of gaining or producing your assessable income; and you engaged in those activities while you were at the second place. (3) Travel between 2 places is not travel between workplaces if one of the places you are travelling between is a place at which you reside. (4) Travel between 2 places is not travel between workplaces if, at the time of your travel to the second place: (a) the arrangement under which you gained or produced assessable income at the first place has ceased; or (b) the *business in respect of which you engaged in activities at the first place has ceased. No deduction for capital expenditure

(5) You cannot deduct expenditure under subsection (1) to the extent that the expenditure is capital, or of a capital nature. 25-110

Capital expenditure to terminate lease etc.

(1) You can deduct an amount for capital expenditure you incur to terminate a lease or licence (including an authority, permit or quota) that results in the termination of the lease or licence if the expenditure is incurred: (a) in the course of carrying on a *business; or (b) in connection with ceasing to carry on a business. (2) The amount you can deduct is 20% of the expenditure: (a) for the income year in which the lease or licence is terminated; and (b) for each of the next 4 income years. Exceptions

(3) You cannot deduct any amount for expenditure you incur to terminate a lease that, in accordance with *accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, is classified as a finance lease. (4) If you incurred the expenditure under an *arrangement and: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Travel between workplaces

Income Tax Assessment Act 1997

s 25-110

(a) there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and (b) apart from this subsection, the amount of the expenditure would be more than the * market value of what it was for (assuming the termination did not occur and was never proposed to occur); the amount of expenditure you take into account is that market value. (5) You cannot deduct any amount for expenditure you incur to terminate a lease or licence if: (a) after the termination, you or an *associate of yours enters into another lease or licence with the same party or an associate of that party; and (b) the other lease or licence is of the same kind as the original one. (6) You cannot deduct any amount for expenditure you incur to terminate a lease or licence to the extent that the expenditure is for the granting or receipt of another lease or licence in relation to the asset that was the subject of the original lease or licence. 25-115 and 25-120

[not reproduced]

DIVISION 26 – SOME AMOUNTS YOU CANNOT DEDUCT, OR CANNOT DEDUCT IN FULL GUIDE TO DIVISION 26 26-1

What this Division is about

This Division sets out some amounts that you cannot deduct, or that you cannot deduct in full.

Operative 26-5 26-10 26-19 26-20 26-22 26-25 26-25A 26-26 26-30 26-35 26-40 26-45 26-52 26-53 26-54 26-55 26-60 26-74 26-75 26-80 26-85 26-90 26-95 26-97 26-98 26-99 26-105

Table of sections provisions Penalties Leave payments Rebatable benefits Assistance to students Political contributions and gifts Interest or royalty Seasonal Labour Mobility Program Non-share distribution and dividends Relative’s travel expenses Reducing deductions for amounts paid to related entities Maintaining your family Recreational club expenses Bribes to foreign public officials Bribes to public officials Expenditure relating to illegal activities Limit on deductions Superannuation contributions surcharge Excess concessional contributions charge cannot be deducted Excess non-concessional contributions tax cannot be deducted Financing costs on loans to pay superannuation contribution Borrowing costs on loans to pay life insurance premiums Superannuation supervisory levy Superannuation guarantee charge National Disability Insurance Scheme expenditure Division 293 tax cannot be deducted Excess transfer balance tax cannot be deducted Non-compliant payments for work and services

OPERATIVE PROVISIONS 26-5

Penalties

(1) You cannot deduct under this Act: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) an amount (however described) payable, by way of penalty, under an *Australian law or a *foreign law; or (b) an amount ordered by a court to be paid on the conviction of an entity for an offence against an *Australian law or a *foreign law. (2) This section does not apply to an amount payable, by way of penalty, under Subdivision 162-D of the *GST Act.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 26 – Some amounts you cannot deduct, or cannot deduct in full

Note: See paragraph 25-5(1)(ca) for the deductibility of penalties that arise under Subdivision 162-D of the GST Act. Leave payments

(1) You cannot deduct under this Act a loss or outgoing for long service leave, annual leave, sick leave or other leave except: (a) an amount paid in the income year to the individual to whom the leave relates (or, if that individual has died, to that individual’s dependant or *legal personal representative); or (b) an *accrued leave transfer payment that is made in the income year. (2) An accrued leave transfer payment is a payment that an entity makes: (a) in respect of an individual’s leave (some or all of which accrued while the entity was required to make payments in respect of the individual’s leave, or leave the individual might take); and (b) when the entity is no longer required (or is about to stop being required) to make payments in respect of such leave; and (c) to another entity when the other entity has begun (or is about to begin) to be required to make payments in respect of such leave; and (d) under (or for the purposes of facilitating the provisions of) an *Australian law, or an award, order, determination or industrial agreement under an *Australian law. It does not matter whether the leave accrues to the individual as an employee or for some other reason. Example: Your employee goes to a new employer. You pay the new employer $2,000 for the employee’s unused long service leave because an industrial agreement requires you to make that payment. Note: An accrued leave transfer payment is included in the assessable income of the entity to which it is made: see section 15-5. 26-15 and 26-17 26-19

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Rebatable benefits

(1) You cannot deduct under this Act a loss or outgoing to the extent that the loss or outgoing is incurred in gaining or producing a rebatable benefit (within the meaning of section 160AAA of the Income Tax Assessment Act 1936). (2) To the extent that you use property in gaining or producing a rebatable benefit, your use of the property is taken not to be for the *purpose of producing assessable income if subsection (1) would stop you deducting a loss or outgoing if you incurred it in the income year in gaining or producing the rebatable benefit. Note: Under some provisions of this Act, in order to deduct an amount for your property, you must have used the property for the purpose of producing assessable income. 26-20

Assistance to students

(1) You (a) (b) (c) (ca)

cannot deduct under this Act: [Repealed] [Repealed] [Repealed] a student contribution amount within the meaning of the Higher Education Support Act 2003 paid to a higher education provider (within the meaning of that Act); or (cb) a payment made to reduce a debt to the Commonwealth under Chapter 4 of that Act; or

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(cba) (cc) (cd) (ce) (d)

a payment made to reduce a debt to the Commonwealth under Part 3A of the VET Student Loans Act 2016; or a payment made to reduce a debt to the Commonwealth under Chapter 2AA of the Social Security Act 1991 or Part 2 of the Student Assistance Act 1973; or a payment made to reduce a debt to the Commonwealth under Chapter 3 of the Trade Support Loans Act 2014; or a payment made to reduce a liability to overseas debtors repayment levy under the Student Loans (Overseas Debtors Repayment Levy) Act 2015; or a payment made to reduce a debt to the Commonwealth, or to a participating corporation, under Chapter 2B of the Social Security Act 1991 or Part 4A of the Student Assistance Act 1973.

Exception when you provide a fringe benefit

(2) Subsection (1) does not stop you deducting expenditure you incur in *providing a *fringe benefit. 26-22 Political contributions and gifts You cannot deduct political contributions or gifts

(1) You cannot deduct under this Act (other than Subdivision 30-DA): (a) a contribution (including a membership fee) or gift to a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation; or (b) a contribution or gift to an individual when the individual is a candidate in an election for members of: (i) an *Australian legislature; or (ii) a *local governing body; or (c) a contribution or gift to an individual who is a member of: (i) an Australian legislature; or (ii) a local governing body. Exception for employees and offıce holders

(2) However, subsection (1) does not apply to a loss or outgoing incurred in gaining or producing assessable income from which an amount is required to be withheld under section 12-35 or 12-45 in Schedule 1 to the Taxation Administration Act 1953. Note: These provisions of the Taxation Administration Act 1953 require amounts to be withheld from income of employees and office holders. Starting and stopping being a candidate

(3) For the purposes of this section, an individual: (a) starts being a candidate when the individual’s intention to be or to attempt to be a candidate for the election is publicly available; and (b) stops being a candidate at the earlier of: (i) the time when the result of the election is declared or otherwise publicly announced by an entity (an electoral official) authorised under the relevant electoral legislation; and (ii) the time (if any) when the individual’s intention to no longer be a candidate for the election is publicly available. Starting being a member

(4) An individual who becomes a member as a result of an election (including an election that is later declared void) is taken to start being a member when the individual’s election as a member is declared or otherwise publicly announced by an electoral official. 26-25

Interest or royalty

(1) You cannot deduct under this Act interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936) or a *royalty if: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) Subdivision 12-F in Schedule 1 to the Taxation Administration Act 1953 requires you to withhold an amount from the interest or royalty; and (b) either: (i) you fail to withhold the amount; or (ii) after withholding the amount, you fail to comply with section 16-70 in that Schedule in relation to that amount. (2) You cannot deduct under this Act interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936), or a *royalty, that is in the form of a *non-cash benefit if: (a) section 14-5 or 14-10 in Schedule 1 to the Taxation Administration Act 1953 requires you to pay an amount to the Commissioner before providing the benefit, because of Subdivision 12-F in that Schedule; and (b) you fail to pay the amount as required by that section. (3) If: (a) apart from subsection (1) or (2), you can deduct interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936) or a *royalty for an income year; and (b) the *withholding tax payable for the interest or the royalty is paid; you can deduct the interest or royalty for that income year.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 26 – Some amounts you cannot deduct, or cannot deduct in full

(1) You cannot deduct under this Act salary, wages, commission, bonuses or allowances from which Subdivision 12-FC in Schedule 1 to the Taxation Administration Act 1953 (about the Seasonal Labour Mobility Program) requires you to withhold an amount, to the extent that: (a) you fail to withhold the amount; or (b) after withholding the amount, you fail to comply with section 16-70 in that Schedule in relation to that amount. Note: Section 16-70 in that Schedule requires you to pay the amount to the Commissioner. Deduction to extent amount not withheld but withholding tax paid

(2) You can deduct, for an income year, salary, wages, commission, bonuses or allowances to the extent that: (a) you cannot deduct the salary, wages, commission, bonuses or allowances for that income year only because of subsection (1) of this section; and (b) the *Seasonal Labour Mobility Program withholding tax payable for the salary, wages, commission, bonuses or allowance is paid. 26-26

Non-share distributions and dividends

(1) A company cannot deduct under this Act: (a) a *non-share distribution; or (b) a return that has accrued on a *non-share equity interest. (2) A company cannot deduct a *dividend paid on an *equity interest in the company as a *general deduction under this Act. 26-30

Relative’s travel expenses

(1) You cannot deduct under this Act a loss or outgoing you incur, insofar as it is attributable to your *relative’s travel, if: (a) you travelled in the course of performing your duties as an employee, or in the course of carrying on a *business for the purpose of gaining or producing your assessable income; and (b) your relative accompanied you while you travelled. Exception to subsection (1)

(2) Subsection (1) does not stop you deducting a loss or outgoing if: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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26-25A Seasonal Labour Mobility Program No deduction to extent amount not withheld

Income Tax Assessment Act 1997

s 26-30

(a) your *relative, while accompanying you, performed substantial duties as your employer’s employee, or as your employee; and (b) it is reasonable to conclude that your relative would still have accompanied you even if he or she had not had a personal relationship with you. Exception when you provide a fringe benefit

(3) Subsection (1) does not stop you deducting expenditure you incur in *providing a *fringe benefit. This section also applies to individuals who are not employees

(4) If an individual is not an employee, but receives, or is entitled to receive, *withholding payments covered by subsection (6), this section applies to the individual as if: (a) he or she were an employee; and (b) the entity, who pays (or is liable to pay) *withholding payments covered by subsection (6) that result in the individual being in receipt of, or entitled to receive, such payments, were the individual’s employer; and (c) any other individual who receives (or is entitled to receive) *withholding payments covered by subsection (6): (i) that result in that other individual being in receipt of, or entitled to receive, such payments; and (ii) that the entity pays (or is liable to pay) to that other individual; were an employee of the entity. This section also applies to entities who are not employers

(5) If an entity is not an employer, but pays (or is liable to pay) *withholding payments covered by subsection (6), this section applies to the entity as if: (a) it were an employer; and (b) an individual to whom the entity pays (or is liable to pay) such withholding payments were the entity’s employee. Withholding payments covered

(6) This subsection covers: (a) a *withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table; and (b) a withholding payment covered by section 12-47 in Schedule 1 to the Taxation Administration Act 1953 where: (i) the payment is made to a religious practitioner by a religious institution; and (ii) the activity, or series of activities, for which the payment is made is done by the religious practitioner as a member of the religious institution. Withholding payments covered Item Provision 1 Section 12-40 2 Section 12-45 3 Section 12-50 4 Subdivision 12-D

26-31

Subject matter Payment to company director Payment to office holder Return to work payment Benefit, training and compensation payments

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26-35 Reducing deductions for amounts paid to related entities You can only deduct reasonable amounts paid to related entities

(1) If, under another provision of this Act, you can deduct an amount for a payment you make, or for a liability you incur, to a *related entity, then you can only deduct so much of the amount as the Commissioner considers reasonable. Note: This section has a special operation if the payment is made, or the liability is incurred, by a * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 26-52 partnership in which a private company is a partner: see section 65 (Payments to associated persons and relatives) of the Income Tax Assessment Act 1936.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 26 – Some amounts you cannot deduct, or cannot deduct in full

Meaning of related entity

(2) A related entity is any of the following: (a) your *relative; or (b) a partnership in which your relative is a partner. (3) In the case of a partnership, a related entity is any of the following: (a) a *relative of a partner in the partnership; (b) an individual who is or has been a director of a company that is a partner in the partnership and is a *private company for the income year; (c) an entity that is or has been a shareholder in a company of that kind; (d) a *relative of an individual who is or has been a director or shareholder of a company of that kind; (e) a beneficiary of a trust if the trustee is a partner in the partnership; (f) a *relative of a beneficiary of a trust if the trustee is a partner in the partnership; (g) another partnership, if a partner in the other partnership is a *relative of a partner in the first partnership. However, a partner in a partnership is not a related entity of the partnership. (4) To the extent that subsection (1) stops you deducting an amount, the amount is neither assessable income, nor exempt income, of the *related entity. (5) [Repealed] 26-40

Maintaining your family

You cannot deduct under this Act expenditure you incur for maintaining: (a) your *spouse (except a spouse permanently living separately and apart from you); or (b) your *child who is under 16 years. Example: A farmer cannot deduct an amount for food or lodgings that the farmer provides to his or her child who is under 16 years for the work the child performs on the farm. 26-45

Recreational club expenses

(1) You cannot deduct under this Act a loss or outgoing to the extent you incur it to obtain or maintain: (a) membership of a *recreational club; or (b) rights to enjoy (otherwise than as a *member) facilities provided by a *recreational club for the use or benefit of its *members; whether for yourself or someone else. Meaning of recreational club

(2) A recreational club is a company that was established or is carried on mainly to provide facilities, for the use or benefit of its *members, for drinking, dining, *recreation or entertainment. Exception when you provide a fringe benefit

(3) Subsection (1) does not stop you deducting expenditure you incur in *providing a *fringe benefit. 26-47 and 26-50 26-52

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Bribes to foreign public officials

(1) You cannot deduct under this Act a loss or outgoing you incur that is a *bribe to a foreign public official. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Income Tax Assessment Act 1997

s 26-52

(2) and (2A) not reproduced Payments that written law of foreign public offıcial’s country requires or permits (3) An amount is not a bribe to a foreign public official if, assuming the benefit had been provided, and all related acts had been done, in the *foreign public official’s country, a written law of that country would have required or permitted the provision of the benefit. Facilitation payments

(4) An amount is not a bribe to a foreign public official if: (a) the value of the benefit is of a minor nature; and (b) the amount is incurred for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature. (5) For the purposes of this section, a routine government action is an action of a *foreign public official that: (a) is ordinarily and commonly performed by the official; and (b) is covered by any of the following subparagraphs: (i) granting a permit, licence or other official document that qualifies a person to do business in a foreign country or in a part of a foreign country; (ii) processing government papers such as a visa or work permit; (iii) providing police protection or mail collection or delivery; (iv) scheduling inspections associated with contract performance or related to the transit of goods; (v) providing telecommunications services, power or water; (vi) loading and unloading cargo; (vii) protecting perishable products, or commodities, from deterioration; (viii) any other action of a similar nature; and (c) does not involve a decision about: (i) whether to award new business; or (ii) whether to continue existing business with a particular person; or (iii) the terms of new business or existing business; and (d) does not involve encouraging a decision about: (i) whether to award new business; or (ii) whether to continue existing business with a particular person; or (iii) the terms of new business or existing business. (6) to (8) not reproduced 26-53

Bribes to public officials

(1) You cannot deduct under this Act a loss or outgoing you incur that is a *bribe to a public official. (2) An amount is a bribe to a public official to the extent that: (a) you incur the amount in, or in connection with: (i) providing a benefit to another person; or (ii) causing a benefit to be provided to another person; or (iii) offering to provide, or promising to provide, a benefit to another person; or (iv) causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and (b) the benefit is not legitimately due to the other person (see subsection (3)); and (c) you incur the amount with the intention of influencing a *public official (who may or may not be the other person) in the exercise of the official’s duties as a public official in order to: (i) obtain or retain business; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(ii)

obtain or retain an advantage in the conduct of business that is not legitimately due to you, or another person, as the recipient, or intended recipient, of the advantage in the conduct of business (see subsection (4)). The benefit may be any advantage and is not limited to property. (3) to (5) not reproduced 26-54

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 26 – Some amounts you cannot deduct, or cannot deduct in full

Expenditure relating to illegal activities

(1) You cannot deduct under this Act a loss or outgoing to the extent that it was incurred in the furtherance of, or directly in relation to, a physical element of an offence against an *Australian law of which you have been convicted if the offence was, or could have been, prosecuted on indictment. (2) Despite section 170 of the Income Tax Assessment Act 1936, the Commissioner may amend your assessment at any time within 4 years after you are convicted of the relevant offence for the purpose of giving effect to subsection (1) of this section. Limit on deductions

(1) There is a limit on the total of the amounts you can deduct for the income year under these provisions: (a) section 25-50 (which is about payments of pensions, gratuities or retiring allowances) of this Act; (ba) Division 30 (which is about deductions for gifts or contributions) of this Act; (bb) Division 31 (which is about deductions for conservation covenants) of this Act; (b) [Repealed] (c) [Repealed] (d) section 290-150 (which is about deductions for personal superannuation contributions). Do not include in the total an amount that you could also deduct under another provision of this Act, apart from section 8-10 (which prevents double deductions). (2) The limit is worked out by subtracting from your assessable income all your deductions except: (a) *tax losses; and See Division 36 (which is about tax losses of earlier income years).

(b) [Repealed] (c) the amount you can deduct for the income year under section 393-5 (which provides for deductions for making *farm management deposits). 26-60

Superannuation contributions surcharge

You cannot deduct under this Act: (a) a superannuation contributions surcharge within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997; or (b) a superannuation contributions surcharge within the meaning of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997. 26-68 and 26-70 26-74

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Excess concessional contributions charge cannot be deducted

You cannot deduct under this Act an amount of *excess concessional contributions charge that you pay. 26-75

Excess non-concessional contributions tax cannot be deducted

You cannot deduct under this Act an amount of *excess non-concessional contributions tax that you pay. 26-80

Financing costs on loans to pay superannuation contribution

(1) You can only deduct under this Act a *financing cost connected with a contribution you make to a *superannuation plan if you can deduct the contribution under Subdivision 290-B. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(2) A financing cost connected with a contribution is expenditure incurred to the extent that it relates to obtaining finance to make the contribution, including: (a) interest, and payments in the nature of interest; and (b) expenses of borrowing. 26-85

Borrowing costs on loans to pay life insurance premiums

(1) You can only deduct under this Act interest on, or other expenses associated with, money you borrow to pay a premium for a *life insurance policy if: (a) the *risk component of the premium received by the insurer is the entire amount of the premium; and (b) each amount the insurer is liable to pay under the policy would be included in your assessable income if it were paid. (2) The risk component of a premium for a *life insurance policy means the amount of the premium worked out on the basis specified in the regulations. 26-90

Superannuation supervisory levy

You cannot deduct under this Act so much of a levy imposed by the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 as represents the late lodgment amount (within the meaning of section 6 of that Act). 26-95

Superannuation guarantee charge

You cannot deduct under this Act a charge imposed by the Superannuation Guarantee Charge Act 1992. 26-97

National Disability Insurance Scheme expenditure

A participant (within the meaning of the National Disability Insurance Scheme Act 2013) cannot deduct under this Act a loss or outgoing to the extent the loss or outgoing is funded (including funded by way of reimbursement) by an *NDIS amount the participant *derives. 26-98

Division 293 tax cannot be deducted

You cannot deduct under this Act any of the following: (a) an amount of *Division 293 tax that you pay; (b) an amount of *debt account discharge liability that you pay. 26-99

Excess transfer balance tax cannot be deducted

You cannot deduct under this Act an amount of *excess transfer balance tax that you pay. 26-100 and 26-102

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26-105 Non-compliant payments for work and services No deduction if amount not withheld or Commissioner not notified

(1) You cannot deduct under this Act a payment if: (a) any of the following provisions in Schedule 1 to the Taxation Administration Act 1953 require you to withhold an amount from the payment: (i) section 12-35 (about payments to employees); (ii) section 12-40 (about payments to directors); (iii) section 12-47 (about payments to *religious practitioners); (iv) section 12-60 (about payments under labour hire and certain other arrangements); (v) in relation to a *supply, other than a supply referred to in subsection (3) of this section—section 12-190 (about quoting of *ABN); and (b) either: (i) you fail to withhold an amount (whether or not that amount is the amount required to be withheld as mentioned in paragraph (a)) from the payment; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(ii)

after withholding the amount from the payment, you fail to comply, or purportedly comply, with section 16-150 or 389-5 (as the case requires) in that Schedule, in relation to the amount. (2) You cannot deduct under this Act a *non-cash benefit if: (a) section 14-5 in Schedule 1 to the Taxation Administration Act 1953 requires you to pay an amount to the Commissioner before providing the benefit, because of any of the following provisions in that Schedule: (i) section 12-35 (about payments to employees); (ii) section 12-40 (about payments to directors); (iii) section 12-47 (about payments to *religious practitioners); (iv) section 12-60 (about payments under labour hire and certain other arrangements); (v) in relation to a *supply, other than a supply referred to in subsection (3) of this section—section 12-190 (about quoting of *ABN); and (b) you fail to comply, or purportedly comply, with section 16-150 in that Schedule in relation to the amount. (3) For the purposes of subparagraphs (1)(a)(v) and (2)(a)(v), the supplies are supplies that are wholly a *supply of either or both of the following: (a) a supply of goods (within the meaning of section 195-1 of the *GST Act); (b) a supply of real property (within the meaning of that section of that Act).

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 26 – Some amounts you cannot deduct, or cannot deduct in full

(4) Subsection (1) or (2) does not apply if the amount required to be withheld, or the amount required to be paid to the Commissioner, (as the case requires) is a nil amount. Exception—ABN quoted

(5) Subsection (1) does not apply in relation to an amount required to be withheld from a payment under section 12-35 in Schedule 1 to the Taxation Administration Act 1953, if: (a) when the payment is made, you have been given: (i) an *invoice or some other document that relates to the payment that *quotes the individual’s *ABN; or (ii) if the payment relates to a *supply that has been made through an *agent—an invoice or some other document that relates to the payment that quotes the agent’s ABN; or (b) when the payment is made: (i) you have been given an invoice or some other document that relates to the payment that purports to quote the individual’s ABN; and (ii) the individual does not have an ABN, or the invoice or other document does not in fact quote the individual’s ABN; and (iii) you have no reasonable grounds to believe that the individual does not have an ABN, or that the invoice or other document does not quote the individual’s ABN; or (c) if the payment relates to a supply that has been made through an agent—when the payment is made: (i) you have been given an invoice or some other document that relates to the payment that purports to quote the agent’s ABN; and (ii) the agent does not have an ABN, or the invoice or other document does not in fact quote the agent’s ABN; and (iii) you have no reasonable grounds to believe that the agent does not have an ABN, or that the invoice or other document does not quote the agent’s ABN. (6) Subsection (2) does not apply in relation to a *non-cash benefit that requires an amount to be paid to the Commissioner, if: (a) when the non-cash benefit is provided, you have been given: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Exception—nil amounts

Income Tax Assessment Act 1997

s 26-105

an *invoice or some other document that relates to the non-cash benefit that quotes the individual’s *ABN; or (ii) if the non-cash benefit relates to a *supply that has been made through an * agent—an invoice or some other document that relates to the non-cash benefit that quotes the agent’s ABN; or (b) when the non-cash benefit is provided: (i) you have been given an invoice or some other document that relates to the non-cash benefit that purports to quote the individual’s ABN; and (ii) the individual does not have an ABN, or the invoice or other document does not in fact quote the individual’s ABN; and (iii) you have no reasonable grounds to believe that the individual does not have an ABN, or that the invoice or other document does not quote the individual’s ABN; or (c) if the non-cash benefit relates to a supply that has been made through an agent—when the non-cash benefit is provided: (i) you have been given an invoice or some other document that relates to the non-cash benefit that purports to quote the agent’s ABN; and (ii) the agent does not have an ABN, or the invoice or other document does not in fact quote the agent’s ABN; and (iii) you have no reasonable grounds to believe that the agent does not have an ABN, or that the invoice or other document does not quote the agent’s ABN. (i)

*

Exception—voluntarily tell the Commissioner about a mistake

(7) Subsection (1) does not apply if, before the Commissioner tells you that an examination is to be made of your affairs relating to a *taxation law for a relevant period, you voluntarily tell the Commissioner, in the *approved form, that you have failed to: (a) withhold an amount; or (b) comply with section 16-150 or 389-5 (as the case requires) in Schedule 1 to the Taxation Administration Act 1953 in relation to the amount. (8) Subsection (2) does not apply if, before the Commissioner tells you that an examination is to be made of your affairs relating to a *taxation law for a relevant period, you voluntarily tell the Commissioner, in the *approved form, that you have failed to comply with section 16-150 in Schedule 1 to the Taxation Administration Act 1953 in relation to the amount. DIVISION 27 – EFFECT OF INPUT TAX CREDITS ETC. ON DEDUCTIONS Table of Subdivisions Guide to Division 27 General Effect of input tax credits etc. on capital allowances

27-A 27-B

GUIDE TO DIVISION 27 27-1

What this Division is about

This Division sets out the effect of the GST in working out deductions. Generally speaking, input tax credits, GST and adjustments under the GST Act are disregarded. SUBDIVISION 27-A – GENERAL 27-5 27-10 27-15

Table of sections Input tax credits and decreasing adjustments Certain increasing adjustments GST payments

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Elements in calculation of amounts GST groups and GST joint ventures Certain sections not to apply to certain assets or expenditure

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 27 – Effect of input tax credits etc. on deductions

Input tax credits and decreasing adjustments

You cannot deduct under this Act a loss or outgoing you incur, to the extent that the loss or outgoing includes an amount relating to an *input tax credit to which you are entitled or a *decreasing adjustment that you have. Certain increasing adjustments

(1) You can deduct an amount of an *increasing adjustment that arises under Division 129 of the * GST Act. (2) However, you cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature. (3) If: (a) you have an *increasing adjustment under Division 138 of the *GST Act in respect of an asset as a result of the cancellation of your registration under Part 2-5 of the GST Act; and (b) immediately after the cancellation, you held the asset for the purpose of gaining or producing assessable income; you can deduct the amount of the increasing adjustment. (4) However, you cannot deduct an amount under subsection (1) or (3) to the extent that, because it becomes a component of a *net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits). 27-15

GST payments

(1) You cannot deduct under this Act a loss or outgoing consisting of a payment under Division 33 of the *GST Act. (2) This section does not apply to the payment: (a) to the extent (if any) that the *net amount to which the payment relates was increased under section 21-5 of the *Wine Tax Act (which allows for such increases to take account of wine equalisation tax); and (b) to the extent (if any) that the *net amount was increased under section 13-5 of the * Luxury Car Tax Act (which allows for such increases to take account of luxury car tax); and (c) to the extent (if any) that the *net amount was increased under paragraph 13-10(1)(a) of the Luxury Car Tax Act (which allows for such alterations to take account of increasing luxury car tax adjustments under that Act). (3) This section does not apply to the payment of *assessed GST (under section 33-15 of the * GST Act) on a *taxable importation that: (a) was not a *creditable importation; or (b) was *partly creditable; but only to the extent that that payment of assessed GST exceeds the *input tax credit (if any) to which you are entitled for that importation. 27-20

Elements in calculation of amounts

In calculating an amount that you may be able to deduct: (a) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any *input tax credit for an *acquisition related to the amount paid or payable, or any *decreasing adjustment related to that amount; and (b) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any *GST payable on a *taxable supply related to the amount received or receivable, or any *increasing adjustment related to that amount. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Income Tax Assessment Act 1997

s 27-25 27-25 GST groups and GST joint ventures

(1) A *member of a *GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the *GST Act (other than subsections 48-45(3) and (4)) did not apply to that member. (2) A *participant in a *GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the *GST Act did not apply to that participant. 27-35

Certain sections not to apply to certain assets or expenditure

Sections 27-5, 27-10, 27-15 and 27-20 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or 328. Note: See instead Subdivision 27-B. SUBDIVISION 27-B – EFFECT OF INPUT TAX CREDITS ETC. ON CAPITAL ALLOWANCES 27-80 27-85 27-87 27-90 27-92 27-95 27-100 27-105 27-110

Table of sections Cost or opening adjustable value of depreciating assets reduced for input tax credits Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments Certain decreasing adjustments included in assessable income Cost or opening adjustable value of depreciating assets increased: increasing adjustments Certain increasing adjustments can be deducted Balancing adjustment events Pooling Other Division 40 expenditure Input tax credit etc. relating to 2 or more things

27-80 Cost or opening adjustable value of depreciating assets reduced for input tax credits

(1) A *depreciating asset’s *cost is reduced if: (a) an entity’s acquisition or importation of the asset constitutes a *creditable acquisition or * creditable importation; and (b) the entity is or becomes entitled to an *input tax credit for the acquisition or importation; and (c) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (2) A *depreciating asset’s *cost is also reduced if: (a) the entity that *holds the asset incurs expenditure that is included in the second element of the asset’s cost for the income year in which the asset’s *start time occurs; and (b) the entity is or becomes entitled to an *input tax credit for the *creditable acquisition or * creditable importation to which the expenditure relates; and (c) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (3) However, subsections (1) and (2) do not apply if the *cost of the *depreciating asset is modified under Division 40 to be its *market value. (3A) A *depreciating asset’s *opening adjustable value for an income year and its *cost is reduced if: (a) an entity’s acquisition or importation of the asset constitutes a *creditable acquisition or * creditable importation; and (b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred; and (c) the income year is after the one in which the asset’s *start time occurs; and (d) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(4) A *depreciating asset’s *opening adjustable value for an income year and its *cost is reduced

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 27 – Effect of input tax credits etc. on deductions

if: the entity that *holds the asset incurs expenditure that is included in the second element of the asset’s cost for that income year; and (b) that income year is after the one in which the asset’s *start time occurs; and (c) the entity is or becomes entitled to an *input tax credit for the *creditable acquisition or * creditable importation to which the expenditure relates for the income year in which the expenditure was incurred; and (d) the entity can deduct amounts for the asset under Division 40 or 328. The reduction is the amount of the input tax credit. (5) If the reduction under subsection (2), (3A) or (4) is more than: (a) for a subsection (2) case—the *depreciating asset’s *cost; or (b) for a subsection (3A) or (4) case—the depreciating asset’s *opening adjustable value; the excess is included in the entity’s assessable income unless the entity is an *exempt entity. (a)

Exception: pooling

ITAA 1997

(6) This section does not apply to: (a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the *current year; or (b) *in-house software if expenditure on the software is allocated to a software development pool for the current year; or (c) a project pool. 27-85 Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments

(1) This section applies to an entity if: (a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and (b) the entity has a *decreasing adjustment in an income year that relates directly or indirectly to the asset. (1A) However, this section does not apply to a *decreasing adjustment that arises under Division 129 or 132 of the *GST Act. Note: See instead section 27-87.

(2) The asset’s *cost is reduced by an amount equal to the *decreasing adjustment if the adjustment arises in the income year in which the asset’s *start time occurs. (3) The asset’s *opening adjustable value for an income year and its *cost is reduced by an amount equal to the *decreasing adjustment if the adjustment arises in that year and that year is after the one in which the asset’s*start time occurs. (4) If the reduction under subsection (2) or (3) is more than: (a) for a subsection (2) case—the *depreciating asset’s *cost; or (b) for a subsection (3) case—the depreciating asset’s *opening adjustable value; the excess is included in the entity’s assessable income unless the entity is an *exempt entity. Exception: pooling

(5) This section does not apply to: (a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the *current year; or (b) *in-house software if expenditure on the software is allocated to a software development pool for the current year; or (c) a project pool. 27-87

Certain decreasing adjustments included in assessable income

(1) This section applies to an entity if: (a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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the entity has a *decreasing adjustment that arises under Division 129 or 132 of the *GST Act in an income year that relates directly or indirectly to the asset; and (c) section 27-95 does not apply to the entity in relation to the asset. (2) The amount of the *decreasing adjustment is included in the entity’s assessable income for the income year unless the entity is an *exempt entity. (b)

27-90 Cost or opening adjustable value of depreciating assets increased: increasing adjustments

(1) This section applies to an entity if: (a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and (b) the entity has an *increasing adjustment in an income year that relates directly or indirectly to the asset. (1A) However, this section does not apply to an *increasing adjustment that arises under Division 129 or 132 of the *GST Act. Note: See instead section 27-92.

(2) The asset’s *cost is increased by an amount equal to the *increasing adjustment if the adjustment arises in the income year in which the asset’s *start time occurs. (3) The asset’s *opening adjustable value for an income year and its *cost is increased by an amount equal to the *increasing adjustment if the adjustment arises in that year and that year is after the one in which the asset’s *start time occurs. Exception: pooling

(4) This section does not apply to: (a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the *current year; or (b) *in-house software if expenditure on the software is allocated to a software development pool for the current year; or (c) a project pool. 27-92

Certain increasing adjustments can be deducted

(1) This section applies to an entity if: (a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and (b) the entity has an *increasing adjustment that arises under Division 129 or 132 of the * GST Act in an income year that relates directly or indirectly to the asset. (2) The entity can deduct the amount of the *increasing adjustment for the income year. (3) However, the entity cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature. 27-95

Balancing adjustment events

(1) The *termination value of a *depreciating asset is reduced if the relevant *balancing adjustment event is a *taxable supply. The reduction is an amount equal to the *GST payable on the supply. (2) However, subsection (1) does not apply if the *termination value of the *depreciating asset is modified under Division 40 to be its *market value. (3) The *termination value of a *depreciating asset is increased if the entity that *held the asset has * a decreasing adjustment that relates directly or indirectly to that *taxable supply in the income year in which the *balancing adjustment event occurred. The increase is the amount of the decreasing adjustment. (4) The *termination value of a *depreciating asset is decreased if the entity that *held the asset has an *increasing adjustment that relates directly or indirectly to that *taxable supply in the income year in which the *balancing adjustment event occurred. The decrease is the amount of the increasing adjustment. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 27-100

(5) An amount is included in the assessable income of the entity that *held the asset if the entity has a *decreasing adjustment that relates directly or indirectly to that *taxable supply in a later income year. The amount included is the amount of the decreasing adjustment. (6) The entity that *held the asset can deduct an amount if the entity has an *increasing adjustment that relates directly or indirectly to that *taxable supply in a later income year. The amount it can deduct is the amount of the increasing adjustment. 27-100

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 27 – Effect of input tax credits etc. on deductions

Pooling

(1) This section contains special rules for expenditure (the pooled expenditure) incurred by an entity: (a) on a *depreciating asset allocated to a low-value pool; or (b) on a depreciating asset allocated to a pool under Division 328 for or in an income year; or (c) on *in-house software if the expenditure on the software is allocated to a software development pool; and (d) on *project amounts if the amounts are allocated to a project pool. (2) There is a reduction under subsection (3) or (5) if: (a) the pooled expenditure relates directly or indirectly to a *creditable acquisition or * creditable importation; and (b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred. (2A) There is a reduction under subsection (4) if: (a) the pooled expenditure relates directly or indirectly to a *creditable acquisition or * creditable importation; and (b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year) for the acquisition or importation. Reduced cost of assets allocated to a pool

(2B) A *depreciating asset’s *cost is reduced if: (a) an entity’s acquisition or importation of the asset constitutes a *creditable acquisition or * creditable importation; and (b) the entity is or becomes entitled to an *input tax credit for the acquisition or importation and the income year in which the acquisition or importation occurred is the same as the one in which the input tax credit arose; and (c) the asset is allocated to a low-value pool or a pool under Division 328 for or in that year. The reduction is the amount of the input tax credit. Low-value pools

(3) For a low-value pool, the *closing pool balance of the pool for: (a) if the credit year is later than the first income year for which *depreciating assets were allocated to the pool—the income year before the credit year; or (b) if the credit year is the first income year for which *depreciating assets were allocated to the pool—the credit year; is reduced by an amount equal to the input tax credit. Software development pools and project pools

(4) For a software development pool or a project pool, the expenditure in the pool for the credit year, or the *pool value for the credit year, is reduced by an amount equal to the *input tax credit. Small business pools

(5) For a pool under Division 328, the *opening pool balance of the pool for the credit year is reduced by an amount equal to the input tax credit. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Reduction to pools etc.

Income Tax Assessment Act 1997

s 27-100 No reduction if market value

(5A) However, there is no reduction to the *cost of a *depreciating asset if its cost is modified under Division 40 to be its *market value. Second element of cost

(6) There is a reduction under subsection (7) if: (a) the entity incurs expenditure in an income year (also the credit year) that is included in the second element of the *cost of a *depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the credit year; and (b) the entity is or becomes entitled, after the credit year, to an *input tax credit for the expenditure. (7) An amount equal to the amount of the *input tax credit is applied in reduction of: (a) for a low-value pool: (i) if the credit year is later than the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the income year before the credit year; or (ii) if the credit year is the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the credit year; or (b) for a pool under Division 328—the *opening pool balance of the pool for the credit year. (7A) There is a reduction to an amount of expenditure included in the second element of the *cost of a *depreciating asset if: (a) the asset is allocated to a low-value pool or a pool under Division 328 for or in the income year in which the expenditure was incurred; and (b) the entity that incurred the expenditure is or becomes entitled to an *input tax credit for the expenditure; and (c) the entitlement arises in the income year in which the expenditure was incurred. The reduction is the amount of the input tax credit. Increasing adjustments

(8) There is an increase under subsection (9) if the entity has an *increasing adjustment (except one that arises under Division 129 or 132 of the *GST Act) in an income year (the adjustment year) that relates directly or indirectly to a *creditable acquisition or *creditable importation to which the pooled expenditure relates. Note: For an increasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-92.

(9) An amount equal to the amount of that *increasing adjustment is added to: (a) for a low-value pool: (i) if the adjustment year is later than the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the income year before the adjustment year; or (ii) if the adjustment year is the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the adjustment year; or (b) for a pool under Division 328—the *opening pool balance of the pool for the adjustment year; or (c) for *in-house software—the amount of expenditure allocated to the software development pool for the adjustment year; or (d) for a project pool—the *pool value for the adjustment year. Decreasing adjustments

(10) There is a decrease under subsection (11) if the entity has a *decreasing adjustment (except one that arises under Division 129 or 132 of the *GST Act) in an income year (also the adjustment year) that relates directly or indirectly to a *creditable acquisition or *creditable importation to which the pooled expenditure relates. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 27-110 Note: For a decreasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-87.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 28 – Car expenses

(11) An amount equal to the amount of the *decreasing adjustment is applied in reduction of: (a) for a low-value pool: (i) if the adjustment year is later than the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the income year before the adjustment year; or (ii) if the adjustment year is the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the adjustment year; or (b) for a pool under Division 328—the *opening pool balance of the pool for the adjustment year; or (c) for *in-house software—the amount of expenditure allocated to the software development pool for the adjustment year; or (d) for a project pool—the *pool value for the adjustment year. (12) If the amount available for reduction under subsection (11) is more than the amount referred to in paragraph (11)(a), (b), (c) or (d) (whichever is applicable), the excess is included in the entity’s assessable income unless the entity is an *exempt entity. Other Division 40 expenditure

(1) This section applies to expenditure for which an entity can deduct amounts under Division 40 (but not under Subdivision 40-B or 40-E, or Subdivision 40-I to the extent that that Subdivision relates to project pools). (2) The amount of the expenditure is reduced if the entity is or becomes entitled to an *input tax credit for a *creditable acquisition or *creditable importation to which the expenditure directly or indirectly relates. The reduction is the amount of the input tax credit that relates to that expenditure. (3) If the entity has a *decreasing adjustment in an income year that relates directly or indirectly to the expenditure, an amount equal to the decreasing adjustment is included in the entity’s assessable income for that income year. (4) If the entity has an *increasing adjustment in an income year that relates directly or indirectly to the expenditure, the entity can deduct an amount equal to the increasing adjustment for that income year. (5) If the entity is a partnership and partners in that partnership can deduct amounts under Division 40 because section 40-570 or 40-665 applies, an amount equal to the *input tax credit, the * decreasing adjustment or the *increasing adjustment is apportioned to each of the partners as set out in subsection 40-570(2) or 40-665(2). (6) However, this section does not apply to an *exempt entity. 27-110

Input tax credit etc. relating to 2 or more things

This Subdivision applies to an *input tax credit, or an *increasing adjustment or *decreasing adjustment, that relates directly or indirectly to 2 or more things of which at least one is a * depreciating asset as if a reasonable proportion of the input tax credit or adjustment related directly or indirectly to each of those depreciating assets and each of those other things. DIVISION 28 – CAR EXPENSES

28-A 28-B 28-C 28-F 28-G

Table of Subdivisions Guide to Division 28 Deductions for car expenses Choosing which method to use The “cents per kilometre” method The “log book” method Keeping a log book

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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27-105

Income Tax Assessment Act 1997

s 28-1 28-H 28-I 28-J

Odometer records for a period Retaining the log book and odometer records Situations where you cannot use, or do not need to use, one of the 2 methods

GUIDE TO DIVISION 28 28-1

What this Division is about

This Division sets out the rules for working out deductions for car expenses if you own or lease a car or hire a car under a hire purchase agreement. Table of sections 28-5 28-5

Map of this Division

Map of this Division

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 28-15 SUBDIVISION 28-A – DEDUCTIONS FOR CAR EXPENSES

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 28 – Car expenses

Table of sections 28-10 28-12 28-13 28-10

Application of Division 28 Car expenses Meaning of car expense Application of Division 28

(1) This Division applies to an individual. (2) It also applies to a partnership that includes at least one individual, as if the partnership were an individual. (3) It does not apply to any other entity. 28-12

Car expenses

(1) If you owned or leased a *car, you can deduct for the car’s expenses an amount or amounts worked out using one of 2 methods.

(2) You must use one of the 2 methods unless an exception applies. If you can’t use either of the methods, you can’t deduct anything for the *car expenses. 28-13

Meaning of car expense

(1) A car expense is a loss or outgoing to do with a *car. (2) In addition, any of the following is a car expense: (a) a loss or outgoing to do with operating a *car; (b) the decline in value of a car. (3) None of the following is a car expense: (a) a loss or outgoing incurred, or a payment made, in respect of travel outside Australia; (b) a taxi fare or similar loss or outgoing. SUBDIVISION 28-B – CHOOSING WHICH METHOD TO USE GUIDE TO SUBDIVISION 28-B 28-14

What this Subdivision is about

This Subdivision sets out the rules about choosing a method of calculating car expense deductions. Table of sections 28-15 Choosing between the 2 methods Operative provision 28-20 Rules governing choice of method 28-15

Choosing between the 2 methods

(1) Below is a diagram giving information about the 2 methods of calculating car expense deductions. (2) The 2 methods give you the choice of which method best suits your situation and needs. For instance, one method may involve more paperwork than the other, but could give you bigger deductions. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note 1: For particular types of cars taken on hire you cannot use one of the 2 methods: see section 28-165. Note 2: In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2)). Note 3: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).

Income Tax Assessment Act 1997

s 28-15

OPERATIVE PROVISION 28-20

Rules governing choice of method

(1) You can choose only one method for all the *car expenses for the *car for the income year. Choosing one method precludes the other method. (2) However, you can change your choice for the income year. Example: You choose the “log book” method and deduct $1,000. On audit, the Commissioner finds that your claim is too high and should be reduced to $500. You would have been able to deduct $700 if you had chosen the “cents per kilometre” method. This rule lets you change your choice and deduct the $700.

(3) You can also choose different methods for the same *car for different income years and different methods for different cars for the same year.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 28-90 SUBDIVISION 28-C – THE “CENTS PER KILOMETRE” METHOD Table of sections How to calculate your deduction Capital allowances Substantiation

28-25 28-30 28-35 28-25

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 28 – Car expenses

How to calculate your deduction

(1) To calculate your deduction using the “cents per kilometre” method, use this formula: Number of *business kilometres travelled by the *car in the income year

×

Rate of cents/kilometre determined under subsection (4) for the car for the income year

(2) But you can use this formula for the first 5,000 *business kilometres only. If the *car travelled more than 5,000 business kilometres, you must discard the kilometres in excess of 5,000.

(3) Business kilometres are kilometres the *car travelled in the course of: (a) producing your assessable income; or (b) your *travel between workplaces. You calculate the number of business kilometres by making a reasonable estimate. (4) For the purposes of subsection (1), the Commissioner may, by legislative instrument, determine rates of cents per kilometre for cars for an income year. (5) In determining a rate, the Commissioner must have regard to the average operating costs for the cars to be covered by that rate. Note: Examples of operating costs include fixed costs such as registration, insurance and depreciation, and variable costs such as fuel and maintenance. 28-30

Capital allowances

If a *balancing adjustment event occurs for the *car, you will need to refer to the capital allowances rules in Division 40 to find out how using this method affects the operation of those rules. See section 40-370 (about balancing adjustments for some cars). 28-35

Substantiation

To use this method, you do not need to substantiate the *car expenses for the *car. SUBDIVISION 28-F – THE “LOG BOOK” METHOD 28-90 28-95 28-100 28-90

Table of sections How to calculate your deduction Eligibility Substantiation

How to calculate your deduction

(1) To use the “log book” method, you multiply the amount of each *car expense by the *business use percentage. The expense

(2) The expense must qualify as a deduction under some provision of this Act outside this Division (or would qualify if, while you *held the *car, you had used it only in producing your assessable income). If only part of the expense would qualify, you multiply that part by the *business use percentage. Example: You borrow money to buy a car. You make repayments of principal and payments of interest. You cannot deduct the repayments of principal because they are capital expenses. The interest payments would be deductible in full if, throughout the income year, you had used the car only in producing your assessable income. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Example: If the car travelled 5,085 business kilometres, you could claim for 5,000, and would lose the extra 85.

Income Tax Assessment Act 1997

s 28-90 Using the “log book” method: • if you held the car for the whole income year—multiply the interest payments by the business use percentage; • if you held the car for only 6 months of the income year—multiply the interest payments for those 6 months by the business use percentage. To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions). The percentage

(3) The business use percentage is calculated by dividing: • the number of *business kilometres that the *car travelled in the period when you *held it during the income year; by • the total number of kilometres that the car travelled in that period; and expressing the result as a percentage. (4) Business kilometres are kilometres the *car travelled in the course of: (a) producing your assessable income; or (b) your *travel between workplaces. (5) You calculate the number of business kilometres by making a reasonable estimate. The estimate must take into account all relevant matters, including: (a) any log books, odometer records or other records you have; and (b) any variations in the pattern of use of the *car; and (c) any changes in the number of cars you used in the course of producing your assessable income. (6) You hold a *car while you own it, or it is leased to you, for use in the course of producing your assessable income, even if it is also used for some other purpose. Note 1: In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2)). Note 2: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)). 28-95

Eligibility

You can use this method only if you *held the *car for some or all of the income year. 28-100

Substantiation

(1) To use this method, you must substantiate the *car expenses under Subdivision 900-C. (2) You must also keep a log book. Subdivision 28-G explains: • how often you need to keep a log book; • how to keep a log book. The log book is relevant to estimating the number of business kilometres the *car travelled in the period when you *held it during the income year. (3) You must keep odometer records for the period when you *held the *car during the income year. Subdivision 28-H tells you about odometer records, which document the total number of kilometres the car travelled in that period. (4) You must record the following information, in writing, before you lodge your *income tax return: (a) your estimate of the number of *business kilometres; and (b) the *business use percentage. However, the Commissioner may allow you to record the information later. (5) You must retain the log book and the odometer records. Subdivision 28-I has the rules about this. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 28-120 SUBDIVISION 28-G – KEEPING A LOG BOOK

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 28 – Car expenses

GUIDE TO SUBDIVISION 28-G 28-105

What this Subdivision is about

This Subdivision tells you how to keep a log book. A log book is relevant to estimating the number of business kilometres the car travelled in the period when you held it during the income year.

28-110 Operative 28-115 28-120 28-125 28-130 28-110

Table of sections Steps for keeping a log book provisions Income years for which you need to keep a log book Choosing the 12 week period for a log book How to keep a log book Replacing one car with another

Steps for keeping a log book

ITAA 1997

There are 3 steps you need to follow in keeping a log book: • identify an income year for which to keep a log book; • choose a period of at least 12 weeks for the log book to cover; • record journeys made in the car during the log book period in the course of producing your assessable income. OPERATIVE PROVISIONS 28-115

Income years for which you need to keep a log book

(1) You need to keep a log book for the first income year for which you use this method for the * car. (2) Having kept a log book for one income year, you don’t need to keep a new one for the next 4 or more income years unless subsection (3) or (4) requires it. If you haven’t kept a new log book for 4 income years in a row, you must keep one for the next income year. Example: If you keep a log book in 1997-98, you would need to keep the next one in 2002-2003, unless subsection (3) or (4) requires one sooner.

(3) You must keep a log book for an income year if the Commissioner sends you a notice before the year directing you to keep a log book for the *car for that year. (4) You must keep a log book for an income year if, during that year, you get one or more additional *cars for which you want to use the “log book” method for that year. (5) When you replace one *car with another, you might have a period when you *hold both the new car and the old car, or a period when you no longer *hold the old car but do not yet hold the new car. In both these cases, you are treated for the purposes of subsection (4) as if you held the one car continuously. (6) You may choose to keep a log book for an income year even if you don’t need to; for example, because you want to establish a higher *business use percentage. 28-120

Choosing the 12 week period for a log book

(1) The log book must cover a continuous period of at least 12 weeks throughout which you *held the *car. If you hold the car for less than 12 weeks, the period must be the entire period for which you held the car. (2) The period may overlap the start or end of the income year, so long as it includes part of the year. (3) If you want to use the “log book” method for 2 or more *cars for the same income year, the log books for those cars must cover periods that are concurrent. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) It is in your interests to record in the log book any journey made in the *car during the log book period in the course of producing your assessable income. If a journey is not recorded, the log book will indicate a lower *business use percentage than is actually the case. (2) A journey is recorded by making in the log book an entry specifying: (a) the day the journey began and the day it ended; (b) the *car’s odometer readings at the start and end of the journey; (c) how many kilometres the car travelled on the journey; (d) why the journey was made. The record must be made at the end of the journey or as soon as possible afterwards. (3) If 2 or more journeys in a row are made in the *car on the same day in the course of producing your assessable income, they can be recorded as a single journey. (4) The following must be entered in the log book: (a) when the log book period begins and ends; (b) the *car’s odometer readings at the start and the end of the period; (c) the total number of kilometres that the car travelled during the period; (d) the number of kilometres that the car travelled, in the course of producing your assessable income, on journeys recorded in the log book; (e) the number of kilometres referred to in paragraph (d), expressed as a percentage of the total number referred to in paragraph (c). Each of the entries must be made at or as soon as possible after the start or end of the period, as appropriate. (5) Each entry in the log book must be in English. 28-130

Replacing one car with another

(1) For the purposes of using the “log book” method, you may nominate one *car as having replaced another car with effect from a day specified in the nomination. (2) After the nomination takes effect, the replacement *car is treated as the original car, and the original car is treated as a different car. This means that you do not need to repeat for the replacement car the steps you have already taken for the original car under this Subdivision. (3) You must record the nomination in writing before you lodge your *income tax return for the income year in which the nomination takes effect. However, the Commissioner may allow you to do it later. (4) You must retain the nomination document until the end of the period for which you must retain the last log book that you began to keep for the original *car before the day of effect of the nomination. (5) Section 28-150 (which is about retaining log books) applies to the nomination document in the same way as it applies to that last log book. SUBDIVISION 28-H – ODOMETER RECORDS FOR A PERIOD GUIDE TO SUBDIVISION 28-H 28-135

What this Subdivision is about

This Subdivision tells you how to keep odometer records for a car during a particular period. Odometer records document the total number of kilometres the car travelled during a particular period. Table of sections Operative provision 28-140 How to keep odometer records for a car for a period * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 28-155 OPERATIVE PROVISION 28-140

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 28 – Car expenses

How to keep odometer records for a car for a period

ITAA 1997

(1) Odometer records for a period are kept in the form of a document in which the following are entered: (a) the *car’s odometer readings at the start and the end of the period; (b) if there is a nomination under section 28-130 to replace the car with another *car with effect from a day in that period—the odometer readings, at the end of that day, of both cars affected by the nomination. (2) Each entry under subsection (1) must be in English and must be made at or as soon as possible after the start or end of the period, or the end of the specified day, as appropriate. (3) The following must also be entered in the document: (a) the *car’s make, model and registration number (if any); (b) if the car has an internal combustion engine—its engine capacity expressed in cubic centimetres; (c) if there is a nomination under section 28-130 to replace the car with another *car—the corresponding details for the other car affected by the nomination. (4) Each entry under subsection (3) must be made in English and must be made before you lodge your *income tax return. (5) The Commissioner may allow you to make an entry under this section after you lodge your * income tax return. SUBDIVISION 28-I – RETAINING THE LOG BOOK AND ODOMETER RECORDS 28-150 28-155 28-150

Table of sections Retaining the log book for the retention period Retaining odometer records Retaining the log book for the retention period

(1) You must retain the log book: (a) first, until the end of the latest income year for which you rely on the log book to support your calculation of the *business use percentage for the *car; and (b) then for another 5 years. The period for which you must retain the log book is called the retention period. (2) The 5 years start on the due day for lodging your *income tax return for that latest income year. If you lodge your return later, the 5 years start on the day you lodge it. (3) However, the *retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to a deduction worked out using a *business use percentage that you are relying on the log book to support. See section 900-170. (4) If you do not retain the log book for the *retention period, you cannot deduct any amount worked out using a *business use percentage that you are relying on the log book to support. If you have already deducted such an amount, your assessment may be amended to disallow the deduction. (5) For the purposes of the rules about retaining and producing records of expenses (see Subdivision 900-G), the log book is treated as a record of the *car expenses for each year for which you use a *business use percentage that you are relying on the log book to support. (6) If you lose the log book, there are rules that might help you in section 900-205. For the purposes of the rules about relief from the effects of failing to substantiate (see Subdivision 900-H), not doing something required by this Division is treated in the same way as not doing something necessary to follow the rules in Division 900. 28-155

Retaining odometer records

(1) You must retain your odometer records relating to the period when you *held the *car in the income year. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(2) If you keep a log book for the income year, you must retain the odometer records for the same period as the log book, and section 28-150 applies to them in the same way as it applies to the log book. (3) If you don’t keep a log book for the income year, you must retain the odometer records for the same period as written evidence of a *car expense for the *car for the income year, and section 900-75 applies to them in the same way as it applies to written evidence of an expense. Note: Section 900-75 is about retaining written evidence of a car expense. SUBDIVISION 28-J – SITUATIONS WHERE YOU CANNOT USE, OR DO NOT NEED TO USE, ONE OF THE 2 METHODS GUIDE TO SUBDIVISION 28-J 28-160

What this Subdivision is about

This Subdivision sets out the situations where you cannot use, or don’t need to use, either of the 2 methods. These situations involve either the nature of your car or the way you use it.

Operative 28-165 28-170 28-175 28-180 28-185

Table of sections provisions Exception for particular cars taken on hire Exception for particular cars used in particular ways Further miscellaneous exceptions Car expenses related to award transport payments Application of Subdivision 28-J to PAYE to recipients and payers of certain withholding payments

OPERATIVE PROVISIONS 28-165

Exception for particular cars taken on hire

(1) For particular types of *cars taken on hire you cannot use one of the 2 methods to calculate your deductions for *car expenses. (2) Instead, you must calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income. (3) This section applies to a taxi taken on hire. (4) It also applies to a *motor vehicle taken on hire under an agreement of a kind ordinarily entered into by people who take motor vehicles on hire intermittently, as the occasion requires, on an hourly, daily, weekly or short term basis, except if the motor vehicle: (a) has been taken on hire under successive agreements of a kind that result in substantial continuity of the motor vehicle being taken on hire; or (b) it is reasonable to expect that the motor vehicle will be taken on hire under successive agreements of a kind that will so result. 28-170

Exception for particular cars used in particular ways

(1) For particular types of *cars used in particular ways you don’t need to use one of the 2 methods to calculate your deductions for *car expenses. (2) You may use one of the 2 methods, or you may instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income. (3) This section applies if, whenever you used the *car in the income year: (a) the car was covered by the description in column 2 of an item in the table below; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Item 1.

you used the car as described in column 3 of that item. Column 2 Particular car The *car was: (a) a panel van or utility truck; or (b) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed principally to carry passengers); or (c) a taxi.

3.

The *car was part of the *trading stock of a *business of selling cars that you carried on. The *car was any type of car.

4.

The *car was any type of car.

2.

28-175

Column 3 Exempt use You used the car only in one or more of the following ways: (a) in the course of producing your assessable income; (b) to go between your residence and a place where you use the car in the course of producing your assessable income; (c) by providing the car to someone else to drive between his or her residence and a place where the car is used in the course of producing your assessable income; (d) for the purpose of travel that is incidental to using the car in the course of producing your assessable income; (e) for your own or someone else’s private use that was minor, infrequent and irregular. You used the car in the course of the business. You let the car on lease or hire in the course of a * business of letting cars on lease or hire that you carry on. As an employer, you provided the car for the exclusive use of one or more of the following: (a) your employees; (b) their *relatives; in circumstances where one or more of them was entitled to use the car for private purposes.Note: This Subdivision also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 28-185(3).

Further miscellaneous exceptions

(1) This section lists some miscellaneous cases where you don’t need to use one of the 2 methods to calculate your deductions for *car expenses. (2) You may use one of the 2 methods, or you may instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income. (3) The cases are as follows: (a) the *car was unregistered throughout the period when you *held it during the income year, and during that period you used it principally in the course of producing your assessable income; or (b) at some time during the income year the *car was part of the *trading stock of a *business of selling cars that you carried on, and you didn’t use the car at any time during that year; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 28-175

(b)

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Part 2-5 – Rules about deductibility of particular kinds of amounts Division 28 – Car expenses

Income Tax Assessment Act 1997

s 28-175

(c) the expense is to do with repairs to or other work on the *car, and you incurred it in the course of a *business that you carried on of doing repairs or other work on cars. In applying paragraph (a), the car is taken to be registered in a particular place while it is lawful to drive the car on a public road there. 28-180

Car expenses related to award transport payments

(1) Subdivision 900-I (Award transport payments) allows certain losses or outgoings to be deducted without getting written evidence. The losses or outgoings are *transport expenses related to an allowance or reimbursement paid or payable to you by your employer under an *industrial instrument that was in force on 29 October 1986. Note: This Subdivision also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 28-185(3).

(2) If that Subdivision lets you deduct *car expenses, or parts of *car expenses, without getting written evidence, you don’t need to use any of the 2 methods to calculate your deductions for those expenses or parts of expenses. (3) However, your use of the 2 methods for other *car expenses you incur for the *car for the income year is affected, unless you elect not to rely on Subdivision 900-I. Section 900-250 deals with this matter. 28-185 Application of Subdivision 28-J to recipients and payers of certain withholding payments Application to recipients

(1) If an individual receives, or is entitled to receive, *withholding payments covered by subsection (3), this Subdivision applies to him or her: (a) in the same way as it applies to an employee; and (b) as if an entity (a notional employer) that makes (or is liable to make) such payments to him or her were his or her employer; and (c) as if any other individual who receives, or is entitled to receive, such payments from a notional employer were also an employee of the notional employer. Application to payers

(2) This Division applies to an entity that makes, or is liable to make, *withholding payments covered by subsection (3): (a) in the same way as it applies to an employer; and (b) as if an individual to whom the entity makes (or is liable to make) such payments were the entity’s employee. Withholding payments covered

(3) This subsection covers a *withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table. Withholding payments covered Item Provision 1 Section 12-35 2 Section 12-40 3 Section 12-45 3A Section 12-47 4 Section 12-50 5 Subdivision 12-C 6

Subdivision 12-D

Subject matter Payment to employee Payment to company director Payment to office holder Payment to *religious practitioner Return to work payment Payments for retirement or because of termination of employment Benefit and compensation payments

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-5 DIVISION 30 – GIFTS OR CONTRIBUTIONS

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

Table of Subdivisions Guide to Division 30 Deductions for gifts or contributions Tables of recipients for deductible gifts Endorsement of deductible gift recipients Rules applying to particular gifts of property Administrative requirements relating to ABNs Donations to political parties and independent candidates and members Spreading certain gift and covenant deductions over up to 5 income years Register of environmental organisations Register of harm prevention charities Register of cultural organisations Index to this Division

30-A 30-B 30-BA 30-C 30-CA 30-DA 30-DB 30-E 30-EA 30-F 30-G

GUIDE TO DIVISION 30 30-1

What this Division is about

This Division sets out the rules for working out deductions for certain gifts or contributions that you make.

30-5

Table of sections How to find your way around this Division Index

ITAA 1997

30-5 30-10

How to find your way around this Division

(1) You should start at Subdivision 30-A unless you are making a contribution or gift to a political party, independent candidate or member. Note: Subdivision 30-DA deals with the deductibility of contributions and gifts to political parties, independent candidates and members.

(2) Subdivision 30-A contains a table of all the gifts and contributions that you can deduct. You need to look at the table to see whether the type of gift or contribution you are making is covered by it. (3) In some cases, the table sends you off to Subdivision 30-B. It has a number of tables that list particular funds, authorities or institutions that deductible gifts can be made to. (4) In other cases, the table sends you off to Subdivision 30-C. It contains rules that apply to particular gifts of property. (4AA) Subdivision 30-BA provides for the Commissioner to endorse as a deductible gift recipient an entity that is, or operates, a fund, authority or institution. The relevance of the Subdivision to you is that generally you can deduct only a gift you make to a recipient that is endorsed or named in: (a) this Division; or (b) regulations made for the purposes of this Division. Note: The fact that gifts to a recipient registered in the Australian Business Register are deductible will be shown in the Register.

(4AB) Subdivision 30-CA sets out administrative rules which do not directly affect whether you can deduct a gift you make. The rules require: (a) a receipt issued by an entity for a gift to the entity or to a fund, authority or institution operated by the entity to show the entity’s ABN; and (b) the Australian Business Registrar to enter in the Australian Business Register a statement in relation to an entity entered in the Register if: (i) gifts to the entity are deductible; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-5

(ii) gifts to a fund, authority or institution operated by the entity are deductible. (4B) Subdivision 30-DB allows you to spread deductions for certain gifts and covenants over up to 5 income years. (5) Subdivision 30-E requires the establishment of a register of *environmental organisations. Subdivision 30-EA requires the establishment of a register of *harm prevention charities. Subdivision 30-F requires the establishment of a register of *cultural organisations. Their only relevance to you is that you can deduct a gift that you make to a fund listed on one of those registers. 30-10

Index

There is an index to this Division in Subdivision 30-G. SUBDIVISION 30-A – DEDUCTIONS FOR GIFTS OR CONTRIBUTIONS 30-15 30-17 30-15

Table of sections Table of gifts or contributions that you can deduct Requirements for certain recipients Table of gifts or contributions that you can deduct

(1) You can deduct a gift or contribution that you make in the situations set out in the following table. It tells you: • who the recipient of the gift or contribution can be; and • the type of gift or contribution that you can make; and • how much you can deduct for the gift or contribution; and • any special conditions that apply. (2) A testamentary gift or contribution is not deductible under this section. Note: Subdivision 30-DA deals with the deductibility of contributions and gifts to political parties, independent candidates and members.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Deductible gifts or contributions Recipient 1 A fund, authority or institution covered by an item in any of the tables in Subdivision 30-B.

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s 30-15

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Type of gift or contribution How much you can deduct Special conditions A gift of: (a) the fund, authority or (a) if the gift is money—the institution must be in amount you are giving; or (a) money; or Australia; and (b) property (including *trading (b) if the gift is property (except (aa) the fund, authority or trading stock covered by stock) that you purchased institution must either meet paragraph (c), property during the 12 months before the requirements of covered by paragraph (d) or making the gift; or section 30-17 or be mentioned shares covered by paragraph (c) an item of your trading stock by name in the relevant table (e))—the lesser of the market if: item in Subdivision 30-B; and value of the property on the • the gift is a disposal of the day you made the gift and the (b) the value of the gift must be item outside the ordinary amount you paid for the $2 or more; and course of your *business; property; or (c) any conditions set out in the and relevant table item in • no election has been made, (c) if the gift is an item of your trading stock: Subdivision 30-B must be or is made, in relation to • that you disposed of satisfied; and the item under outside the ordinary course (d) if the property is to be valued Subdivision 385-E (about of your business; and by the Commissioner—the electing to spread or defer • for which no election has requirements of profit from the forced * been made, or is made, in section 30-212 are satisfied. disposal or death of live relation to the item under stock); or Subdivision 385-E; (d) property valued by the the market value of the item on Commissioner at more than the day you made the gift; or $5,000; or (d) if the gift is property valued (e) *shares that you have by the Commissioner at more * acquired in a listed public than $5,000 and you did not company if: purchase the property during • the shares are listed for the 12 months before making quotation in the official list the gift—the value of the of a stock exchange that is property as determined by the listed under the heading Commissioner; or “Australia” in regulations made for the purposes of the definition of *approved stock exchange; and

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2

the market value of the item on the day you made the gift; or

(a) if the gift is money—the amount you are giving; or (b) if the gift is property (except trading stock covered by paragraph (c), property covered by paragraph (d) or shares covered by paragraph (e))—the lesser of the market value of the property on the day you made the gift and the amount you paid for the property; or (c) if the gift is an item of your trading stock: • that you disposed of outside the ordinary course of your business; and • for which no election has been made, or is made, in relation to the item under Subdivision 385-E;

(a) the value of the gift must be $2 or more; and (b) the terms of the will or trust must allow the trustee to invest money that the ancillary fund receives because of the gift only in a way that an *Australian law allows trustees to invest trust money; and (c) the ancillary fund must meet the requirements of section 30-17; and (d) if the property is to be valued by the Commissioner—the requirements of section 30-212 are satisfied.

Type of gift or contribution How much you can deduct Special conditions • the *market value of the shares (e) if the gift is shares described on the day you made the gift is in paragraph (e) of the $5,000 or less; and previous column—the market value of the shares on the day • you acquire the shares at least 12 you made the gift. months before making the gift.

A gift of: An *ancillary fund established and maintained (a) money; or under a will or instrument of (b) property (including *trading trust solely for: stock) that you purchased (a) the purpose of during the 12 months before providing money, making the gift; or property or benefits: (c) an item of your trading stock • to a fund, authority if: or institution gifts • the gift is a disposal of the to which are item outside the ordinary deductible under course of your *business; item 1 of this table; and and • no election has been made, • for any purposes or is made, in relation to set out in the item the item under of the table in Subdivision 385-E (about Subdivision 30-B electing to spread or defer that covers the profit from the forced fund, authority or disposal or death of *live institution; or stock); or (b) the establishment of (d) property valued by the such a fund, authority Commissioner at more than or institution. $5,000; or (e) *shares that you have acquired in a *listed public company if:

Deductible gifts or contributions Recipient

s 30-15 Income Tax Assessment Act 1997

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(e)

(d)

(c)

(b)

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* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Type of gift or contribution How much you can deduct Special conditions • the shares are listed for quotation (d) if the gift is property valued by the Commissioner at more in the official list of a stock exchange that is listed under the than $5,000 and you did not purchase the property during heading “Australia” in the 12 months before making regulations made for the purposes of the definition of the gift—the value of the * property as determined by the approved stock exchange; and * Commissioner; or • the market value of the shares (e) if the gift is shares described on the day you made the gift is in paragraph (e) of the $5,000 or less; and previous column—the market • you acquire the shares at least 12 value of the shares on the day months before making the gift. you made the gift. the Australiana Fund; A gift of property (except an estate The general rule is that you can (a) the property must be accepted or interest in land or in a building or deduct the average of the *GST or by the recipient for inclusion part of a building). in a collection it is a public library in inclusive market values (as reduced maintaining or establishing; Australia; or under subsection (3) if that and subsection applies) specified in the a public museum in (b) the value of the gift must be written valuations you get from Australia; or $2 or more; and approved valuers. a public art gallery in Subdivision 30-C sets out: (ba) the institution must meet the Australia; or requirements of section 30-17, (a) how a person becomes an an institution in unless it is the Australiana approved valuer; and Australia consisting of Fund; and (b) the exceptions to the general a public library, a (c) you must satisfy the valuation rule; and public museum and a requirements in public art gallery or (c) the situations when the amount section 30-200, unless any 2 of them. you can deduct is reduced. section 30-205 (about the If the property is jointly owned, see proceeds of the sale being section 30-225 to work out how assessable) applies. much of the gift you can deduct.

Deductible gifts or contributions Recipient

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6

(f)

(e)

(d)

(c)

(b)

(a)

How much you can deduct Special conditions The general rule is that you can (a) the property must be accepted by the Commonwealth for deduct the average of the *GST inclusion in a collection inclusive market values (as reduced maintained, or being under subsection (3) if that established, for the purposes subsection applies) specified in the of Artbank; and written valuations you get from (b) you must satisfy the valuation approved valuers. requirements in Subdivision 30-C sets out: section 30-200, unless (a) how a person becomes an section 30-205 (about the approved valuer; and proceeds of the sale being (b) the exceptions to the general assessable) applies. rule; and (c) the situations when the amount you can deduct is reduced. If the property is jointly owned, see section 30-225 to work out how much of the gift you can deduct. The general rule is that you can the National Trust of A gift of a place included in: (a) the place must be accepted by (a) the National Heritage List, or deduct the average of the *GST Australia (New South the recipient for the purpose the Commonwealth Heritage inclusive market values (as reduced Wales); or of preserving it for the benefit List, under the Environment of the public; and the National Trust of under subsection (3) if that Protection and Biodiversity Australia (Victoria); or (b) the value of the gift must be subsection applies) specified in the $2 or more; and written valuations you get from Conservation Act 1999; or National Trust of approved valuers. Australia (Queensland) (b) the Register of the National (c) you must satisfy the valuation Subdivision 30-C sets out: Limited; or requirements in Estate under the Australian section 30-200, unless (a) how a person becomes an The National Trust of Heritage Council Act 2003. section 30-205 (about the approved valuer; and South Australia; or proceeds of the sale being (b) the exceptions to the general The National Trust of assessable) applies. rule; and Australia (W.A.); or (c) the situations when the amount the National Trust of you can deduct is reduced. Australia (Tasmania); If the place is jointly owned, see or section 30-225 to work out how much of the gift you can deduct.

Deductible gifts or contributions Recipient Type of gift or contribution 5 The Commonwealth (for the A gift of property (except an estate purposes of Artbank). or interest in land or in a building or part of a building).

s 30-15 Income Tax Assessment Act 1997

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Deductible gifts or contributions Recipient Type of gift or contribution How much you can deduct Special conditions (g) The National Trust of Australia (Northern Territory); or (h) the National Trust of Australia (A.C.T.); or (i) the Australian Council of National Trusts. 7 A *deductible gift recipient A contribution of: (a) if the contribution is (a) if the contribution is that is a fund, authority or money—the GST inclusive money—the amount of the (a) money, if the amount is more institution covered by item 1 market value, on the day you contribution, reduced by the than $150; or * or 2 of this table. made the contribution, of the GST inclusive market value, (b) property that you purchased right to attend, or participate on the day you made the during the 12 months before in, the fund-raising event contribution, of the right to making the contribution, if the must not exceed the lesser of: attend, or participate in, the lesser of: fund-raising event; or • 20% of the amount of the • the *market value of the contribution; and (b) if the contribution is property property on the day you that you purchased during the • $150; and made the contribution; and 12 months before making the (b) if the contribution is property • the amount you paid for contribution—the lesser of: the property; that you purchased during the • the market value of the is more than $150; or 12 months before making the property on the day you contribution—the GST (c) property valued by the made the contribution; and inclusive market value, on the Commissioner at more than • the amount you paid for day you made the $5,000, if you did not the property; contribution, of the right to purchase the property during reduced by the GST inclusive attend, or participate in, the the 12 months before making market value, on the day you fund-raising event must not the contribution; or made the contribution, of the exceed the lesser of: (ca) *shares that you have right to attend, or participate in, * • 20% of the lesser of the acquired in a listed public the fund-raising event; or market value of the company if: property on the day you made the contribution and the amount you paid for the property; and

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

Deductible gifts or contributions Recipient Type of gift or contribution How much you can deduct Special conditions • the shares are listed for quotation (c) if the contribution is property • $150; and valued by the Commissioner in the official list of a stock (c) if the contribution is property at more than $5,000 and you exchange that is listed under the valued by the Commissioner did not purchase the property heading “Australia” in at more than $5,000 and you during the 12 months before regulations made for the did not purchase the property making the contribution—the purposes of the definition of during the 12 months before * value of the property as approved stock exchange; and making the contribution—the determined by the • the market value of the shares on GST inclusive market value, Commissioner, reduced by the the day you made the on the day you made the GST inclusive market value, contribution is more than $150 contribution, of the right to on the day you made the and less than or equal to $5,000; attend, or participate in, the contribution, of the right to and fund-raising event must not attend, or participate in, the exceed $150; and • you acquire the shares at least 12 fund-raising event; or months before making the (ca) if the contribution is shares (ca) if the contribution is shares contribution; described in paragraph (ca) of described in paragraph (ca) of the column headed “Type of where: the previous column—the gift or contribution”—the (d) the contribution is not a gift; market value of the shares on GST inclusive market value, and the day you made the on the day you made the (e) either: contribution, reduced by the contribution, of the right to • the contribution is made in GST inclusive market value, attend, or participate in, the return for a right on the day you made the fund-raising event must not permitting you to attend, contribution, of the right to exceed the lesser of: or participate in, a attend, or participate in, the • 20% of the market value particular *fund-raising fund-raising event. of the shares on the day event in Australia; or you made the contribution; • the contribution is made in and return for a right • $150; and permitting an individual (other than you) to attend, or participate in, a particular fund-raising event in Australia.

s 30-15 Income Tax Assessment Act 1997

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Deductible gifts or contributions Recipient Type of gift or contribution

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ITAA 1997

How much you can deduct

s 30-15

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(e) you must be an individual; and (f) you cannot deduct more than 2 contributions in relation to the same fund-raising event; and (g) if the property is to be valued by the Commissioner—the requirements of section 30-212 are satisfied.

you could have deducted the gift under item 1 or 2 of this table; and

Special conditions (d) if, instead of making the contribution, you had made a gift of money to the fund, authority or institution, and: • the amount of the gift had been more than $2; and • the gift had been made for the same purpose for which funds were to be raised by the fund-raising event;

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

Deductible gifts or contributions Recipient Type of gift or contribution * 8 deductible gift recipient that A contribution of money, if: is a fund, authority or (a) the amount is more than institution covered by item 1 $150; and or 2 of this table. (b) the contribution is not a gift; and (c) you made the contribution by way of consideration for the supply of goods or services; and (d) you made the contribution because you were the successful bidder at an auction that: • was a particular * fund-raising event in Australia; or • was held at a particular fund-raising event in Australia; and (e) the amount of the contribution exceeds the *GST inclusive market value, on the day you made the contribution, of the goods or services. How much you can deduct The amount of the contribution, reduced by the GST inclusive market value, on the day you made the contribution, of the goods or services.

206 (c) you must be an individual.

you could have deducted the gift under item 1 or 2 of this table; and

Special conditions (a) the GST inclusive market value, on the day you made the contribution, of the goods or services must not exceed the lesser of: • 20% of the amount of the contribution; and • $150; and (b) if, instead of making the contribution, you had made a gift of money to the fund, authority or institution, and: • the amount of the gift had been more than $2; and • the gift had been made for the same purpose for which funds were to be raised by the fund-raising event;

s 30-15 Income Tax Assessment Act 1997

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

Fundamental Tax Legislation 2020

s 30-17

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Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

(3) For the purposes of items 4, 5 and 6 of the table in subsection (2), the *GST inclusive market values of the property or place in question are reduced by 1/11 if you would have been entitled to an * input tax credit if: (a) you had *acquired the property or place at the time you made the gift; and (b) your acquisition had been for a *creditable purpose. (4) For the purposes of item 7 of the table in subsection (2), in working out the *GST inclusive market value of the right in question, disregard anything that would prevent or restrict conversion of the right to money. (5) For the purposes of item 8 of the table in subsection (2), in working out the *GST inclusive market value of the goods or services in question, disregard anything that would prevent or restrict conversion of the goods or services to money. Requirements for certain recipients

(1) This section sets out requirements to be met for you to be able to deduct a gift you make to a fund, authority or institution described in the column headed “Recipient” of item 1, 2 or 4 of the table in section 30-15. However, this section does not apply to: (a) a fund, authority or institution that is mentioned by name in an item of a table in Subdivision 30-B; or (b) [Repealed] (c) the Australiana Fund. (2) The fund, authority or institution must: (a) be an entity or *government entity that is endorsed under Subdivision 30-BA as a * deductible gift recipient; or (b) in the case of a fund—either: (i) be owned legally by an entity that is endorsed under Subdivision 30-BA as a * deductible gift recipient for the operation of the fund; or (ii) be under the control of one or more persons who constitute a *government entity that is endorsed under Subdivision 30-BA as a *deductible gift recipient for the operation of the fund; or (c) in the case of an authority or institution—be part of an entity or *government entity that is endorsed under Subdivision 30-BA as a *deductible gift recipient for the operation of the authority or institution. Example: A public fund that is established and maintained for constructing a building to be used by a State school and is controlled by the principal of the school would be an example of a fund under the control of one or more persons who constitute a government entity that is endorsed as a deductible gift recipient for the operation of the fund, if the school were so endorsed. SUBDIVISION 30-B – TABLES OF RECIPIENTS FOR DEDUCTIBLE GIFTS Table of sections Health 30-20 Health Education 30-25 Education 30-30 Gifts that must be for certain purposes 30-35 Rural schools hostel buildings 30-37 Scholarship etc. funds Research 30-40 Research Welfare and rights 30-45 Welfare and rights Defence * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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30-17

Income Tax Assessment Act 1997

s 30-20 30-50 Defence Environment 30-55 The environment 30-60 Gifts to a National Parks body or conservation body must satisfy certain requirements Industry, trade and design 30-65 Industry, trade and design The family 30-70 The family 30-75 Marriage education organisations must be approved International affairs 30-80 International affairs Sports and recreation 30-90 Sports and recreation Philanthropic trusts 30-95 Philanthropic trusts Cultural organisations 30-100 Cultural organisations HEALTH 30-20

Health

(1) This table sets out general categories of health recipients. Health—General Item Fund, authority or institution 1.1.1 a public hospital

none

1.1.2

none

1.1.3

Special conditions—fund, authority or institution the public hospital must be: (a) an *Australian government agency; or (b) a *registered charity a hospital carried on by a the society or association must be society or association a *registered charity a public fund maintained for: (a) the public fund must (a) the purpose of have been established providing money before 23 October for hospitals 1963; and covered by item (b) the public fund must: 1.1.1 or 1.1.2; or (i) be registered (b) the establishment under the of such hospitals Australian

Special conditions—gift

none

Charities and Not-for-profits Commission Act 2012; or (ii) not be an * ACNC type of entity; and (c) the hospitals must satisfy the special conditions set out in item 1.1.1 or 1.1.2 (as applicable)

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-25 Special conditions—gift the gift must be made for such research

none

none none

none ITAA 1997

Health—General Item Fund, authority or Special conditions—fund, institution authority or institution 1.1.4 a public authority engaged in the public authority must be: research into the causes, (a) an *Australian prevention or cure of disease government agency; in human beings, animals or or plants (b) a *registered charity the public institution must be: 1.1.5 a public institution engaged solely in research into the (a) an *Australian causes, prevention or cure of government agency; disease in human beings, or animals or plants (b) a *registered charity 1.1.6 a *registered health promotion none charity 1.1.7 a public ambulance service the public ambulance service must be: (a) an *Australian government agency; or (b) a *registered charity 1.1.8 a public fund established and (a) the public fund must: maintained for the purpose of (i) be registered providing money for public under the ambulance services covered Australian by item 1.1.7

Charities and Not-for-profits Commission Act 2012; or (ii) not be an * ACNC type of entity; and

(b)

the public ambulance services must satisfy the special conditions set out in item 1.1.7

(2) Table not reproduced EDUCATION 30-25

Education

(1) This table sets out general categories of education recipients. Education—General Item Fund, authority or institution 2.1.1 a public university

Special conditions—fund, authority or institution the public university must be: (a) an *Australian government agency; or (b) a *registered charity

Special conditions—gift none

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-25 Education—General Item Fund, authority or institution 2.1.2 a public fund for the establishment of a public university

Special conditions—fund, authority or institution (a) the public fund must be:

Special conditions—gift none

an *Australian government agency; or (ii) a *registered charity; or (iii) operated by an Australian government agency or registered charity; and (i)

(b)

2.1.3

2.1.4

2.1.5 2.1.6

the public university must satisfy the special conditions set out in item 2.1.1 none an institution that is a higher the institution must be: education provider within the (a) an *Australian meaning of the Higher government agency; Education Support Act 2003 or (b) a *registered charity none a residential educational (a) the residential institution affiliated under educational institution statutory provisions with a must be a *registered public university charity; and (b) the public university must satisfy the special conditions set out in item 2.1.1 a residential educational none none institution established by the Commonwealth none a residential educational (a) the residential institution that is affiliated educational institution with an institution that is a must be: higher education provider (i) an *Australian within the meaning of the government Higher Education Support Act agency; or 2003

(ii) a *registered charity; and

(b)

2.1.7

the higher education provider must satisfy the special conditions set out in item 2.1.3 the institution must be: an institution that the see section 30-30 * Student Assistance Minister (a) an *Australian has determined to be a government agency; technical and further or education institution under the (b) a *registered charity Student Assistance Act 1973

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-25 Special conditions—gift none

none

none ITAA 1997

Education—General Item Fund, authority or Special conditions—fund, institution authority or institution 2.1.8 a public fund established and the public fund must: maintained solely for the (a) be registered under purpose of providing religious the Australian instruction in government Charities and schools in Australia Not-for-profits Commission Act 2012; or (b) not be an *ACNC type of entity 2.1.9 a public fund established and the public fund must: maintained by a Roman (a) be registered under Catholic archdiocesan or the Australian diocesan authority solely for Charities and the purpose of providing Not-for-profits religious instruction in Commission Act 2012; government schools in or Australia (b) not be an *ACNC type of entity 2.1.9A a public fund established and the public fund must be: maintained solely for the (a) a *registered charity; purpose of providing or education in ethics: (b) operated by a registered charity (a) in government schools in Australia; and (b) as an alternative to religious instruction, in accordance with * State law or * Territory law 2.1.10 a public fund established and the public fund must: maintained solely for (a) be registered under providing money for the the Australian acquisition, construction or Charities and maintenance of a building Not-for-profits used, or to be used, as a Commission Act 2012; school or college by: or (b) not be an *ACNC (a) a government; or type of entity (b) a public authority; or (c) a society or association which is carried on otherwise than for the purposes of profit or gain to the individual members of the society or association

none

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-25 Education—General Item Fund, authority or Special conditions—fund, institution authority or institution 2.1.11 a public fund established and the public fund must: maintained solely for (a) be registered under providing money for the the Australian acquisition, construction or Charities and maintenance of a rural school Not-for-profits hostel building to which Commission Act 2012; section 30-35 applies or (b) not be an *ACNC type of entity 2.1.12 a government school that: none (a) provides special education for students each of whom has a disability that is permanent or is likely to be permanent; and (b) does not provide education for other students the public fund must be: 2.1.13 a public fund that is established and maintained (a) a *registered charity; solely for providing money or for scholarships, bursaries or (b) operated by a prizes to which section 30-37 registered charity applies

Special conditions—gift none

none

none

(2) Table not reproduced (3) [Repealed] 30-30

Gifts that must be for certain purposes

(1) You can deduct a gift that you make to: (a) a technical and further education institution covered by item 2.1.7 of the table in subsection 30-25(1); or (b) the Marcus Oldham Farm Management College; only if the gift is for: (c) purposes of the institution, or of the College, that have been declared by the *Student Assistance Minister to relate solely to tertiary education; or (d) the provision of facilities for the institution, or the College, if the Student Assistance Minister has declared that he or she is satisfied the facilities are to be used principally for such purposes. (2) A declaration under subsection (1) must be in writing, signed by the Minister. 30-35

Rural schools hostel buildings

(1) For the purposes of item 2.1.11 of the table in subsection 30-25(1), a rural school hostel building is one to which this section applies if it meets the conditions in subsections (2), (3) and (4). (2) The rural school hostel building must be used, or going to be used, principally as residential accommodation for students: (a) whose usual place of residence is in a rural area; and (b) who are undertaking primary or secondary education, or special education programs for children with disabilities, at a school in the same area as the building. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-40

(3) The Territory. (4) The (a) (b) (c)

30-37

costs of the school must be solely or partly funded by the Commonwealth, a State or a

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Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

residential accommodation must be provided by: the Commonwealth, a State or a Territory; or a public authority; or a company that: (i) is not carried on for the purposes of profit or gain to its individual members; and (ii) is prohibited by its *constitution from making any distribution of money or property to its members.

Scholarship etc. funds

For the purposes of item 2.1.13 of the table in subsection 30-25(1), a scholarship, bursary or prize is one to which this section applies if: (a) it may only be awarded to Australian citizens, or permanent residents of Australia, within the meaning of the Australian Citizenship Act 2007; and (b) it is open to individuals or groups of individuals throughout a region of at least 200,000 people, or throughout at least an entire State or Territory; and (c) it promotes recipients’ education in either or both of the following:

(i) (ii)

pre-school courses, *primary courses, *secondary courses or *tertiary courses; educational institutions overseas, by way of study of a component of a course covered by subparagraph (i); and

it is awarded on merit or for reasons of equity. ITAA 1997

(d)

*

RESEARCH 30-40

Research

(1) This table sets out general categories of research recipients. Research—General Item Fund, authority or institution 3.1.1 a university, college, institute, association or organisation which is an approved research institute for the purposes of section 73A (Expenditure on scientific research) of the Income Tax Assessment Act 1936

Special conditions—fund, authority or institution the approved research institute must: (a) be registered under the Australian Charities and Not-for-profits Commission Act 2012; or (b) not be an *ACNC type of entity

Special conditions—gift the gift must be made for purposes of scientific research in the field of natural or applied science

(2) This table sets out specific research recipients. Research—Specific Item Fund, authority or institution 3.2.1 the Centre for Independent Studies 3.2.2 the Ian Clunies Ross Memorial Foundation 3.2.4 The Menzies Research Centre Public Fund 3.2.5 The Sir Earl Page Memorial Trust 3.2.6 Research Australia Limited 3.2.7

The Page Research Centre Limited

3.2.8

The Chifley Research Centre Limited

3.2.9

Don Chipp Foundation Ltd

3.2.10

Lingiari Policy Centre

Special conditions none none the gift must be made the gift must be made the gift must be made 2001 the gift must be made 2005 the gift must be made 2005 the gift must be made 2006 the gift must be made 2006

after 2 April 1998 after 6 May 2001 after 26 June after 12 January after 19 May after 26 June after 25 July

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-40 Research—Specific Item Fund, authority or institution 3.2.11 Grattan Institute 3.2.12

The Green Institute Limited

3.2.13

United States Studies Centre

3.2.14

The Ethics Centre Limited

3.2.15

Centre For Entrepreneurial Research and Innovation Limited

Special conditions the gift must be made after 4 March 2009 and before 5 March 2011 the gift must be made after 23 June 2009 the gift must be made after 26 July 2009 the gift must be made on or after 24 February 2016 the gift must be made after 1 January 2017 and before 31 December 2021

WELFARE AND RIGHTS 30-45

Welfare and rights

(1) This table sets out general categories of welfare and rights recipients. Welfare and rights—General Item Fund, authority or institution 4.1.1 a *registered public benevolent institution 4.1.2 a public fund maintained for the purpose of providing money for: (a) *registered public benevolent institutions; or (b) the establishment of registered public benevolent institutions 4.1.3 a public fund established and maintained for the purpose of relieving the necessitous circumstances of one or more individuals who are in Australia

4.1.4

Special conditions—fund, authority or institution none

Special conditions—gift none

none the public fund must: (a) have been established before 23 October 1963; and (b) be:

a *registered charity; or (ii) operated by a registered charity (i)

the public fund must: (a) be an *Australian government agency; or (b) be a *registered charity; or (c) not be an *ACNC type of entity a public fund that, when the the public fund must be: gift is made, is on the register (a) a *registered charity; of *harm prevention charities or kept under Subdivision 30-EA (b) operated by a registered charity

none

the gift must be made after 30 June 2003

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-45 Welfare and rights—General Item Fund, authority or Special conditions—fund, institution authority or institution the public fund must: 4.1.5 a public fund (including a public fund established and (a) be: maintained by a public (i) an *Australian benevolent institution) that is government established and maintained agency; or solely for providing money (ii) a *registered for the relief (including relief by way of assistance to charity; or re-establish a community) of (b) be operated by: people in Australia in distress (i) an Australian as a result of a disaster to government which subsection 30-45A(1) agency; or or 30-46(1) applies

4.1.6

Special conditions—gift see subsections 30-45A(4) and 30-46(2)

a registered charity

an institution whose principal the institution must be a * registered charity activity is one or both of the following: (a) providing short-term direct care to animals (but not only native wildlife) that have been lost or mistreated or are without owners; (b) rehabilitating orphaned, sick or injured animals (but not only native wildlife) that have been lost or mistreated or are without owners

none

ITAA 1997

(ii)

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-45 Welfare and rights—General Item Fund, authority or institution 4.1.7 an institution that would be a public benevolent institution, but for one or both of the following: (a) it also promotes the prevention or the control of diseases in human beings (but not as a principal activity); (b) it also promotes the prevention or the control of * behaviour that is harmful or abusive to human beings (but not as a principal activity)

Special conditions—fund, authority or institution the institution must be a * registered charity

Special conditions—gift none

(2) Table not reproduced 30-45A and 30-46

[not reproduced]

DEFENCE 30-50

Defence

(1) This table sets out general categories of defence recipients. Defence—General Item Fund, authority or Special conditions—fund, institution authority or institution 5.1.1 the Commonwealth or a State none 5.1.2

Special conditions—gift

the gift must be made for purposes of defence a public institution or public the public institution or public none fund must be: fund established and (a) an *Australian maintained for the comfort, government recreation or welfare of agency; or members of: (b) a *registered (a) the armed forces charity; or of any part of (c) in the case of a Her Majesty’s public dominions; or fund—operated (b) any allied or by an Australian other foreign government force serving in agency or association with registered charity Her Majesty’s armed forces

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-55 Special conditions—gift the gift must be made within the 2 years beginning on the day on which: (a) the fund; or (b) if the fund is legally owned by an entity that is endorsed for the operation of the fund—the entity; is endorsed as a *deductible gift recipient under Subdivision 30-BA

ITAA 1997

Defence—General Item Fund, authority or Special conditions—fund, institution authority or institution 5.1.3 a public fund established and the public fund must be: maintained solely for (a) an *Australian providing money to government reconstruct, or make critical agency; or repairs to, a particular war (b) a *registered charity; or memorial that: (c) operated by an (a) is located in Australian Australia; and government (b) commemorates agency or events in a registered charity conflict in which Australia was involved, or people who are mainly Australians and who participated on Australia’s behalf in a conflict; and (c) is a focus for public commemoration of the events or people mentioned in paragraph (b); and (d) is solely or mainly used for that public commemoration

(2) Table not reproduced ENVIRONMENT 30-55

The environment

(1) This table sets out general categories of environment recipients. The environment—General Item Fund, authority or institution Special conditions 6.1.1 a public fund that, when the gift is made, is on the none register of *environmental organisations kept under Subdivision 30-E

(2) This table sets out specific environment recipients. The environment—Specific Item Fund, authority or institution 6.2.1 the Australian Conservation Foundation Incorporated 6.2.2 Greening Australia Limited 6.2.3 Landcare Australia Limited 6.2.4 the National Parks Association of New South Wales

Special conditions see section 30-60 see section 30-60 see section 30-60 see section 30-60

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-55 The environment—Specific Item Fund, authority or institution 6.2.5 the Victorian National Parks Association Incorporated 6.2.6 Trust for Nature (Victoria) 6.2.7 the National Parks Association of Queensland 6.2.8 The Nature Conservation Society of South Australia Incorporated 6.2.9 the Nature Foundation SA Incorporated 6.2.10 the Western Australian National Parks and Reserves Association Incorporated 6.2.11 the Tasmanian Conservation Trust Incorporated 6.2.12 the National Parks Association of the Australian Capital Territory Incorporated 6.2.13 the National Trust of Australia (New South Wales) 6.2.14 the National Trust of Australia (Victoria) 6.2.15 National Trust of Australia (Queensland) Limited 6.2.16 The National Trust of South Australia 6.2.17 The National Trust of Australia (W.A.) 6.2.18 the National Trust of Australia (Tasmania) 6.2.19 The National Trust of Australia (Northern Territory) 6.2.20 the National Trust of Australia (A.C.T.) 6.2.21 the Australian Council of National Trusts 6.2.22 the World Wide Fund for Nature 6.2.23 Mawson’s Huts Foundation Limited

Special conditions see section 30-60 see section 30-60 see section 30-60 see section 30-60 see section 30-60 see section 30-60 see section 30-60 see section 30-60 none none none none none none none none none see section 30-60 the gift must be made after 17 March 1997

30-60 Gifts to a National Parks body or conservation body must satisfy certain requirements

You can deduct a gift that you make to an environmental institution covered by any of table items 6.2.1 to 6.2.12 or 6.2.22 in subsection 30-55(2) only if, at the time of making the gift: (a) if the institution is not a *registered charity—the institution has agreed to give the * Environment Secretary, within a reasonable period after the end of the income year in which you made the gift, statistical information about gifts made to the institution during that income year; and (b) the institution has a policy of not acting as a mere conduit for the donation of money or property to other entities. INDUSTRY, TRADE AND DESIGN 30-65

Industry, trade and design

Table not reproduced

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-75 THE FAMILY 30-70

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Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

The family

(1) This table sets out general categories of family recipients.

8.1.1

8.1.2

Special conditions—fund, authority or institution a public fund established and mainthe public fund must be: tained: (a) a *registered (a) by a *non-profit company to which charity; or section 30-75 applies; and (b) operated by a (b) solely for the purpose of providing registered money to be used in giving or charity providing marriage education under the Marriage Act 1961 to individuals in Australia a public fund that is established and the public fund must be: maintained: (a) a *registered (a) by a *non-profit company which charity; or receives funding from the (b) operated by a Commonwealth to provide family registered counselling or family dispute charity resolution within the meaning of the Family Law Act 1975; and (b) solely for the purpose of providing money to be used in providing family counselling or family dispute resolution within the meaning of the Family Law Act 1975 to individuals in Australia

Special conditions—gift none

none

ITAA 1997

The family—General Item Fund, authority or institution

(2) This table sets out specific family recipients. The family—Specific Item Fund, authority or institution 8.2.3 Australian Breastfeeding Association 8.2.4

Playgroup NSW (Inc).

8.2.5

Playgroup WA (Inc)

8.2.6

Playgroup Queensland Ltd

8.2.7

Playgroup Tasmania Inc.

8.2.8 8.2.9

Playgroup Association Northern Territory Incorporated ACT Playgroups Association Incorporated

8.2.10

Playgroup Victoria Inc.

8.2.11

Playgroup SA Inc

8.2.12

Playgroup Australia Limited

30-75

Special conditions the gift must be made 2001 the gift must be made 2005 the gift must be made 2005 the gift must be made 2005 the gift must be made 2005 the gift must be made 2005 the gift must be made 2005 the gift must be made 2006 the gift must be made 2006 the gift must be made 2006

after 31 July after 14 April after 13 March after 14 April after 14 April after 24 May after 14 April after 23 February after 5 August after 2 August

Marriage education organisations must be approved

For the purposes of item 8.1.1 of the table in subsection 30-70(1), this section applies to a company if the company has been approved by the *Families Minister under section 9C of the Marriage Act 1961. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-80 INTERNATIONAL AFFAIRS 30-80

International affairs

(1) This table sets out general categories of international affairs recipients. International affairs—General Item Fund, authority or institution 9.1.1

a public fund declared by the Minister to be a developing country relief fund under section 30-85

9.1.2

a public fund established and maintained by a *registered public benevolent institution solely for providing money for the relief (including relief by way of assistance to re-establish a community) of people in a country other than: (a) Australia; and (b) a country declared by the * Foreign Affairs Minister to be a developing country; who are in distress as a result of a disaster to which subsection 30-86(1) applies

Special conditions—fund, authority or institution the public fund must be: (a) a *registered charity; or (b) operated by a registered charity none

Special conditions—gift see section 30-85

see subsection 30-86(4)

(2) Table not reproduced 30-85 and 30-86

[not reproduced]

SPORTS AND RECREATION 30-90

Sports and recreation

Table not reproduced PHILANTHROPIC TRUSTS 30-95

Philanthropic trusts

Table not reproduced CULTURAL ORGANISATIONS 30-100

Cultural organisations

(1) This table sets out general categories of cultural recipients. Cultural organisations—General Item Fund, authority or Special conditions—fund, Special conditions—gift institution authority or institution 12.1.1 a public fund that, when the none none gift is made, is on the * register of cultural organisations kept under Subdivision 30-F 12.1.2 a public library the public library must: none (a) be: (i) an *Australian government agency; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-115 Cultural organisations—General Item Fund, authority or institution

Special conditions—gift

12.1.3

none

12.1.5

none ITAA 1997

12.1.4

Special conditions—fund, authority or institution (ii) a *registered charity; or (b) be operated by: (i) an Australian government agency; or (ii) a registered charity a public museum the public museum must: (a) be: (i) an *Australian government agency; or (ii) a *registered charity; or (b) be operated by: (i) an Australian government agency; or (ii) a registered charity a public art gallery the public art gallery must: (a) be: (i) an *Australian government agency; or (ii) a *registered charity; or (b) be operated by: (i) an Australian government agency; or (ii) a registered charity an institution consisting of a the institution must: public library, public (a) be: museum and public art (i) an *Australian gallery or of any 2 of them government agency; or (ii) a *registered charity; or (b) be operated by: (i) an Australian government agency; or (ii) a registered charity

none

(2) Table not reproduced 30-102 and 30-105

[not reproduced]

SUBDIVISION 30-BA – ENDORSEMENT OF DEDUCTIBLE GIFT RECIPIENTS GUIDE TO SUBDIVISION 30-BA 30-115

What this Subdivision is about

This Subdivision sets out rules about endorsement of entities and government entities as deductible gift recipients. Endorsement of an entity described (except by name) in Subdivision 30-A or 30-B lets you deduct a gift you make to a fund, authority or institution that is, or is operated by, the entity. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

© 2020 THOMSON REUTERS

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

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Income Tax Assessment Act 1997

s 30-115 Table of sections Endorsement as a deductible gift recipient 30-120 Endorsement by Commissioner 30-125 Entitlement to endorsement 30-130 Maintaining a gift fund Government entities treated like entities 30-180 How this Subdivision applies to government entities ENDORSEMENT AS A DEDUCTIBLE GIFT RECIPIENT 30-120

Endorsement by Commissioner

If an entity applies for endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953, the Commissioner must endorse the entity: (a) as a *deductible gift recipient, if the entity is entitled to be endorsed as a deductible gift recipient; or (b) as a *deductible gift recipient for the operation of a fund, authority or institution, if the entity is entitled to be endorsed as a deductible gift recipient for the operation of the fund, authority or institution. Note: For procedural rules relating to endorsement, see Division 426 in Schedule 1 to the Taxation Administration Act 1953. 30-125 Entitlement to endorsement Endorsement of an entity that is a fund, authority or institution

(1) An entity is entitled to be endorsed as a *deductible gift recipient if: (a) the entity has an *ABN; and (b) the entity is a fund, authority or institution that: (i) is described (but not by name) in item 1, 2 or 4 of the table in section 30-15; and (ii) is not described by name in Subdivision 30-B if it is described in item 1 of that table; and (iii) meets the relevant conditions (if any) identified in the column headed “Special conditions” of the item of that table in which it is described; and (c) the entity meets the requirements of subsection (6), unless: (i) the entity is established by an Act; and (ii) the Act (or another Act) does not provide for the winding up or termination of the entity; and (d) in the case of an *ancillary fund: (i) the fund complies with the rules in the *public ancillary fund guidelines or the * private ancillary fund guidelines (whichever are applicable); and (ii) all of the trustees of the fund comply with those rules. Endorsement of an entity for operating a fund, authority etc.

(2) An entity is entitled to be endorsed as a *deductible gift recipient for the operation of a fund, authority or institution that is described (but not by name) in item 1, 2 or 4 of the table in section 30-15 and is not described by name in Subdivision 30-B if: (a) the entity has an *ABN; and (b) the entity: (i) legally owns the fund; or (ii) includes the authority or institution; and (c) the fund, authority or institution meets the relevant conditions (if any) identified in the column headed “Special conditions” of that item; and (d) the entity meets the requirements of subsection (6), unless: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-130

(i) the entity is established by an Act; and (ii) the Act (or another Act) does not provide for the winding up or termination of the entity; and (e) the entity meets the requirements of section 30-130, unless the entity is endorsed as a deductible gift recipient under paragraph 30-120(a).

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

Relevant special conditions in table in section 30-15

(3) To avoid doubt: (a) a condition requiring the fund, authority or institution to meet the requirements of section 30-17 is not a relevant condition for the purposes of subparagraph (1)(b)(iii) or paragraph (2)(c) of this section; and Note: Section 30-17 requires the entity to be endorsed under this Subdivision as a deductible gift recipient.

(b)

in the case of a fund, authority or institution that is described in item 1 of the table in section 30-15—a condition set out in the relevant table item in Subdivision 30-B, including a condition identified in the column headed “Special conditions—fund, authority or institution” of that item (if any), is a relevant condition for the purposes of subparagraph (1)(b)(iii) or paragraph (2)(c) of this section. Note: Paragraph (c) of the column headed “Special conditions” of item 1 of the table in section 30-15 requires any conditions set out in the relevant table item in Subdivision 30-B to be satisfied. ITAA 1997

(4) [Repealed] (4A) [Repealed] (5) [Repealed] Transfer of assets from fund, authority or institution

(6) A law (outside this Subdivision), a document constituting the entity or rules governing the entity’s activities must require the entity, at the first occurrence of an event described in subsection (7), to transfer to a fund, authority or institution gifts to which can be deducted under this Division: (a) any surplus assets of the gift fund (see section 30-130); or (b) if the entity is not required by this section to meet the requirements of section 30130—any surplus: (i) gifts of money or property for the principal purpose of the fund, authority or institution; and (ii) contributions described in item 7 or 8 of the table in section 30-15 in relation to a * fund-raising event held for that purpose; and (iii) money received by the entity because of such gifts or contributions. Events requiring transfer

(7) The events are: (a) the winding up of the fund, authority or institution; and (b) if the entity is endorsed because of a fund, authority or institution—the revocation of the entity’s endorsement under this Subdivision relating to the fund, authority or institution. Note 1: There are 2 ways an entity can be endorsed because of a fund, authority or institution. An entity can be endorsed either because it is a fund, authority or institution or because it operates a fund, authority or institution. Note 2: Section 426-55 in Schedule 1 to the Taxation Administration Act 1953 deals with revocation of endorsement. Note 3: The entity is also required to keep appropriate records: see section 382-15 of the Taxation Administration Act 1953. 30-130

Maintaining a gift fund

(1) The entity must maintain for the principal purpose of the fund, authority or institution a fund (the gift fund): * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-130

(a) to which gifts of money or property for that purpose are to be made; and (b) to which contributions described in item 7 or 8 of the table in section 30-15 in relation to a *fund-raising event held for that purpose are to be made; and (c) to which any money received by the entity because of such gifts or contributions is to be credited; and (d) that does not receive any other money or property. (2) The entity must use the gift fund only for the principal purpose of the fund, authority or institution. Exception—only one gift fund required per entity

(3) An entity that operates 2 or more funds, authorities or institutions also meets the requirements of this section for 2 or more of those funds, authorities or institutions by maintaining a single gift fund if: (a) the gift fund meets the requirements in paragraphs (1)(a), (b) and (c) in respect of each of the funds, authorities or institutions for which the gift fund is maintained; and (b) the gift fund does not receive any other money or property. (4) The entity must use a gift or contribution made to the fund and any money credited to the fund only for the principal purpose of the fund, authority or institution to which the gift, contribution or money relates. Note: The entity is also required to keep appropriate records for each of the funds, authorities or institutions: see section 382-15 of the Taxation Administration Act 1953. GOVERNMENT ENTITIES TREATED LIKE ENTITIES 30-180

How this Subdivision applies to government entities

(1) The other sections of this Subdivision apply in relation to a *government entity in the same way as they apply in relation to an entity. (2) Subparagraph 30-125(2)(b)(i) (as applied by this section) operates as if it referred to the * government entity consisting of persons, one or more of whom controlled the fund (instead of referring to the entity legally owning the fund). (3) [Repealed] (4) [Repealed] SUBDIVISION 30-C – RULES APPLYING TO PARTICULAR GIFTS OF PROPERTY Table of sections Valuation requirements 30-200 Getting written valuations 30-205 Proceeds of the sale would have been assessable 30-210 Approved valuers 30-212 Valuations by the Commissioner Working out the amount you can deduct for a gift of property 30-215 How much you can deduct 30-220 Reducing the amount you can deduct VALUATION REQUIREMENTS 30-200

Getting written valuations

(1) You satisfy the valuation requirements if you get 2 or more written valuations of the gift you made. Note 1: In most cases, you need to get these written valuations to be able to deduct a gift of property that you make to a recipient covered by item 4, 5 or 6 of the table in section 30-15. Note 2: You do not need to get written valuations in the circumstances set out in section 30-205.

(2) The valuations must be by different individuals, each of whom is an approved valuer of the kind of property you are giving away. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-215 Note: Section 30-210 deals with how an individual becomes an approved valuer.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

(3) to (4) not reproduced 30-205

Proceeds of the sale would have been assessable

(1) You do not need to get written valuations of the gift you made if: (a) no amount is included in your assessable income in respect of the gift you made; but (b) an amount would have been included in your assessable income if you had sold the property instead of making the gift. (2) not reproduced 30-210

Approved valuers

30-212

Valuations by the Commissioner

(1) If you make a gift or contribution that is covered by a provision of this Division that refers to the value of property as determined by the Commissioner, you must seek the valuation from the Commissioner. (2) The Commissioner may charge you the amount worked out in accordance with the regulations for making the valuation. WORKING OUT THE AMOUNT YOU CAN DEDUCT FOR A GIFT OF PROPERTY 30-215

How much you can deduct

(1) This section contains the rules for working out how much you can deduct for a gift of property that you make to a recipient covered by item 4, 5 or 6 of the table in section 30-15. (2) The general rule is that the amount you can deduct for a gift of this kind is the average of the * GST inclusive market values (as reduced under subsection 30-15(3) if that subsection applies) specified in the written valuations you got from the approved valuers. Note: In some situations you must reduce the amount you can deduct: see section 30-220.

(3) The exceptions to the general rule are set out in this table: Amount you can deduct for a gift of property Item In this case: 1 Section 30-205 (which is about the proceeds of the sale being assessable) applies, and you bought the property 2

The amount you can deduct is: the amount you paid for the property, reduced by the amount of any *input tax credit to which you are or were entitled for your *acquisition of the property so much of the cost of creation or production as Section 30-205 (which is about the you would have been able to deduct if you had proceeds of the sale being assessable) applies, and you created or produced the sold the property, reduced by the amount of any * property input tax credit to which you are or were entitled for your *acquisitions to the extent that they were made for the purpose of creating or producing the property

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) The *Arts Secretary may approve an individual as a valuer of a particular kind of property. The approval must be in writing, signed by the Secretary. (2) The Secretary must, in deciding whether to approve an individual, have regard to: (a) the individual’s qualifications, experience and knowledge in valuing that kind of property; and (b) the individual’s knowledge of the current *GST inclusive market value of that kind of property; and (c) the individual’s standing in the professional community.

Income Tax Assessment Act 1997

s 30-215 Amount you can deduct for a gift of property Item In this case: The amount you can deduct is: 3 Neither of cases 1 and 2 applies, and the lesser of the amount you paid for the property you acquired the property: and: (a) less than one year before (a) if the average of the written making the gift (otherwise valuations you got fairly represents than by inheriting it); or the *GST inclusive market value (as reduced under subsection (4) if that (b) for the purpose of giving it subsection applies) of the property on away; or the day you made the gift—that * (c) subject to an arrangement average; or that the property would be (b) if it does not—the *GST inclusive given away market value (as reduced under subsection (4) if that subsection applies) of the property on the day you made the gift 4 None of cases 1 to 3 applies, and the the *GST inclusive market value (as reduced under average of the written valuations you subsection (4) if that subsection applies) of the got does not fairly represent the *market property on the day you made the gift value of the property on the day you made the gift

(4) For the purposes of items 3 and 4 of the table in subsection (3), the *GST inclusive market values of the property in question are reduced by 1/11 if you would have been entitled to an *input tax credit if: (a) you had *acquired the property at the time you made the gift; and (b) your acquisition had been for a *creditable purpose. 30-220

Reducing the amount you can deduct

(1) The amount you can deduct is reduced by a reasonable amount if: (a) the terms and conditions on which the gift is made are such that the recipient: (i) does not receive immediate custody and control of the property; or (ii) does not have the unconditional right to retain custody and control of the property in perpetuity; or (iii) does not obtain an immediate, indefeasible and unencumbered legal and equitable title to the property; or (b) the custody, control or use of the property by the recipient is affected by an *arrangement entered into in respect of the making of the gift. (2) In deciding what is a reasonable amount, have regard to the effect of those terms and conditions, or that *arrangement, on the *GST inclusive market value of the gift. 30-225

[not reproduced]

SUBDIVISION 30-CA – ADMINISTRATIVE REQUIREMENTS RELATING TO ABNS GUIDE TO SUBDIVISION 30-CA 30-226

What this Subdivision is about

An entity must ensure certain details must appear on a receipt it issues for a gift that: (a) is made to the entity or a fund, authority or institution it operates; and (b) is of a kind that the giver can deduct under Subdivision 30-A. If the entity has an ABN, the Australian Business Registrar must state in the Australian Business Register that the entity is a deductible gift recipient. Table of sections Requirements * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-228 30-227 30-228 30-229

Entities to which this Subdivision applies Content of receipt for gift Australian Business Register must show deductibility of gifts to deductible gift recipient

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

REQUIREMENTS 30-227

Entities to which this Subdivision applies

(1) This Subdivision sets out requirements relating to a *deductible gift recipient. (2) A deductible gift recipient is an entity or *government entity that: (a) is a fund, authority or institution described in item 1, 2, 4, 5 or 6 of the table in section 30-15 and is: (i) endorsed under Subdivision 30-BA as a deductible gift recipient; or (ii) mentioned by name in that table or in Subdivision 30-B; or (iii) [Repealed] (b) is endorsed as a deductible gift recipient for the operation of a fund, authority or institution described in item 1, 2 or 4 of the table in section 30-15. Content of receipt for gift or contribution

(1) If a *deductible gift recipient issues a receipt for a gift described in the relevant item of the table in section 30-15 to the fund, authority or institution, the deductible gift recipient must ensure that the receipt states: (a) the name of the fund, authority or institution; and (b) the *ABN (if any) of the deductible gift recipient; and (c) the fact that the receipt is for a gift. Note: If the deductible gift recipient is endorsed as a deductible gift recipient and it contravenes this section, the Commissioner may revoke its endorsement: see section 426-55 in Schedule 1 to the Taxation Administration Act 1953.

(2) If a *deductible gift recipient issues a receipt for a contribution described in item 7 of the table in section 30-15, the deductible gift recipient must ensure that the receipt states: (a) the name of the deductible gift recipient; and (b) the *ABN (if any) of the deductible gift recipient; and (c) the fact that the receipt is for a contribution made in return for a right to attend, or participate in, a specified *fund-raising event; and (d) if the contribution is money—the amount of the contribution; and (e) the amount of the *GST inclusive market value, on the day the contribution was made, of the right to attend, or participate in, the fund-raising event. (3) For the purposes of paragraph (2)(e), in working out the *GST inclusive market value of the right in question, disregard anything that would prevent or restrict conversion of the right to money. (4) If a *deductible gift recipient issues a receipt for a contribution described in item 8 of the table in section 30-15, the deductible gift recipient must ensure that the receipt states: (a) the name of the deductible gift recipient; and (b) the *ABN (if any) of the deductible gift recipient; and (c) the fact that the receipt is for a contribution made by way of consideration for the supply of goods or services; and (d) the fact that the contribution was made because the contributor was the successful bidder at an auction that: (i) was a specified *fund-raising event; or (ii) was held at a specified fund-raising event; and (e) if the contribution is money—the amount of the contribution; and (f) the *GST inclusive market value, on the day the contribution was made, of the goods or services. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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30-228

Income Tax Assessment Act 1997

s 30-228

(5) For the purposes of paragraph (4)(f), in working out the *GST inclusive market value of the goods or services in question, disregard anything that would prevent or restrict conversion of the goods or services to money. 30-229 Australian Business Register must show deductibility of gifts to deductible gift recipient

(1) If a *deductible gift recipient has an *ABN, the *Australian Business Registrar must enter in the *Australian Business Register in relation to the deductible gift recipient a statement that it is a deductible gift recipient for a specified period. Note 1: An entry (or lack of entry) of a statement required by this section does not affect whether you can deduct a gift to the fund, authority or institution. Note 2: This section will apply to all entities and government entities that are endorsed as deductible gift recipients under Subdivision 30-BA, because they must have ABNs to be endorsed. It will also apply to other entities described or named in Subdivision 30-A if they have ABNs.

(2) If the *deductible gift recipient is a deductible gift recipient only because it is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of a fund, authority or institution, the statement must name the fund, authority or institution. (2A) If: (a) the *deductible gift recipient is: (i) a fund, authority or institution; or (ii) a deductible gift recipient only because it is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of a fund, authority or institution; and (b) the fund, authority or institution is covered by item 1, 2 or 4 of the table in section 30-15; the statement must specify that the fund, authority or institution is covered by that item. (3) The *Australian Business Registrar may remove the statement from the *Australian Business Register after the end of the period. (4) The *Australian Business Registrar must take reasonable steps to ensure that a statement appearing in the *Australian Business Register under this section is true. For this purpose, the Registrar may: (a) change the statement; or (b) remove the statement from the Register if the statement is not true; or (c) remove the statement from the Register and enter another statement in the Register under this section. (5) [Repealed] SUBDIVISION 30-DA – DONATIONS TO POLITICAL PARTIES AND INDEPENDENT CANDIDATES AND MEMBERS GUIDE TO SUBDIVISION 30-DA 30-241

What this Subdivision is about

Generally, you can deduct certain contributions and gifts to political parties, independent candidates and members. Contributions and gifts must be at least $2 and there is a limit on the total amount that you can deduct.

Operative 30-242 30-243 30-244 30-245

Table of sections provisions Deduction for political contributions and gifts Amount of the deduction When an individual is an independent candidate When an individual is an independent member

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 30-244 OPERATIVE PROVISIONS Deduction for political contributions and gifts

(1) You can deduct any of the following for the income year in which they are made: (a) a contribution or gift to a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation; (b) a contribution or gift to an individual when the individual is an *independent candidate for a Commonwealth, State, Northern Territory or Australian Capital Territory election; (c) a contribution or gift to an individual who is, or was, an *independent member of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory. (2) The contribution or gift must be of: (a) money; or (b) property that you purchased during the 12 months before making the contribution or gift. (3) The value of the contribution or gift must be at least $2. (3A) You can deduct the contribution or gift only if: (a) you are an individual; and (b) you do not make the gift or contribution in the course of carrying on a *business. (4) You cannot deduct a testamentary contribution or gift under this Subdivision. (5) A contribution or gift to an individual who is, or was, an *independent member must be made: (a) when the individual is an independent member; or (b) if the individual ceases to be an independent member because: (i) a Parliament, a House of a Parliament or a Legislative Assembly is dissolved or has reached its maximum duration; or (ii) the individual comes up for election; after the individual ceases to be a member but before candidates for the resulting election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. 30-243

Amount of the deduction

(1) If the contribution or gift is money, the amount of the deduction is the amount of money. (2) If the contribution or gift is property, the amount of the deduction is the lesser of: (a) the market value of the property on the day that you made the contribution or gift; and (b) the amount that you paid for the property. $1,500 limit on deductions

(3) You cannot deduct more than $1,500 under this Subdivision for an income year for contributions and gifts to political parties. (4) You cannot deduct more than $1,500 under this Subdivision for an income year for contributions and gifts to *independent candidates or *independent members. 30-244

When an individual is an independent candidate

(1) An individual is an independent candidate if: (a) the individual is a candidate in an election (including an election that is later declared void) for members of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory; and (b) the individual’s candidature is not endorsed by a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation. (2) However, an individual does not start being an *independent candidate until the candidates for the election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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30-242

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 30 – Gifts or contributions

Income Tax Assessment Act 1997

s 30-244

(3) An individual stops being an *independent candidate when the result of the election is declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. (4) If: (a) the election is taken to have wholly failed under the relevant electoral legislation; and (b) the result of the election has not been declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation; the individual stops being an *independent candidate in that election when candidates for the replacement election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. 30-245

When an individual is an independent member

(1) An individual is an independent member of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory if the individual: (a) is a member of that Parliament or Legislative Assembly; and (b) the individual is not a member of a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation. (2) An individual who becomes a member as a result of an election (including an election that is later declared void) is taken to start being a member of the Parliament or Legislative Assembly when the individual’s election as a member is declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation. [Subdivisions 30-DB – Spreading certain gift and covenant deductions over up to 5 income years to 30-G – Index to this Division and Division 31 – Conservation covenants not reproduced] DIVISION 32 – ENTERTAINMENT EXPENSES

32-A 32-B 32-C 32-D 32-E 32-F

Table of Subdivisions Guide to Division 32 No deduction for entertainment expenses Exceptions Definitions relevant to the exceptions In-house dining facilities (employer expenses table item 1.2) Anti-avoidance Special rules for companies and partnerships

GUIDE TO DIVISION 32 32-1

What this Division is about

You cannot deduct costs of providing entertainment. Nor can you deduct amounts for property that you use for providing entertainment. But there are exceptions. SUBDIVISION 32-A – NO DEDUCTION FOR ENTERTAINMENT EXPENSES 32-5 32-10 32-15 32-5

Table of sections No deduction for entertainment expenses Meaning of entertainment No deduction for property used for providing entertainment

No deduction for entertainment expenses

To the extent that you incur a loss or outgoing in respect of providing *entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in Subdivision 32-B. Note 1: Under section 8-1 you can deduct a loss or outgoing that you incur for the purpose of producing assessable income. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 32-25 Note 2: If you have used your property in providing entertainment, you may not be able to deduct an amount for the property: see section 32-15. Note 3: Section 32-75 deals with arrangements to avoid the operation of this section. 32-10

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 32 – Entertainment expenses

Meaning of entertainment

(1) Entertainment means: (a) entertainment by way of food, drink or *recreation; or (b) accommodation or travel to do with providing entertainment by way of food, drink or * recreation. (2) You are taken to provide entertainment even if business discussions or transactions occur. Note: These are some examples of what is entertainment: • business lunches • social functions. These are some examples of what is not entertainment: • meals on business travel overnight • theatre attendance by a critic • a restaurant meal of a food writer. No deduction for property used for providing entertainment

To the extent that you use property in providing *entertainment, your use of the property is taken not to be for the *purpose of producing assessable income if section 32-5 would stop you deducting a loss or outgoing if you incurred it in the income year in providing the entertainment. Note: Under some provisions of this Act, in order to deduct an amount for your property, you must have used the property for the purpose of producing assessable income. SUBDIVISION 32-B – EXCEPTIONS 32-20 32-25 32-30 32-35 32-40 32-45 32-50 32-20

Table of sections The main exception—fringe benefits The tables set out the other exceptions Employer expenses Seminar expenses Entertainment industry expenses Promotion and advertising expenses Other expenses The main exception—fringe benefits

Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing *entertainment by way of *providing a *fringe benefit. But this exception does not apply to the extent that the taxable value of the *fringe benefit is reduced under section 63A of the Fringe Benefits Tax Assessment Act 1986. Note 1: You may be able to deduct losses or outgoings that are fringe benefits under section 51AEA, 51AEB or 51AEC of the Income Tax Assessment Act 1936. If you do, then you cannot deduct them under section 8-1 (about general deductions) and so this section is not relevant. Note 2: There are other exceptions for a loss or outgoing you incur in providing a benefit that would be a fringe benefit if it were not an exempt benefit: see items 1.6 and 1.7 of the table in section 32-30. 32-25

The tables set out the other exceptions

Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing *entertainment as described in column 2 of an item of a table in this Subdivision. However, if column 3 of that item applies, the exception in column 2 of that item does not. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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32-15

Income Tax Assessment Act 1997

s 32-30 32-30 Employer expenses Employer expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... 1.1 providing food or drink to your employees in an * in-house dining facility. 1.2 providing food or drink to individuals (other than your employees) in an *in-house dining facility. 1.3

1.4

1.5

1.6

1.7

1.8

providing food or drink in a * dining facility to your employees who perform most of their duties in connection with: (a) the dining facility; or (b) a facility (of which the dining facility forms a part) for providing accommodation, * recreation or travel. providing food or drink to your employee under an * industrial instrument relating to overtime. providing a facility for * recreation on property you occupy, if the facility is mainly operated for your employees to use. providing food or drink which would be a *fringe benefit apart from sections 54, 58, 58N, 58S and 58T of the Fringe Benefits Tax Assessment Act 1986 (disregarding section 58P of that Act). providing a meal which would be a *fringe benefit apart from sections 58A, 58F, 58L, 58LA and 58M of the Fringe Benefits Tax Assessment Act 1986 (disregarding section 58P of that Act). giving your employee an allowance that is included in his or her assessable income.

But the exception does not apply if ... the food or drink is provided at a party, reception or other social function. you choose (under section 32-70) not to include in your assessable income $30 for each meal you provide in the *in-house dining facility in the income year to an individual (other than your employee); or (b) the food or drink is provided at a party, reception or other social function. the food or drink is provided at a party, reception or other social function.

(a)

the facility is for: (a) accommodation; or (b) dining or drinking (unless it is a food or drink vending machine).

(a) (b)

the employee is a *relative of another employee of yours; and you give the allowance to the relative, as your employee, because: (i) he or she provides, or facilitates providing, * entertainment to do with the other employee’s employment; and (ii) you expect the relative to do so.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 32-50 Note 1: In the case of a company, items 1.1, 1.2, 1.3, 1.5 and 1.8 cover directors of the company as if they were employees: see section 32-80. Note 2: In the case of a company, items 1.1, 1.2, 1.3 and 1.5 cover directors, employees and property of another company that is a member of the same wholly-owned group: see section 32-85. Note 3: Item 1.8 has a special operation for partnerships: see section 32-90. Seminar expenses

Seminar expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... 2.1 providing food, drink, accommodation or travel to an individual (including yourself) that is reasonably incidental to the individual attending a *seminar that * goes for at least 4 hours.

32-40

But the exception does not apply if ... (a) (b) (c)

the seminar is a *business meeting; or the *seminar’s main purpose is to promote or advertise a *business (or prospective * business) or its goods or services; or the *seminar’s main purpose is to provide * entertainment at, or in connection with, the seminar.

Entertainment industry expenses

Entertainment industry expenses Item Section 32-5 does not stop you deducting a loss But the exception does not apply if ... or outgoing for ... 3.1 providing *entertainment for payment in the ordinary course of a *business that you carry on. 3.2 providing *entertainment in performing your duties to your employer who carries on a *business that includes providing that entertainment for payment. 32-45

Promotion and advertising expenses

Promotion and advertising expenses Item Section 32-5 does not stop you deducting a loss or outgoing for ... 4.1 providing *entertainment if: (a) you provide it to an individual under a contract to supply him or her with goods or services in the ordinary course of your * business; and (b) you incur the loss or outgoing to promote or advertise to the public your business or its goods or services. 4.2 providing or exhibiting your *business’s goods or services if you incur the loss or outgoing to promote or advertise those goods or services to the public. 4.3 providing *entertainment to promote or advertise to the public a *business or its goods or services. 32-50

But the exception does not apply if ...

some people have a greater opportunity to get the benefits of the entertainment than ordinary members of the public have.

Other expenses

Other expenses Item Section 32-5 does not stop you deducting a loss But the exception does not apply if ... or outgoing for ... 5.1 buying food or drink to do with overtime that you work, if you receive an allowance under an * industrial instrument to buy the food or drink. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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32-35

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 32 – Entertainment expenses

Income Tax Assessment Act 1997

s 32-50 Other expenses Item Section 32-5 does not stop you deducting a loss But the exception does not apply if ... or outgoing for ... 5.2 providing *entertainment free to members of the public who are sick, disabled, poor or otherwise disadvantaged. SUBDIVISION 32-C – DEFINITIONS RELEVANT TO THE EXCEPTIONS 32-55 32-60 32-65 32-55

Table of sections In-house dining facility (employer expenses table items 1.1 and 1.2) Dining facility (employer expenses table item 1.3) Seminars (seminar expenses table item 2.1) In-house dining facility (employer expenses table items 1.1 and 1.2)

An in-house dining facility is a canteen, dining room or similar facility that: (a) is on property you occupy; and (b) is operated mainly for providing food and drink to your employees; and (c) is not open to the public. Note 1: In the case of a company, this definition also covers directors of the company as if they were employees: see section 32-80. Note 2: In the case of a company, this definition also covers directors, employees and property of another company that is a member of the same wholly-owned group: see section 32-85. 32-60

Dining facility (employer expenses table item 1.3)

A dining facility is: (a) a canteen, dining room or similar facility; or (b) a cafe, restaurant or similar facility;

that is on property you occupy. Note: In the case of a company, this definition also covers property of another company that is a member of the same wholly-owned group: see section 32-85. 32-65

Seminars (seminar expenses table item 2.1)

(1) Seminar includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, “question and answer session”, training session or educational course. (2) In working out whether a *seminar goes for at least 4 hours the following are taken not to affect the seminar’s continuity, nor to form part of it: (a) any part of the seminar that occurs during a meal; (b) any break during the seminar for the purpose of a meal, rest or *recreation. (3) A *seminar is a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular *business to give or receive information, or discuss matters, relating to the business. However, the *seminar is not a business meeting if it: (a) is organised by (or on behalf of) an employer solely for either or both of these purposes: (i) training the employer and the employer’s employees (or just those employees) in matters relevant to the employer’s *business (or prospective *business); (ii) enabling the employer and the employer’s employees (or just those employees) to discuss general policy issues relevant to the internal management of the employer’s *business; and (b) is conducted on property that is occupied by a person (other than the employer) whose * business includes organising seminars or making property available for conducting seminars. Note 1: In the case of a company, subsection (3) covers directors of the company as if they were employees: see section 32-80. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 32-75 Note 2: In the case of a company, paragraph (3)(b) also covers property of another company that is a member of the same wholly-owned group: see section 32-85. Note 3: Subsection (3) has a special operation for partnerships: see section 32-90.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 32 – Entertainment expenses

SUBDIVISION 32-D – IN-HOUSE DINING FACILITIES (EMPLOYER EXPENSES TABLE ITEM 1.2) 32-70

Table of sections $30 is assessable for each meal provided to non-employee in an in-house dining facility

32-70 $30 is assessable for each meal provided to non-employee in an in-house dining facility

Note: If you do choose, you cannot rely on item 1.2 of the table in section 32-30 as a basis for deducting a loss or outgoing you incur in respect of providing a meal.

(3) You must choose by the day you lodge your *income tax return for the income year, or within a further time allowed by the Commissioner. SUBDIVISION 32-E – ANTI-AVOIDANCE 32-75 32-75

Table of sections Commissioner may treat you as having incurred entertainment expense Commissioner may treat you as having incurred entertainment expense

If: (a) you incur a loss or outgoing under an *arrangement; and (b) someone provides *entertainment under the arrangement to you or someone else; and (c) section 32-5 would have stopped you deducting the loss or outgoing under section 8-1 (which deals with general deductions) if you had incurred it in respect of providing that entertainment;

this Division applies to you as if you had incurred the loss or outgoing in providing that entertainment, to the extent (if any) that the Commissioner thinks reasonable. Note: This means that section 32-5 will prevent you from deducting the loss or outgoing under section 8-1 unless an exception applies. Example: A company pays $1,000 to sponsor a football game. Under the same arrangement, the company is given a viewing box at the game. To the extent the Commissioner thinks reasonable, he or she can treat the company as having incurred the $1,000 in providing entertainment. SUBDIVISION 32-F – SPECIAL RULES FOR COMPANIES AND PARTNERSHIPS 32-80 32-85 32-90

Table of sections Company directors Directors, employees and property of wholly-owned group company Partnerships

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) Your assessable income includes $30 for a meal you provide in an *in-house dining facility in the income year to an individual other than your employee, but only if: (a) you incur a loss or outgoing in respect of providing the meal; and (b) because of item 1.2 of the table in section 32-30, section 32-5 does not stop you deducting the loss or outgoing under section 8-1 (which deals with general deductions); and (c) the loss or outgoing is one that you can deduct under section 8-1 for the income year or some other income year. (2) However, you can choose not to include in your assessable income $30 for each meal you provide in the *in-house dining facility in the income year to an individual other than your employee.

Income Tax Assessment Act 1997

s 32-80 32-80 Company directors

In the case of a company, these provisions cover directors of the company as if they were the company’s employees: • item 1.1 (exception for *in-house dining facilities) of the table in section 32-30; • item 1.2 (exception for *in-house dining facilities) of the table in section 32-30; • item 1.3 (exception for *dining facilities) of the table in section 32-30; • item 1.5 (exception for recreational facilities) of the table in section 32-30; • item 1.8 (exception for providing your employee with an allowance) of the table in section 32-30; • section 32-55 (which defines in-house dining facility); • subsection 32-65(3) (which defines business meeting). 32-85 Directors, employees and property of wholly-owned group company Employees and directors of group company

(1) In the case of a company, these provisions cover directors and employees of another company that is a member of the same *wholly-owned group as if they were the company’s own directors and employees: • item 1.1 (exception for *in-house dining facilities) of the table in section 32-30; • item 1.2 (exception for *in-house dining facilities) of the table in section 32-30; • item 1.3 (exception for *dining facilities) of the table in section 32-30; • item 1.5 (exception for recreational facilities) of the table in section 32-30; • section 32-55 (which defines in-house dining facility); • subsection 32-60(1) (which defines dining facility); • paragraph 32-65(3)(b). Property occupied by group company

(2) Those provisions also cover property occupied by that other company as if the company occupied that property. 32-90

Partnerships

In the case of a partnership: • item 1.8 (exception for providing employee with an allowance) of the table in section 32-30; and • subsection 32-65(3) (which defines business meeting); apply to a partner in the same way as they apply to an employee of the partnership, but only for the purposes of calculating, in accordance with section 90 of the Income Tax Assessment Act 1936, the partnership’s net income or partnership loss. DIVISION 34 – NON-COMPULSORY UNIFORMS

34-A 34-B 34-C

Table of Subdivisions Guide to Division 34 Application of Division 34 Deduction for your non-compulsory uniform Registering the design of a non-compulsory uniform

GUIDE TO DIVISION 34 34-1

What this Division is about

This Division is about deductions for the costs of non-compulsory uniforms. Table of sections 34-3

What you need to read

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 34-7 34-3 What you need to read Employees

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 34 – Non-compulsory uniforms

(1) If you incur expenditure for your non-compulsory uniform, you need to read Subdivision 34-B (which is about deductions for your non-compulsory uniform), starting at section 34-10. Employers

(2) If you have people working for you who want to deduct expenditure of that kind, you need to read: • Subdivision 34-C (which is about registering the design of a non-compulsory uniform), starting at section 34-25; and • Subdivision 34-D (which is about appeals from Industry Secretary’s decision), starting at section 34-40. SUBDIVISION 34-A – APPLICATION OF DIVISION 34 34-5 34-7

This Division applies to employees and others

(1) This Division applies not only to an individual who is an employee. It also applies to an individual who is not an employee, but who receives, or is entitled to receive, *withholding payments covered by subsection (3). (2) If an individual is not an employee, but is covered by subsection (1), this Division applies to the individual as if: (a) he or she were an employee; and (b) the entity, who pays (or is liable to pay) *withholding payments covered by subsection (3) that result in the individual being in receipt of, or entitled to receive, such payments, were the individual’s employer; and (c) any other individual who receives (or is entitled to receive) *withholding payments covered by subsection (3): (i) that result in that other individual being in receipt of, or entitled to receive, such payments; and (ii) that the entity pays (or is liable to pay) to that other individual; were an employee of the entity. (3) This subsection covers a *withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table. Withholding payments covered Item Provision 1 Section 12-40 2 Section 12-45 3 Section 12-50 4 Subdivision 12-D

34-7

Subject matter Payment to company director Payment to office holder Return to work payment Benefit, training and compensation payments

This Division applies to employers and others

If an entity is not an employer, but pays (or is liable to pay) *withholding payments covered by subsection 34-5(3), this Division applies to the entity as if: (a) it were an employer; and (b) an individual to whom the entity pays (or is liable to pay) such withholding payments were the entity’s employee. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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34-5

Table of sections This Division applies to employees and others This Division applies to employers and others

Income Tax Assessment Act 1997

s 34-10 SUBDIVISION 34-B – DEDUCTION FOR YOUR NON-COMPULSORY UNIFORM 34-10 34-15 34-20 34-10

Table of sections What you can deduct What is a non-compulsory uniform? What are occupation specific clothing and protective clothing? What you can deduct

(1) If you are an employee, you can deduct expenditure you incur in respect of your * non-compulsory *uniform if: (a) you can deduct the expenditure under another provision of this Act; and (b) the *design of the uniform is registered under this Division when you incur the expenditure. Note 1: This Division also applies to individuals who are not employees: see Subdivision 34-A. Note 2: Employers apply to register designs of uniforms: see Subdivision 34-C.

(2) You cannot deduct the expenditure under this Act if the *design is not registered at the time you incur the expenditure. (3) However, this Division does not stop you deducting expenditure you incur in respect of your * occupation specific clothing or *protective clothing. 34-15 What is a non-compulsory uniform? What is a uniform?

(1) A uniform is one or more items of clothing (including accessories) which, when considered as a set, distinctively identify you as a person associated (directly or indirectly) with: (a) your employer; or (b) a group consisting of your employer and one or more of your employer’s *associates. When is a uniform non-compulsory?

(2) Your uniform is non-compulsory unless your employer consistently enforces a policy that requires you and the other employees (except temporary or relief employees) who do the same type of work as you: (a) to wear the uniform when working for your employer; and (b) not to substitute an item of clothing not included in the uniform for an item of clothing included in the uniform when working for your employer; except in special circumstances. 34-20

What are occupation specific clothing and protective clothing?

(1) Occupation specific clothing is clothing that distinctively identifies you as belonging to a particular profession, trade, vocation, occupation or calling. To determine this, disregard any feature of the clothing that distinctively identifies you as a person associated (directly or indirectly) with: (a) your employer; or (b) a group consisting of your employer and one or more of your employer’s *associates. Example: Occupation specific clothing includes a nurse’s uniform, a chef’s checked pants and a religious cleric’s ceremonial robes.

(2) Protective clothing is clothing of a kind that you mainly use to protect yourself, or someone else, from risk of: (a) death; or (b) *disease (including the contraction, aggravation, acceleration or recurrence of a disease); or (c) injury (including the aggravation, acceleration or recurrence of an injury); or (d) damage to clothing; or (e) damage to an artificial limb or other artificial substitute, or to a medical, surgical or other similar aid or appliance. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 35-1 Example: Protective clothing includes overalls, aprons, goggles, hard hats and safety boots, when worn to protect the wearer. Meaning of disease

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 35 – Deferral of losses from non-commercial business activities

(3) Disease includes any mental or physical ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development and whether of genetic or other origin. SUBDIVISION 34-C – REGISTERING THE DESIGN OF A NON-COMPULSORY UNIFORM Table of sections Application to register the design Industry Secretary’s decision on application

34-25 34-30 34-25

Application to register the design

(1) The employer of an employee who has, or will have, a *non-compulsory *uniform can apply to the *Industry Secretary for the *design of the uniform to be registered. Note: This Division also applies to entities that are not employers: see Subdivision 34-A. Meaning of design of a uniform

(2) The design of a *uniform includes features such as its colouring, construction, durability, ornamentation, pattern and shape. Form of application

application must be: in writing; and in a form approved in writing by the *Industry Secretary; and accompanied by such information as the Industry Secretary requires.

ITAA 1997

(3) The (a) (b) (c)

34-30 Industry Secretary’s decision on application Industry Secretary must decide to grant or refuse application

(1) After considering the application, the *Industry Secretary must decide to either grant or refuse the application. Criteria for grant of application

(2) The *Industry Secretary must not decide to grant an application unless he or she is satisfied that the design meets the criteria set out in the *approved occupational clothing guidelines. Note: The approved occupational clothing guidelines are created under section 34-55. When Industry Secretary taken to have refused application

(3) The *Industry Secretary is taken to have refused an application if he or she does not make a decision by the later of the following times (the deadline): (a) the end of 90 days (the 90-day period) after the day the Industry Secretary receives the application; (b) if the Industry Secretary, by written notice given to the applicant within the 90-day period, requests the applicant to give further information about the application—the end of 90 days after the Industry Secretary receives the further information. [Sections 34-33 and 34-35 and Subdivisions 34-D – Appeals from Industry Secretary’s decision to 34-G – The Industry Secretary not reproduced] DIVISION 35 – DEFERRAL OF LOSSES FROM NON-COMMERCIAL BUSINESS ACTIVITIES GUIDE TO DIVISION 35 35-1

What this Division is about

This Division prevents losses of individuals from non-commercial business activities being offset against other assessable income in the year the loss is incurred. The loss is deferred. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 35-1 It sets out an income requirement and a series of tests to determine whether a business activity is treated as being non-commercial. The deferred losses may be offset in later years against profits from the activity. They may also be offset against other income if the income requirement and one of the other tests are satisfied, or if the Commissioner exercises a discretion.

Operative 35-5 35-10 35-15 35-20 35-25 35-30 35-35 35-40 35-45 35-50 35-55

Table of sections provisions Object Deferral of deductions from non-commercial business activities Modification if you have exempt income Modification if you become bankrupt Application of Division to certain partnerships Assessable income test Profits test Real property test Other assets test Apportionment Commissioner’s discretion

OPERATIVE PROVISIONS 35-5

Object

(1) The object of this Division is to improve the integrity of the taxation system by: (a) preventing losses from non-commercial activities that are carried on as *businesses by individuals (alone or in partnership) being offset against other assessable income; and (b) preventing pre-business capital expenditure and post-business capital expenditure by individuals (alone or in partnership) in relation to non-commercial activities being deductible under section 40-880 (business related costs); unless certain exceptions apply. (2) This Division is not intended to apply to activities that do not constitute carrying on a * business (for example, the receipt of income from passive investments). 35-10

Deferral of deductions from non-commercial business activities

(1) The rule in subsection (2) applies for an income year to each *business activity you carried on in that year if you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership), unless: (a) you satisfy subsection (2E) for that year, and one of the tests set out in any of the following provisions is satisfied for the business activity for that year: (i) section 35-30 (assessable income test); (ii) section 35-35 (profits test); (iii) section 35-40 (real property test); (iv) section 35-45 (other assets test); or (b) the Commissioner has exercised the discretion set out in section 35-55 for the business activity for that year; or (c) the exception in subsection (4) applies for that year. Note: This section covers individuals carrying on a business activity as partners, but not individuals merely in receipt of income jointly. Compare the definition of partnership in subsection 995-1(1). Rules

(2) If the amounts attributable to the *business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess: (a) were not incurred in that income year; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 35-10

(b)

were an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 35 – Deferral of losses from non-commercial business activities

(2A) You cannot deduct an amount under section 40-880 (business related costs) for expenditure in relation to a *business activity you used to carry on if you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership) unless: (a) you satisfied subsection (2E), and one of the tests set out in any of the following provisions was satisfied for the business activity: (i) section 35-30 (assessable income test); (ii) section 35-35 (profits test); (iii) section 35-40 (real property test); (iv) section 35-45 (other assets test); or (b) the Commissioner has exercised the discretion set out in section 35-55 for the business activity; or (c) the exception in subsection (4) applied; for the income year in which the business activity ceased to be carried on or an earlier income year. (2B) If you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership), you cannot deduct an amount under section 40-880 (business related costs) for expenditure in relation to a *business activity: (a) you propose to carry on; or (b) another entity proposes to carry on if the other entity is not an individual, either alone or in partnership; for an income year before the one in which the business activity starts to be carried on. (2C) This section applies to an amount that you could have deducted, apart from paragraph (2B)(a), as if it were an amount attributable to the *business activity that you can deduct from assessable income from the activity for the income year in which the business activity starts to be carried on. (2D) You can deduct expenditure covered by paragraph (2B)(b) for the income year in which the * business activity starts to be carried on. Income requirement

(2E) You satisfy this subsection for an income year if the sum of the following is less than $250,000: (a) your taxable income for that year, disregarding your *assessable FHSS released amount for that year; (b) your *reportable fringe benefits total for that year; (c) your *reportable superannuation contributions for that year; (d) your *total net investment losses for that year. For the purposes of paragraph (a), when working out your taxable income, disregard any excess mentioned in subsection (2) for any *business activity for that year that you could otherwise deduct under this Act for that year. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note 1: There are modifications of this rule if you have exempt income (see section 35-15) or you become bankrupt (see section 35-20). Note 2: This rule does not apply if your excess is solely due to deductions under Division 41 (see section 35-10 of the Income Tax (Transitional Provisions) Act 1997). Example: Jennifer has a salaried job, and she also carries on a business activity consisting of selling lingerie. Jennifer starts that activity on 1 July 2002, and for the 2002-03 income year, the activity produces assessable income of $8,000 and deductions of $10,000. The activity does not pass any of the tests and the discretion is not exercised so the $2,000 excess is carried over to the next income year in which the activity is carried on. For the 2003-04 income year, the activity produces assessable income of $9,000 and deductions of $10,000 (excluding the $2,000 excess from 2002-03). Again, no tests passed and no exercise of discretion. $3,000 is carried over to the next income year (comprising the $1,000 excess for the current year, plus the previous year’s $2,000 excess) when the activity is carried on.

Income Tax Assessment Act 1997

s 35-10 Grouping business activities

(3) In applying this Division, you may group together *business activities of a similar kind. Exceptions

(4) The rule in subsection (2), (2A) or (2B) does not apply to a *business activity for an income year if: (a) the activity is a *primary production business, or a *professional arts business; and (b) your assessable income for that year (except any *net capital gain) from other sources that do not relate to that activity is less than $40,000. (5) A professional arts business is a *business you carry on as: (a) the author of a literary, dramatic, musical or artistic work; or Note: The expression “author” is a technical term from copyright law. In general, the “author” of a musical work is its composer and the “author” of an artistic work is the artist, sculptor or photographer who created it.

(b) a *performing artist; or (c) a *production associate. 35-15

Modification if you have exempt income

(1) The rule in subsection 35-10(2) may be modified for an income year if you *derived *exempt income in that year. (2) Any amount to which paragraph 35-10(2)(b) would otherwise apply for an income year for you is reduced by your *net exempt income for that year (after *utilising the net exempt income under section 36-10 or 36-15 (about tax losses)). This reduction is made before you apply the paragraph 35-10(2)(b) amount against assessable income from the *business activity. 35-20

Modification if you become bankrupt

(1) The rule in subsection 35-10(2) or (2A) is modified as set out in subsection (3) for an income year if in that year (the current year) you become bankrupt or are released from a debt by the operation of an Act relating to bankruptcy. (2) The rule is also modified as set out in subsection (3) if: (a) you became bankrupt before the current year; and (b) the bankruptcy is annulled in the current year under section 74 of the Bankruptcy Act 1966 because your creditors have accepted a proposal for a composition or scheme of arrangement; and (c) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy. (3) This Act applies to you as if any amount that: (a) paragraph 35-10(2)(b) had applied to for an income year before the current year for you; and (b) you have not yet deducted; were not an amount attributable to the *business activity that you can deduct for the current year or a later income year. 35-25

Application of Division to certain partnerships

For the purpose of applying the tests in sections 35-30, 35-40 and 35-45 where you carry on a business activity in an income year as a partner, ignore:

*

(a) any part of the assessable income from the business activity for the year that is attributable to the interest of a partner that is not an individual in the partnership net income or partnership loss for the year; and (b) any part of the assessable income from the business activity for the year that is *derived from the activity by another partner otherwise than as a member of the partnership; and (c) any part of the *reduced cost bases or other values of assets of the partnership used in carrying on the activity in that year that is attributable to the interest of a partner that is not an individual in those assets; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(d) 35-30

s 35-45 any part of the reduced cost bases or other values of assets owned or leased by another partner that are not partnership assets and used in carrying on the activity in that year.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 35 – Deferral of losses from non-commercial business activities

Assessable income test

The rules in section 35-10 do not apply to a *business activity for an income year if: (a) the amount of assessable income from the business activity for the year; or (b) you started to carry on the business activity, or stopped carrying it on, during the year—a reasonable estimate of what would have been the amount of that assessable income if you had carried on that activity throughout the year;

is at least $20,000. Profits test

(1) The rules in section 35-10 do not apply to a *business activity (except an activity carried on by one or more individuals as partners, whether or not some other entity is a member of the partnership) for an income year (the current year) if, for each of at least 3 of the past 5 income years (including the current year) the sum of the deductions attributable to that activity for that year (apart from the operation of subsections 35-10(2) and (2C)) is less than the assessable income from the activity for that year. (2) For a *business activity you carried on with one or more others as partners, the rules in section 35-10 do not apply to you for the current year if, for each of at least 3 of the past 5 income years (including the current year) the sum of your deductions (including your share of the partnership deductions) attributable to that activity for that year (apart from the operation of subsections 35-10(2) and (2C)) is less than your assessable income (including your share of the partnership’s assessable income) from the activity for that year. 35-40

Real property test

(1) The rules in section 35-10 do not apply to a *business activity for an income year if the total * reduced cost bases of real property or interests in real property used on a continuing basis in carrying on the activity in that year is at least $500,000. (2) You may use the *market value of the real property or interest if that value is more than its * reduced cost base. (3) The *reduced cost base or *market value is worked out: (a) as at the end of the income year; or (b) if you stopped carrying on the *business activity during the year: (i) as at the time you stopped; or (ii) if you disposed of the asset before that time in the course of stopping carrying on the activity—as at the time you disposed of it. (4) However, these assets are not counted for this test: (a) a *dwelling, and any adjacent land used in association with the dwelling, that is used mainly for private purposes; (b) fixtures owned by you as a tenant. 35-45

Other assets test

(1) The rules in section 35-10 do not apply to a *business activity for an income year if the total values of assets that are counted for this test (see subsections (2) and (4)) and that are used on a continuing basis in carrying on the activity in that year is at least $100,000. (2) The assets counted for this test, and their values for this test, are set out in this table: Assets counted for this test and their values Item Asset 1 An asset whose decline in value you can deduct under Division 40 2 An item of *trading stock

Value The asset’s *written down value Its value under subsection 70-45(1)

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 35-45 Assets counted for this test and their values Item Asset 3 An asset that you lease from another entity

Value The sum of the amounts of the future lease payments for the asset to which you are irrevocably committed, less an appropriate amount to reflect any interest component for those lease payments Trade marks, patents, copyrights and similar rights Their *reduced cost base

4

(3) The value of such an asset is worked out: (a) as at the end of the income year; or (b) if you stopped carrying on the *business activity during the year: (i) as at the time you stopped; or (ii) if you disposed of the asset before that time in the course of stopping carrying on the activity—as at the time you disposed of it. (4) However, these assets are not counted for this test: (a) assets that are real property or interests in real property that are taken into account for that year under section 35-40; (b) *cars, motor cycles and similar vehicles. 35-50

Apportionment

If an asset that is being taken into account under section 35-40 or 35-45 is used during an income year partly in carrying on the relevant *business activity and partly for other purposes, only that part of its *reduced cost base, *market value or other value that is attributable to its use in carrying on the business activity in that year is taken into account for that section. 35-55

Commissioner’s discretion

(1) The Commissioner may, on application, decide that the rule in subsection 35-10(2) does not apply to a *business activity for one or more income years (the excluded years) if the Commissioner is satisfied that it would be unreasonable to apply that rule because: (a) the business activity was or will be affected in the excluded years by special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster; or Note: This paragraph is intended to provide for a case where a business activity would have satisfied one of the tests if it were not for the special circumstances.

(b)

for an applicant who carries on the business activity who satisfies subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made—the business activity has started to be carried on and, for the excluded years: (i) because of its nature, it has not satisfied, or will not satisfy, one of the tests set out in section 35-30, 35-35, 35-40 or 35-45; and (ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will either meet one of those tests or will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C)); or (c) for an applicant who carries on the business activity who does not satisfy subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made—the business activity has started to be carried on and, for the excluded years: (i) because of its nature, it has not produced, or will not produce, assessable income greater than the deductions attributable to it; and

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(ii)

there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C)).

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Part 2-5 – Rules about deductibility of particular kinds of amounts Division 36 – Tax losses of earlier income years

Note: Paragraphs (b) and (c) are intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income. For example, an activity involving the planting of hardwood trees for harvest, where many years would pass before the activity could reasonably be expected to produce income.

(2) The Commissioner may, on application, decide that the rule in subsection 35-10(2B) does not apply to a *business activity for an income year if the Commissioner is satisfied that it would be unreasonable to apply that rule because special circumstances of the kind referred to in paragraph (1)(a) of this section prevented the activity from starting. Note: This subsection is intended to provide for a case where a business activity would have begun to be carried on and satisfied one of the tests if it were not for the special circumstances.

(3) An application for a decision by the Commissioner under this section must be made in the approved form.

*

DIVISION 36 – TAX LOSSES OF EARLIER INCOME YEARS

ITAA 1997

36-A 36-B 36-C

Table of Subdivisions Guide to Division 36 Deductions for tax losses of earlier income years Effect of you becoming bankrupt Excess franking offsets

GUIDE TO DIVISION 36 36-1

What this Division is about

If you have more deductions for an income year than you have income, the difference is a tax loss. Note: You may be able to utilise the tax loss in that or a later income year. SUBDIVISION 36-A – DEDUCTIONS FOR TAX LOSSES OF EARLIER INCOME YEARS 36-10 36-15 36-17 36-20 36-25 36-10

Table of sections How to calculate a tax loss for an income year How to deduct tax losses of entities other than corporate tax entities How to deduct tax losses of corporate tax entities Net exempt income Special rules about tax losses How to calculate a tax loss for an income year

(1) Add up the amounts you can deduct for an income year (except *tax losses for earlier income years). (2) Subtract your total assessable income. (3) If you *derived *exempt income, also subtract your *net exempt income (worked out under section 36-20). (4) Any amount remaining is your tax loss for the income year, which is called a loss year. Note 1: Some deductions are limited so that they cannot contribute to a tax loss. See section 26-55 (Limit on certain deductions). Note 2: The meanings of tax loss and loss year are modified by section 36-55 for a corporate tax entity that has an amount of excess franking offsets.

(5) For subsection (3), if you have *exempt income under section 51-100 (about shipping), disregard 90% of so much of your *net exempt income as directly relates to that exempt income. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 36-15 36-15 How to deduct tax losses of entities other than corporate tax entities

(1) Your *tax loss for a *loss year is deducted in a later income year as follows if you are not a corporate tax entity at any time during the later income year.

*

Note 1: See section 36-17 for the deduction of a tax loss of an entity that is a corporate tax entity at any time during the later income year. Note 2: A tax loss can be deducted only to the extent that it has not already been utilised: see subsection 960-20(1). If you have no net exempt income

(2) If your total assessable income for the later income year exceeds your total deductions (other than *tax losses), you deduct the tax loss from that excess. If you have net exempt income

(3) If you have *net exempt income for the later income year and your total assessable income (if any) for the later income year exceeds your total deductions (except *tax losses), you deduct the tax loss: (a) first, from your net exempt income; and (b) secondly, from the part of your total assessable income that exceeds those deductions. (4) However, if you have *net exempt income for the later income year and those deductions exceed your total assessable income, then: (a) subtract that excess from your net exempt income; and (b) deduct the tax loss from any net exempt income that remains. To work out your net exempt income: see section 36-20. General

(5) If you have 2 or more *tax losses, you deduct them in the order in which you incurred them. (6) [Repealed] (7) [Repealed] 36-17

How to deduct tax losses of corporate tax entities

(1) A *tax loss of an entity for a *loss year is deducted in a later income year as follows if the entity is a *corporate tax entity at any time during the later income year. Note: A tax loss can be deducted under this section only to the extent that it has not already been utilised: see subsection 960-20(1). If the entity has no net exempt income

(2) If the entity’s total assessable income for the later income year exceeds the entity’s total deductions (except *tax losses), the entity is to deduct from that excess so much of the tax loss as the entity chooses. The entity may choose a nil amount. If the entity has net exempt income

(3) If the entity has *net exempt income for the later income year and the entity’s total assessable income (if any) for that year exceeds the entity’s total deductions (except *tax losses), the entity is to: (a) first, deduct the tax loss from the net exempt income; and (b) secondly, deduct from the part of the total assessable income that exceeds those deductions so much of the undeducted amount of the tax loss (if any) as the entity chooses. The entity may choose a nil amount under paragraph (b). Note: To work out the corporate tax entity’s net exempt income: see section 36-20.

(4) However, if the entity has *net exempt income for the later income year and those deductions exceed the entity’s total assessable income, the entity is to: (a) subtract that excess from the net exempt income; and (b) deduct the *tax loss from any net exempt income that remains. Note: This means there is no choice available under this subsection. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(4A) For subsection (3) or (4), if the entity has *exempt income under section 51-100 (about shipping) for the later income year, disregard 90% of so much of the entity’s *net exempt income for the later income year as directly relates to that exempt income.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 36 – Tax losses of earlier income years

Limit to how much the entity can choose

Example: For the 2017-18 income year, Company A (which is not a base rate entity) has: • a tax loss of $150 from a previous income year; and • assessable income of $200 (franked distribution of $70, franking credit of $30 and $100 of income from other sources); and • no deductions; and • no net exempt income. The tax offset of $30 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules. Company A would not have an amount of excess franking offsets for that year if the tax loss were disregarded (see section 36-55). This is because the tax offset of $30 is less than $60, the amount of income tax that Company A would have to pay if it did not have the tax offset and the tax loss. Paragraph (a) therefore does not apply. If Company A chooses to deduct the full amount of the tax loss, it would have an amount of excess franking offsets of $15: $30 − (($200 − $150) × 30%) Company A therefore cannot make this choice because of paragraph (b). However, if Company A chooses to deduct $100 of the tax loss, it would not have an amount of excess franking offsets: $30 = (($200 − $100) × 30%) Company A therefore can choose to deduct $100 of the tax loss.

(6) The entity must state its choice under subsection (2) or (3) in its *income tax return for the later income year. General

(7) If the entity has 2 or more *tax losses, the entity is to deduct them in the order in which the entity incurred them. (8) [Repealed] (9) [Repealed] Recalculation of amounts resulting in a choice or a change of a choice

(10) Subsection (11) or (12) applies if at least one of the following amounts is recalculated after an entity has lodged its *income tax return for an income year: (a) the amount of a *tax loss that the entity can *utilise in that year; (b) the amount of the difference between the entity’s total assessable income for that year and the entity’s total deductions (other than *tax losses) for that year; (c) the amount of the entity’s *net exempt income for that year; whether or not the amount is recalculated in an amendment of the entity’s assessment for that year, and whether or not the amount was a nil amount before the recalculation (or has become a nil amount after the recalculation). (11) If: (a) before the recalculation, a choice under subsection (2) or (3) for the income year was not available to the entity; but * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(5) The choice that the entity has under subsection (2) or (3) for the later income year is subject to both of the following: (a) the entity must choose a nil amount if, disregarding the *tax loss and other tax losses of the entity, the entity would have an amount of *excess franking offsets for that year; (b) if, disregarding the tax loss and other tax losses of the entity, the entity would not have an amount of excess franking offsets for that year—the entity must not choose an amount that would result in the entity having an amount of excess franking offsets for that year.

Income Tax Assessment Act 1997

s 36-17

(b)

as a result of the recalculation, the choice has (apart from subsection (6)) become available to the entity; the entity can make that choice by written notice given to the Commissioner. (12) If: (a) the entity made a choice under subsection (2) or (3) for the income year; but (b) as a result of the recalculation, the entity wishes to change that choice; the entity can do so by written notice given to the Commissioner. (13) Subsections (10) to (12) have effect subject to section 170 of the Income Tax Assessment Act 1936 (about amendment of assessments). 36-20

Net exempt income

(1) If you are an Australian resident, your net exempt income is the amount by which your total exempt income from all sources exceeds the total of: (a) the losses and outgoings (except capital losses and outgoings) you incurred in deriving that exempt income; and (b) any taxes payable outside Australia on that exempt income. (2) If you are a foreign resident, your net exempt income is the amount (if any) by which the total of: (a) your *exempt income *derived from sources in Australia; and (b) your exempt income to which section 26AG (Certain film proceeds included in assessable income) of the Income Tax Assessment Act 1936 applies; exceeds the total of: (c) the losses and outgoings (except capital losses and outgoings) you incurred in deriving exempt income covered by paragraph (a) or (b); and (d) any taxes payable outside Australia on income covered by paragraph (b). (3) [Repealed] (3A) [Repealed] (4) [Repealed] *

36-25

Item 1.

Item 1.

2.

Special rules about tax losses Tax losses of individuals For the special rules about this situation ... See: You go bankrupt, or you are released from debts Subdivision 36-B under a bankruptcy law: your right to deduct tax losses of an earlier income year may be affected. Tax losses of companies For the special rules about this situation ... See: Subdivision 165-B A company has had a change of ownership or control during the income year, and has not satisfied the business continuity test: it works out its taxable income and its tax loss in a special way. A company wants to deduct a tax loss. It cannot do Subdivision 165-A so unless: • the same people owned the company during the loss year, the income year and any intervening year; and • no person controlled the company’s voting power at any time during the income year who did not also control it during the whole of the loss year and any intervening year; or the company has satisfied the business continuity test.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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4.

5. 6.

Item 1.

Item 3.

Item 1. 2.

Item 1.

Item 1.

For the special rules about this situation ... One or more of these things happen: • income is injected into a company; • a tax benefit is obtained from available losses or deductions; • a deduction is injected into a company; • a tax benefit is obtained because of available income. The Commissioner can disallow tax losses or current year deductions. A company can transfer a surplus amount of its tax loss to another company so that the other company can deduct the amount in the income year of the transfer. (Both companies must be members of the same wholly-owned group.) See also: Tax losses of pooled development funds (PDFs) below A life insurance company A company is a designated infrastructure project entity.

See: Division 175

Subdivision 170-A

Subdivision 320-D Subdivision 415-B

Tax losses of corporate tax entities For the special rules about this situation... See: A corporate tax entity that has an amount of Subdivision 36-C excess franking offsets for an income year: it works out its tax loss in a special way.

ITAA 1997

Item 3.

Tax losses of entities generally For the special rules about this situation ... See: Former Subdivision 375-G You have deductions in relation to deriving income under section 26AG of the Income Tax Assessment Act 1936 from the proceeds of a film: your tax loss may have a film component, which is deductible from your film income only. Tax losses of pooled development funds (PDFs) For the special rules about this situation ... See: A company is a pooled development fund (PDF) at Section 195-5 the end of an income year for which it has a tax loss: it can only deduct the loss while it is a PDF. A company becomes a PDF during an income Section 195-15 year: special rules affect how it works out a tax loss and how the loss is utilised. Tax losses of VCLPs, ESVCLPs, AFOFs and VCMPs For the special rules about this situation ... See: A limited partnership that has a tax loss becomes a Subdivision 195-B VCLP, an ESVCLP, an AFOF or a VCMP: it cannot deduct the loss while it is a VCLP, an ESVCLP, an AFOF or a VCMP. Tax losses of entities that become foreign hybrids For the special rules about this situation... See: An entity that has a tax loss becomes a foreign Section 830-115 hybrid: it cannot deduct the loss while it is a foreign hybrid.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 36 – Tax losses of earlier income years

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s 36-25 Tax losses of trusts For the special rules about this subsection... See: A trust has had a change of ownership or control Divisions 266, 267 and 268 in or there has been an abnormal trading in its units: Schedule 2F to the Income Tax • if this happens in the income year, it works Assessment Act 1936 out its net income and tax loss in a special way; or • if this happens at any time from the start of a loss year until the end of the income year, it cannot deduct a tax loss from the loss year. This will not be the case if the trust is an excepted trust. However, if it became one by making a family trust election, a special tax may be payable on certain distributions and other amounts. A trust is involved in a scheme to take advantage Division 270 in Schedule 2F to the of deductions. The trust may be prevented from Income Tax Assessment Act 1936 making full use of them. A trust is a designated infrastructure project entity. Subdivision 415-B

Item 1.

2. 3.

Tax losses of greenfields minerals explorers For the special rules about this situation... See: A greenfields minerals explorer creates exploration Section 418-95 credits.

Item 1.

SUBDIVISION 36-B – EFFECT OF YOU BECOMING BANKRUPT GUIDE TO SUBDIVISION 36-B 36-30

What this Subdivision is about

After you become bankrupt, you cannot deduct a tax loss that you incurred beforehand. However, you may be able to deduct repayments of debts you incurred in the loss year.

Operative 36-35 36-40 36-45

Table of sections provisions No deduction for tax loss incurred before bankruptcy Deduction for amounts paid for debts incurred before bankruptcy Limit on deductions for amounts paid

OPERATIVE PROVISIONS 36-35

No deduction for tax loss incurred before bankruptcy

(1) If: (a) you became bankrupt; or (b) you were released from a debt by the operation of an Act relating to bankruptcy; before the income year, you cannot deduct a *tax loss that you incurred before the day on which you either became bankrupt or were released. (2) If: (a) you became bankrupt before the income year; and (b) the bankruptcy is later annulled under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(c) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy; you cannot deduct a *tax loss that you incurred before the day on which you became bankrupt.

CORE TAX

Part 2-5 – Rules about deductibility of particular kinds of amounts Division 36 – Tax losses of earlier income years

36-40 Deduction for amounts paid for debts incurred before bankruptcy Tax losses generally

(1) If: (a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and (b) you have a *tax loss covered by section 36-35 for that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax loss. (2) to (5) not reproduced

(1) The total of your deductions under subsection 36-40(1) for amounts paid in the income year for debts incurred in the *loss year cannot exceed the amount of the *tax loss reduced by the sum of: (a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and (b) any amounts of the tax loss *utilised in earlier income years; and (c) any amounts of the tax loss that, apart from section 36-35, would have been deductible from your *net exempt income for the income year or earlier income years. Film losses

(2) The total of your deductions under subsection 36-40(2) for amounts paid in the income year for debts incurred in the *loss year cannot exceed the amount of the *film loss reduced by the sum of: (a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and (b) any amounts of the film loss deducted in earlier income years; and (c) any amounts of the film loss that, apart from section 36-35, would have been deductible from your *net exempt film income for the income year or earlier income years. SUBDIVISION 36-C – EXCESS FRANKING OFFSETS GUIDE TO SUBDIVISION 36-C 36-50

What this Subdivision is about

Amounts of tax offsets to which a corporate tax entity is entitled under Division 207 and Subdivision 210-H may in some circumstances be converted into an amount of a tax loss for the entity. Table of sections Operative provision 36-55 Converting excess franking offsets into tax loss OPERATIVE PROVISION 36-55 Converting excess franking offsets into tax loss Excess franking offsets

(1) An entity that is a *corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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36-45 Limit on deductions for amounts paid Tax losses generally

Income Tax Assessment Act 1997

s 36-55

(a) the total amount of *tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210-H (except those that are subject to the refundable tax offset rules because of section 67-25); exceeds: (b) the amount of income tax that the entity would have to pay on its taxable income for that year if: (i) it did not have those tax offsets; and (ii) it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and (iii) it did not have any tax offset under section 205-70; but had all its other tax offsets. The excess is the amount of excess franking offsets. Note: Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules. Example: For the 2017-18 income year, Company E (which is not a base rate entity) has: • assessable income of $200 (franked distribution of $140 and franking credit of $60); and • $100 of deductions that are allowable. The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules. Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30: (($140 + $60) − $100) × 30% This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year. How to work out the amount of the tax loss

(2) For (a) (b) then: (c)

the purposes of this Act, if: an entity has an amount of *excess franking offsets for an income year; and the result of applying the following method statement is a positive amount;

the entity is taken to have a *tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36-10, 165-70, 175-35 or 701-30); and (d) that year is taken to be a *loss year for the entity if the entity would not otherwise have a tax loss for that year.

Method statement Step 1. Work out the amount (if any) that would have been the entity’s *tax loss for that year under section 36-10, 165-70, 175-35 or 701-30 if the entity’s *net exempt income for that year (if any) were disregarded. Note: See section 36-20 for the calculation of net exempt income. Step 2. Divide the amount of *excess franking offsets by the entity’s *corporate tax rate for imputation purposes for that year. Step 3. Add the results of steps 1 and 2. Step 4. Reduce the result of step 3 by the entity’s *net exempt income for that year (if any). The result of this step is taken to be the entity’s *tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year. Example: Assume that company E did not derive any exempt income for the 2017-2018 income year and that it would not otherwise have any tax loss for that year under section 36-10, 165-70, 175-35 or 701-30. Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36-15 or 36-17.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

DIVISION 40 – CAPITAL ALLOWANCES

40-A 40-B 40-C 40-D 40-E 40-F 40-G 40-H 40-I 40-J

Table of Subdivisions Guide to Division 40 Objects of Division Core provisions Cost Balancing adjustments Low-value and software development pools Primary production depreciating assets Capital expenditure of primary producers and other landholders Capital expenditure that is immediately deductible Capital expenditure that is deductible over time Capital expenditure for the establishment of trees in carbon sink forests

GUIDE TO DIVISION 40 40-1

What this Division is about

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You can deduct an amount equal to the decline in value of a depreciating asset (an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used) that you hold. That decline is generally measured by reference to the effective life of the asset. You can also deduct amounts for certain other capital expenditure. Simplified outline of this Division

The key concepts about depreciating assets and certain other capital expenditure are outlined below (in bold italics). Simplified outline of this Division Item Major topic Subordinate topics Rules 1 Rules about depreciating assets 1.1 Core provisions Depreciating assets are assets with a limited effective life that are reasonably expected to decline in value. Broadly, the effective life of a depreciating asset is the period it can be used to produce income. The decline in value is based on the cost and effective life of the depreciating asset, not its actual change in value. It begins at start time, when you begin to use the asset (or when you have it installed ready for use). It continues while you use the asset (or have it installed). Usually, the owner of a depreciating asset holds the asset and can therefore claim deductions for its decline in value. Sometimes the economic owner will be different to the legal owner and the economic owner will be the holder. 1.2 Cost The cost of a depreciating asset includes both: • expenses you incur to start holding the asset; and • additional expenses that contribute to its present condition and location (e.g. improvements). 1.3 Balancing adjustments

Provisions

Subdivision 40-B

Subdivision 40-C

Subdivision 40-D

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-10 Simplified outline of this Division Item Major topic Subordinate topics Rules When you stop holding a depreciating asset you may have to include an amount in your assessable income, or deduct an amount under a balancing adjustment. The adjustment reconciles the decline with the actual change in value. 1.4 Low-value and software development pools Low-cost assets and assets depreciated to a low value may be placed in a low value pool, which is treated as a single depreciating asset. You can also pool in-house software expenditure in a software development pool. 1.5 Primary production depreciating assets You can deduct amounts for capital expenditure on: • water facilities immediately; or • horticultural plants over a period that relates to the effective life of the plant; or • fodder storage assets over 3 income years; or • fencing assets immediately. 2 Rules about other capital expenditure 2.1 Capital expenditure of primary producers and other landholders You can deduct amounts for capital expenditure on: • landcare operations immediately; or • electricity and telephone lines over 10 income years. 2.2 Capital expenditure that is immediately deductible You can get an immediate deduction for certain capital expenditure on: • exploration or prospecting; and • rehabilitation of mine and quarry sites; and • paying petroleum taxes; and • environmental protection activities. 2.3 Capital expenditure that is deductible over time You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amount over the life of the project using a project pool. You can also deduct amounts for certain business related costs over 5 years where the amounts are not otherwise taken into account and are not denied a deduction. 2.4 Capital expenditure for establishing trees in carbon sink forests You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests.

Provisions

Subdivision 40-E

Subdivision 40-F

Subdivision 40-G

Subdivision 40-H

Subdivision 40-I

Subdivision 40-J

SUBDIVISION 40-A – OBJECTS OF DIVISION Table of sections 40-15

Objects of Division

40-15

Objects of Division

The objects of this Division are: (a) to allow you to deduct the *cost of a *depreciating asset; and (b) to spread the deduction over a period that reflects the time for which the asset can be used to obtain benefits; and (c) to provide deductions for certain other capital expenditure that is not otherwise deductible. Note 1: This Division does not apply to some depreciating assets: see section 40-45. Note 2: The application of this Division to a life insurance company is affected by sections 320-200 and 320-255. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-25 SUBDIVISION 40-B – CORE PROVISIONS

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

GUIDE TO SUBDIVISION 40-B 40-20

What this Subdivision is about

Operative 40-25 40-30 40-35 40-40 40-45 40-50 40-53 40-55 40-60 40-65 40-70 40-72 40-75 40-80 40-82 40-85 40-90 40-95 40-100 40-102 40-103 40-105 40-110 40-115 40-125 40-130 40-135 40-140

Table of sections provisions Deducting amounts for depreciating assets What a depreciating asset is Jointly held depreciating assets Meaning of hold a depreciating asset Assets to which this Division does not apply Assets for which you deduct under another Subdivision Alterations etc. to certain depreciating assets Use of the “cents per kilometre” car expense deduction method When a depreciating asset starts to decline in value Choice of methods to work out the decline in value Diminishing value method Diminishing value method for post-9 May 2006 assets Prime cost method When you can deduct the asset’s cost Assets costing less than $30,000—medium sized businesses—income years ending between 2 April 2019 and 30 June 2020 Meaning of adjustable value and opening adjustable value of a depreciating asset Debt forgiveness Choice of determining effective life Commissioner’s determination of effective life Capped life of certain depreciating assets Effective life and remaining effective life of certain vessels Self-assessing effective life Recalculating effective life Splitting a depreciating asset Merging depreciating assets Choices Certain anti-avoidance provisions Getting tax information from associates

OPERATIVE PROVISIONS 40-25 Deducting amounts for depreciating assets You deduct the decline in value

(1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a *depreciating asset that you *held for any time during the year. Note 1: Sections 40-70, 40-72 and 40-75 show you how to work out the decline for most depreciating assets. There is a limit on the decline: see subsections 40-70(3), 40-72(3) and 40-75(7). Note 2: Small business entities can choose to both deduct and work out the amount they can deduct under Division 328. Note 3: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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The rules that apply to most depreciating assets are in this Subdivision. It explains: • what a depreciating asset is; and • when you start deducting amounts for depreciating assets; and • how to work out your deductions. It also contains rules for splitting and merging depreciating assets.

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s 40-25 Reduction of deduction

(2) You must reduce your deduction by the part of the asset’s decline in value that is attributable to your use of the asset, or your having it *installed ready for use, for a purpose other than a *taxable purpose. Example: Ben holds a depreciating asset that he uses for private purposes for 30% of his total use in the income year. If the asset declines by $1,000 for the year, Ben would have to reduce his deduction by $300 (30% of $1,000). Note: You may have to make a further reduction under subsections (3) and (4) or section 40-27. Further reduction: leisure facilities

(3) You may have to make a further reduction for a *depreciating asset that is a *leisure facility attributable to your use of it, or your having it *installed ready for use, for a *taxable purpose. (4) That reduction is the part of the *leisure facility’s decline in value that is attributable to your use of it, or your having it *installed ready for use, at a time when: (a) its use did not constitute a *fringe benefit; or (b) you did not use it or *hold it for use as mentioned in paragraph 26-50(3)(b) (about using it in the course of your business or for your employees). Exception: low-value pools

(5) Subsections (2), (3) and (4) do not apply to *depreciating assets allocated to a low-value pool. Despite subsection (1), you can continue to deduct an amount equal to the decline in value for an income year (as worked out under this Division) of such an asset even though you do not continue to * hold that asset. Note: See Subdivision 40-E for low-value pools.

(6) [Repealed] Meaning of taxable purpose

(7) Subject to subsection (8), a taxable purpose is: (a) the *purpose of producing assessable income; or (b) the purpose of *exploration or prospecting; or (c) the purpose of *mining site rehabilitation; or (d) *environmental protection activities. Note 1: Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243. Note 2: When this Division notionally applies under section 355-310 (about depreciating assets used for R&D activities), the taxable purpose is sometimes only the purpose of conducting R&D activities.

(8) If Division 250 applies to you and an asset that is a *depreciating asset: (a) if section 250-150 applies—you are taken not to be using the asset for a *taxable purpose to the extent of the *disallowed capital allowance percentage; or (b) otherwise—you are taken not to be using the asset for such a purpose. 40-27

[not reproduced]

40-30

What a depreciating asset is

(1) A depreciating asset is an asset that has a limited *effective life and can reasonably be expected to decline in value over the time it is used, except: (a) land; or (b) an item of *trading stock; or (c) an intangible asset, unless it is mentioned in subsection (2). (2) These intangible assets are depreciating assets if they are not *trading stock: (a) *mining, quarrying or prospecting rights; * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(b) *mining, quarrying or prospecting information; (ba) [Repealed] (bb) [Repealed] (c) items of *intellectual property; (d) *in-house software; (e) *IRUs; (f) *spectrum licences; (g) *datacasting transmitter licences; (h) *telecommunications site access rights. (3) This Division applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Note 1: Whether such an asset is a depreciating asset depends on whether it falls within the definition in subsection (1). Note 2: This Division does not apply to capital works for which you can deduct amounts under Division 43: see subsection 40-45(2).

Example 1: A car is made up of many separate components, but usually the car is a depreciating asset rather than each component. Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate depreciating assets.

(5) This Division applies to a renewal or extension of a *depreciating asset that is a right as if the renewal or extension were a continuation of the original right. (6) This Division applies to a *mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you *held if: (a) the other right ends; and (b) the new right and the other right relate to the same area, or any difference in area is not significant. 40-35

Jointly held depreciating assets

(1) This Division and Divisions 41, 328 and 775 apply to a *depreciating asset (the underlying asset) that you *hold, and that is also held by one or more other entities, as if your interest in the underlying asset were itself the underlying asset. Note: Partners do not hold partnership assets: see section 40-40.

(2) As a result, the decline in value of the underlying asset is not itself taken into account. Example: Buford Corp owns an office block that it leases to 2 companies, Smokey Pty Ltd and Bandit Pty Ltd. Smokey and Bandit decide to install a fountain in front of the building. They discuss it with Buford who agrees to pay half the cost (because the fountain won’t be removable at the end of the lease). Smokey and Bandit split the rest of the cost between them. Smokey and Bandit would each hold the asset under item 3 of the table in section 40-40 and Buford would hold it under item 10. They would be joint holders, so each would write-off its interest in the fountain. 40-40

Meaning of hold a depreciating asset

Use this table to work out who holds a *depreciating asset. An entity identified in column 3 of an item in the table as not holding a depreciating asset cannot hold the asset under another item. Identifying the holder of a depreciating asset Item This kind of depreciating asset: Is held by this entity: 1 A *car in respect of which a lease has been granted that was The lessee (while the lessee a *luxury car when the lessor first leased it has the *right to use the car) and not the lessor * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(4) Whether a particular composite item is itself a depreciating asset or whether its components are separate depreciating assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case.

Income Tax Assessment Act 1997

s 40-40 Identifying the holder of a depreciating asset Item This kind of depreciating asset: 2 A *depreciating asset that is fixed to land subject to a * quasi-ownership right (including any extension or renewal of such a right) where the owner of the right has a right to remove the asset 3 An improvement to land (whether a fixture or not) subject to a *quasi-ownership right (including any extension or renewal of such a right) made, or itself improved, by any owner of the right for the owner’s own use where the owner of the right has no right to remove the asset 4 A *depreciating asset that is subject to a lease where the asset is fixed to land and the lessor has the right to recover the asset 5 A right that an entity legally owns but which another entity (the economic owner) exercises or has a right to exercise immediately, where the economic owner has a right to become its legal owner and it is reasonable to expect that: (a) the economic owner will become its legal owner; or (b) it will be disposed of at the direction and for the benefit of the economic owner 6 A *depreciating asset that an entity (the former holder) would, apart from this item, hold under this table (including by another application of this item) where a second entity (also the economic owner): (a) possesses the asset, or has a right as against the former holder to possess the asset immediately; and (b) has a right as against the former holder the exercise of which would make the economic owner the holder under any item of this table; and it is reasonable to expect that the economic owner will become its holder by exercising the right, or that the asset will be disposed of at the direction and for the benefit of the economic owner 7 A *depreciating asset that is a partnership asset 8

9 10

*

Mining, quarrying or prospecting information that an entity has and that is relevant to: (a) *mining and quarrying operations carried on, or proposed to be carried on by the entity; or (b) a *business carried on by the entity that includes * exploration or prospecting for *minerals or quarry materials obtainable by such operations; whether or not it is generally available Other *mining quarrying or prospecting information that an entity has and that is not generally available Any *depreciating asset

Is held by this entity: The owner of the quasiownership right (while the right to remove exists) The owner of the quasiownership right (while it exists) The lessor (while the right to recover exists) The economic owner and not the legal owner

The economic owner and not the former holder

The partnership and not any particular partner The entity

The entity The owner, or the legal owner if there is both a legal and equitable owner

Example 1: Power Finance leases a luxury car to Kris who subleases it to Rachael. As lessee, item 1 makes Rachael the holder of the car. Power, as the legal owner, would normally hold the car under item 10. However, item 1 makes it clear that Power, as lessor, does not hold the car. As the lessee, item 1 would normally mean that Kris held the car but, again, she is also a lessor and so is not the holder (she also doesn’t have the right to use the car during the sublease). Example 2: Sandra sells a packing machine to Jenny under a hire purchase agreement. Jenny holds the machine under item 6 because, although she is not the legal owner until she exercises her option to purchase, she possesses the machine now and can exercise an option to become its legal owner. Jenny is reasonably expected to exercise that option because the final payment will be well below the * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-53 expected market value of the machine at the end of the agreement. Sandra, as the machine’s legal owner, would normally be its holder under item 10 but item 6 makes it clear that the legal owner is not the holder. Note 1: Some assets may have holders under more than one item in the table. Note 2: As well as hire purchase agreements, items 5 and 6 cover cases like assets subject to chattel mortgages, sales subject to retention of title clauses and assets subject to bare trusts.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

40-45 Assets to which this Division does not apply Eligible work related items

(1) This Division does not apply to an asset that is an eligible work related item for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 where the relevant benefit provided by the employer is an expense payment benefit or a property benefit (within the meaning of that Act). Capital works

(2) This Division does not apply to capital works for which you can deduct amounts under Division 43, or for which you could deduct amounts under that Division: (a) but for expenditure being incurred, or capital works being started, before a particular day; or (b) had you used the capital works for a purpose relevant to those capital works under section 43-140. Note: Section 43-20 lists the capital works to which that Division applies.

Films

(5) This Division does not apply to a *depreciating asset if you or another taxpayer has deducted or can deduct amounts for it under: (a) former Division 10BA of Part III of the Income Tax Assessment Act 1936 (about Australian films); or (b) former Division 10B of Part III of that Act if the depreciating asset relates to a copyright in an Australian film within the meaning of that Division. (6) This Division applies to a *depreciating asset that is copyright in a *film where a company is entitled to a *tax offset under section 376-55 in respect of the film as if the asset’s *cost were reduced by the amount of that offset. 40-50

Assets for which you deduct under another Subdivision

(1) You cannot deduct an amount, or work out a decline in value, for a *depreciating asset under this Subdivision if you or another taxpayer has deducted or can deduct amounts for it under Subdivision 40-F (about primary production depreciating assets), 40-G (about capital expenditure of primary producers and other landholders) or 40-J (about capital expenditure for the establishment of trees in carbon sink forests). (2) You cannot deduct an amount, or work out a decline in value, for *in-house software under this Subdivision if you have allocated expenditure on the software to a software development pool under Subdivision 40-E. 40-53

Alterations etc. to certain depreciating assets

(1) These things are not the same *depreciating asset for the purposes of section 40-50 and Subdivision 40-F: (a) a depreciating asset; and (b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a *water facility, *fodder storage asset or *fencing asset. (2) These things are not the same *depreciating asset for the purposes of section 40-50 and Subdivision 40-G: (a) a depreciating asset; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(3) [Repealed] (4) [Repealed]

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s 40-53

(b) 40-55

a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a *landcare operation.

Use of the “cents per kilometre” car expense deduction method

You cannot deduct any amount for the decline in value of a *car for an income year if you use the “cents per kilometre” method for the car for that year. Note: See Subdivision 28-C for that method. 40-60

When a depreciating asset starts to decline in value

(1) A *depreciating asset you *hold starts to decline in value from when its *start time occurs. (2) The start time of a *depreciating asset is when you first use it, or have it *installed ready for use, for any purpose. Note: Previous use by a transition entity is ignored: see section 58-70.

(3) However, there is another start time for a *depreciating asset you *hold if a *balancing adjustment event referred to in paragraph 40-295(1)(b) occurs for the asset and you start to use the asset again. Its second start time is when you start using it again. 40-65

Choice of methods to work out the decline in value

(1) You have a choice of 2 methods to work out the decline in value of a *depreciating asset. You must choose to use either the *diminishing value method or the *prime cost method. Note 1: Once you make the choice for an asset, you cannot change it: see section 40-130. Note 2: For the diminishing value method, see sections 40-70 and 40-72. For the prime cost method, see section 40-75. Note 3: In some cases you do not have to make the choice because you can deduct the asset’s cost: see sections 40-80 and 40-82. Exception: asset acquired from associate

(2) For a *depreciating asset that you acquire from an *associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you must use the same method that the associate was using. Note: You can require the associate to tell you which method the associate was using: see section 40-140. Exception: holder changes but user same or associate of former user

(3) For a *depreciating asset that you acquire from a former *holder of the asset, you must use the same method that the former holder was using for the asset if: (a) the former holder or another entity (each of which is the former user) was using the asset at a time before you became the holder; and (b) while you hold the asset, the former user or an *associate of the former user uses the asset. (4) However, you must use the *diminishing value method if: (a) you do not know, and cannot readily find out, which method the former holder was using; or (b) the former holder did not use a method. Exception: low-value pools

(5) You work out the decline in value of a *depreciating asset in a low-value pool under Subdivision 40-E rather than under this Subdivision. Exception: also notionally deductible under R&D provisions

(6) If: (a) only one of the following events has happened: (i) you have deducted one or more amounts under this Division for an asset; (ii) you have been entitled under section 355-100 (about R&D) to one or more *tax offsets because you can deduct one or more amounts under section 355-305 for an asset; but * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(b) later, the other event happens for the asset; then, for the purposes of working out the deduction for the later event, you must choose the same method that you chose for the first event.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Note 1: Deductions under section 355-305 (about decline in value of tangible depreciating assets used for R&D activities) are worked out using a notional application of this Division. Note 2: This subsection applies with changes if you have or could have deducted an amount under former section 73BA of the Income Tax Assessment Act 1936 for the asset (see section 40-67 of the Income Tax (Transitional Provisions) Act 1997).

(7) If: (a) the events in paragraph (6)(a) could both arise for the same period for an asset; and (b) neither event has already arisen for the asset; then you must choose the same method for the purposes of working out the deduction for each event. 40-70

Diminishing value method

(1) You work out the decline in value of a *depreciating asset for an income year using the diminishing value method in this way: Base value ×

Days held 150% × 365 Asset’s *effective life

base value is: (a) for the income year in which the asset’s *start time occurs—its *cost; or (b) for a later year—the sum of its *opening adjustable value for that year and any amount included in the second element of its cost for that year. days held is the number of days you *held the asset in the income year from its *start time, ignoring any days in that year when you did not use the asset, or have it *installed ready for use, for any purpose. Note 1: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction. You can choose to recalculate effective life because of changed circumstances: see section 40-110. That section also requires you to recalculate effective life in some cases. Note 2: The effective life of a vessel can change in some cases: see subsection 40-103(2). Exception: intangibles

(2) You (a) (b) (c) (d) (e)

cannot use the *diminishing value method to work out the decline in value of: * in-house software; or an item of *intellectual property (except copyright in a *film); or a *spectrum licence; or a *datacasting transmitter licence; or a *telecommunications site access right.

Limit on decline

(3) The decline in value of a *depreciating asset under this section for an income year cannot be more than the amount that is the asset’s *base value for that income year. 40-72

Diminishing value method for post-9 May 2006 assets

(1) You work out the decline in value of a *depreciating asset for an income year using the diminishing value method in this way if you started to *hold the asset on or after 10 May 2006: *

Base value ×

Days held 200% × Asset’s *effective life 365

where:

base value [Repealed] days held has the same meaning as in subsection 40-70(1). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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where:

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s 40-72 Note: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction. You can choose to recalculate effective life because of changed circumstances: see section 40-110. That section also requires you to recalculate effective life in some cases. Exception: intangibles

(2) You (a) (b) (c) (d) (e)

cannot use the *diminishing value method to work out the decline in value of: * in-house software; or an item of *intellectual property (except copyright in a *film); or a *spectrum licence; or a *datacasting transmitter licence; or a *telecommunications site access right.

Limit on decline

(3) The decline in value of a *depreciating asset under this section for an income year cannot be more than the amount that is the asset’s *base value for that income year. 40-75

Prime cost method

(1) You work out the decline in value of a *depreciating asset for an income year using the prime cost method in this way: where: Asset’s *cost ×

Days held 100% × 365 Asset’s *effective life

where: days held has the same meaning as in subsection 40-70(1). Example: Greg acquires an asset for $3,500 and first uses it on the 26th day of the income year. If the effective life of the asset is 31/3 years, the asset would decline in value in that year by: [365 − 25] 100% $3,500 × × 31/ = $978 365 3 The asset’s adjustable value at the end of the income year is: $3,500 − $978 = $2,522

(2) However, you must adjust the formula in subsection (1) for an income year (the change year): (a) for which you recalculate the *depreciating asset’s *effective life; or (b) after the year in which the asset’s start time occurs and in which an amount is included in the second element of the asset’s *cost; or (c) for which the asset’s *opening adjustable value is reduced under section 40-90 (about debt forgiveness); or (d) in which the *remaining effective life of the asset is calculated under section 40-103; or (e) for which there is a reduction to the asset’s opening adjustable value under paragraph 40-365(5)(b) (about involuntary disposals) where you are using the prime cost method; or (f) for which the opening adjustable value of the asset is modified under subsection 2780(3A) or (4), 27-85(3) or 27-90(3); or (g) for which there is a reduction in the asset’s opening adjustable value under section 775-70; or (h) for which there is an increase in the asset’s opening adjustable value under section 775-75. The adjustments apply for the change year and later years. Note 1: For recalculating a depreciating asset’s effective life: see section 40-110. Note 2: You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355-605 of the Income Tax (Transitional Provisions) Act 1997).

(3) The adjustments are: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) instead of the asset’s *cost, you use its *opening adjustable value for the change year plus the amounts (if any) included in the second element of its cost for that year; and (b) instead of the asset’s *effective life, you use its *remaining effective life. (4) The remaining effective life of a *depreciating asset is any period of its *effective life that is yet to elapse as at: (a) the start of the change year; or (b) in the case of a roll-over under section 40-340—the time when the *balancing adjustment event occurs for the transferor.

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Note: Effective life is worked out in years and fractions of years.

(5) You must also adjust the formula in subsection (1) for an intangible *depreciating asset that: (a) is mentioned in an item in the table in subsection 40-95(7) (except item 5, 7 or 8); and (b) you acquire from a former *holder of the asset. The adjustment applies for the income year in which you acquire the asset and later income years. (6) Instead of the asset’s *effective life under the table in subsection 40-95(7), you use the number of years remaining in that effective life as at the start of the income year in which you acquire the asset. (7) The decline in value of a *depreciating asset under this section for an income year cannot be more than: (a) for the income year in which the asset’s *start time occurs—its *cost; or (b) for a later year—the sum of its *opening adjustable value for that year and any amount included in the second element of its cost for that year. 40-80 When you can deduct the asset’s cost Exploration or prospecting

(1) The decline in value of a *depreciating asset you *hold is the asset’s *cost if: (a) you first use the asset for *exploration or prospecting for *minerals, or quarry materials, obtainable by *mining and quarrying operations; and (b) when you first use the asset, you do not use it for: (i) development drilling for *petroleum; or (ii) operations in the course of working a mining property, quarrying property or petroleum field; and (c) you satisfy one or more of these subparagraphs at the asset’s *start time: (i) you carry on mining and quarrying operations; (ii) it would be reasonable to conclude you proposed to carry on such operations; (iii) you carry on a *business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and expenditure on the asset was necessarily incurred in carrying on that business; and (d) in a case where the asset is a *mining, quarrying or prospecting right—you acquired the asset from an *Australian government agency or a *government entity; and (e) in a case where the asset is *mining, quarrying or prospecting information: (i) you acquired the asset from an Australian government agency or a government entity; or (ii) the asset is a geophysical or geological data package you acquired from an entity to which subsection (1AA) applies; or (iii) you created the asset, or contributed to the cost of its creation; or (iv) you caused the asset to be created, or contributed to the cost of it being created, by an entity to which subsection (1AA) applies. (1AA) This subsection applies to an entity if, at the time of the acquisition referred to in subparagraph (1)(e)(ii) or the creation referred to in subparagraph (1)(e)(iv), the entity predominantly * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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carries on that: (a) (b) (c)

a *business of providing *mining, quarrying or prospecting information to other entities

carry on *mining and quarrying operations; or it would be reasonable to conclude propose to carry on such operations; or carry on a business of, or a business that included, *exploration or prospecting for * minerals or quarry materials obtainable by such operations. (1AB) If an amount is included in the second element of the *cost of a *depreciating asset, subsection (1) applies in relation to that amount only if: (a) your first use of the asset, after the inclusion of the amount in the second element, is for * exploration or prospecting for *minerals, or quarry materials, obtainable by *mining and quarrying operations; and (b) at the time of that first use: (i) you satisfy paragraph (1)(b) as if that first use was your first use of the asset; and (ii) you satisfy paragraph (1)(c) as if the time of that first use was the asset’s *start time; and (c) if the amount relates to a *mining, quarrying or prospecting right—after the inclusion of the amount in the second element, you satisfy paragraph (1)(d) in relation to the right; and (d) if the amount relates to *mining, quarrying or prospecting information—after the inclusion of the amount in the second element: (i) you satisfy paragraph (1)(e) in relation to the information; or (ii) you would satisfy that paragraph, in relation to the economic benefit that resulted in the inclusion of the amount in the second element, if that economic benefit were the asset referred to in that paragraph. (1AC) If subsection (1) does not apply to a *depreciating asset: (a) the fact that subsection (1) does not apply to the asset does not prevent the application of subsection (1AB) to an amount included in the second element of the *cost of the asset; but (b) subsection (1) only affects the asset’s decline in value to the extent that the asset’s cost consists of that amount. (1A) [Repealed] Depreciating assets used for certain purposes

(2) The decline in value of a *depreciating asset you start to *hold in an income year is the asset’s cost if: (a) that cost does not exceed $300; and (b) you use the asset predominantly for the *purpose of producing assessable income that is not income from carrying on a *business; and (c) the asset is not one that is part of a set of assets that you started to hold in that income year where the total cost of the set of assets exceeds $300; and (d) the total cost of the asset and any other identical, or substantially identical, asset that you start to hold in that income year does not exceed $300.

*

40-82 Assets costing less than $30,000—medium sized businesses—income years ending between 2 April 2019 and 30 June 2020 Year in which asset first used, or installed ready for use, for a taxable purpose

(1) The decline in value of a *depreciating asset you *hold for the income year (the current year) in which you start to use the asset, or have it *installed ready for use, for a *taxable purpose is the amount worked out under subsection (2) if: (a) you are an entity covered by subsection (4) (about medium sized businesses) for the current year and for the income year in which you started to hold the asset; and (b) you first acquired the asset in the period beginning at 7.30 pm, by legal time in the Australian Capital Territory, on 2 April 2019 and ending on 30 June 2020; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(c) the current year ends: (i) on or after 2 April 2019; and (ii) on or before 30 June 2020; and (d) the asset is a depreciating asset whose *cost as at the end of the current year is less than $30,000.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Note: The amount you can deduct may be reduced by other provisions, such as subsection 40-25(2) (about taxable purpose) and section 40-215 (about double deductions).

(2) The amount is: (a) unless paragraph (b) applies—the asset’s *cost as at the end of the current year; or (b) if the asset’s *start time occurred in an earlier income year—the sum of the asset’s * opening adjustable value for the current year and any amount included in the second element of its cost for the current year. (3) The decline in value of a *depreciating asset you *hold for an income year (the later year) is the first amount included in the second element of the asset’s *cost for the later year if: (a) you are an entity covered by subsection (4) (about medium sized businesses) for the later year; and (b) the amount so included is less than $30,000; and (c) you worked out the decline in value of the asset for an earlier income year under subsection (1); and (d) the later year ends: (i) on or after 2 April 2019; and (ii) on or before 30 June 2020. Note: The amount you can deduct may be reduced by other provisions, such as subsection 40-25(2) (about taxable purpose) and section 40-215 (about double deductions). Medium sized business

(4) An entity is covered by this subsection for an income year if: (a) the entity is not a *small business entity for the income year; and (b) the entity would be a small business entity for the income year if: (i) each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $50 million; and (ii) the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this subsection. Years ending after 30 June 2020

(5) For an income year ending after 30 June 2020, the asset’s decline in value is worked out under the other provisions of this Division. 40-85

Meaning of adjustable value and opening adjustable value of a depreciating asset

(1) The adjustable value of a *depreciating asset at a particular time is: (a) if you have not yet used it or had it *installed ready for use for any purpose—its *cost; or (b) for a time in the income year in which you first use it, or have it installed ready for use, for any purpose—its cost less its decline in value up to that time; or (c) for a time in a later income year—the sum of its *opening adjustable value for that year and any amount included in the second element of its cost for that year up to that time, less its decline in value for that year up to that time. Note: The adjustable value of a depreciating asset may be modified by section 250-285.

(2) The opening adjustable value of a *depreciating asset for an income year is its *adjustable value to you at the end of the previous income year. Note: The opening adjustable value of a depreciating asset may be modified by one of these provisions: (a) Subdivision 27-B; * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-85 (b) subsection 40-90(3); (c) subsection 40-285(4); (d) paragraph 40-365(5)(b); (e) section 775-70; (f) section 775-75; (g) section 355-605 of the Income Tax (Transitional Provisions) Act 1997. 40-90

Debt forgiveness

(1) This section applies if an amount (the debt forgiveness amount) is applied in reduction of expenditure for a *depreciating asset in an income year under section 245-155 or 245-157. (2) The asset’s *cost is reduced for that income year by the debt forgiveness amount. (3) The asset’s *opening adjustable value for that income year is reduced by the debt forgiveness amount if that income year is later than the one in which its *start time occurs. 40-95

Choice of determining effective life

(1) You must choose either: (a) to use an *effective life determined by the Commissioner for a *depreciating asset under section 40-100; or (b) to work out the effective life of the asset yourself under section 40-105. Note: If you choose to use an effective life determined by the Commissioner for a depreciating asset, a capped life may apply to the asset under section 40-102.

(2) Your choice of an *effective life determined by the Commissioner for a *depreciating asset is limited to one in force as at: (a) the time when you entered into a contract to acquire the asset, you otherwise acquired it or you started to construct it if its *start time occurs within 5 years of that time; or (b) for *plant that you entered into a contract to acquire, you otherwise acquired or you started to construct before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999—the time when you entered into the contract to acquire it, otherwise acquired it or started to construct it; or (c) otherwise—its *start time. (3) You must make the choice for the income year in which the asset’s *start time occurs. Note: For rules about choices: see section 40-130. Exception: asset acquired from associate

(4) For a *depreciating asset that you start to *hold where the former holder is an *associate of yours and the associate has deducted or can deduct an amount for the asset under this Division, you must use: (a) if the associate was using the *diminishing value method for the asset—the same * effective life that the associate was using; or (b) if the associate was using the *prime cost method—an effective life equal to any period of the asset’s effective life the associate was using that is yet to elapse at the time you started to hold it. Note: You can require the associate to tell you which effective life the associate was using: see section 40-140.

(4A) Subsection (4) does not apply to a *depreciating asset if subsection (4B) or (4C) applies to the asset. (4B) For a *depreciating asset that you start to *hold if: (a) the former holder is an *associate of yours; and (b) the associate has deducted or can deduct an amount for the asset under this Division; and (c) section 40-102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40-102(4) and (5) applied to it at the relevant time (the relevant time for the associate) that applied to the associate under subsection 40-102(3); and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(d)

a different item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; and (e) the item referred to in paragraph (d) would have applied to the asset at the relevant time for the associate if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it; you must use: (f) if the associate was using the *diminishing value method for the asset—an *effective life equal to the *capped life that would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; or (g) if the associate was using the *prime cost method—an effective life equal to the capped life that: (i) would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; and (ii) is yet to elapse at the time you start to hold it.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(4C) For a *depreciating asset that you start to *hold if: (a) the former holder is an *associate of yours; and (b) the associate has deducted or can deduct an amount for the asset under this Division; and (c) section 40-102 applied to the asset immediately before you started to hold it; and (d) one of the following applies: (i) no item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; (ii) subsection (4B) would apply to the asset but for paragraph (e) of that subsection not being satisfied; you must use: (e) if the associate was using the *diminishing value method for the asset—the *effective life determined by the Commissioner for the asset under section 40-100 that the associate would have used if section 40-102 had not applied to the asset; or (f) if the associate was using the *prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40-100 that: (i) the associate would have used if section 40-102 had not applied to the asset; and (ii) is yet to elapse at the time you start to hold it. Note: You can require the associate to tell you which effective life the associate would have used if section 40-102 had not applied to the asset: see section 40-140. Exception: holder changes but user same or associate of former user

(5) For a *depreciating asset that you start to *hold where: (a) the former holder or another entity (each of which is the former user) was using the asset at a time before you became the holder; and (b) while you hold the asset, the former user or an *associate of the former user uses the asset; you must use: (c) if the former holder was using the *diminishing value method for the asset—the same * effective life that the former holder was using; or (d) if the former holder was using the *prime cost method—an effective life equal to any period of the asset’s effective life the former holder was using that is yet to elapse at the time you started to hold it. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note 1: If paragraph (e) is not satisfied, subsection (4C) may apply to the depreciating asset. Note 2: You can require the associate to tell you the relevant time that applied to the associate under subsection 40-102(3): see section 40-140.

Income Tax Assessment Act 1997

s 40-95

(5A) Subsection (5) does not apply to a *depreciating asset if subsection (5B) or (5C) applies to the asset. (5B) For a *depreciating asset that you start to *hold if: (a) paragraphs (5)(a) and (b) apply; and (b) section 40-102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40-102(4) and (5) applied to it at the relevant time (the relevant time for the former holder) that applied to the former holder under subsection 40-102(3); and (c) a different item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; and (d) the item referred to in paragraph (c) would have applied to the asset at the relevant time for the former holder if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it; you must use: (e) if the former holder was using the *diminishing value method for the asset—an *effective life equal to the *capped life that would have applied to the asset under subsection 40102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; or (f) if the former holder was using the *prime cost method—an effective life equal to the capped life that: (i) would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; and (ii) is yet to elapse at the time you start to hold it. Note: If paragraph (d) is not satisfied, subsection (5C) may apply to the depreciating asset.

(5C) For a *depreciating asset that you start to *hold if: (a) paragraphs (5)(a) and (b) apply; and (b) section 40-102 applied to the asset immediately before you started to hold it; and (c) one of the following applies: (i) no item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; (ii) subsection (5B) would apply to the asset but for paragraph (d) of that subsection not being satisfied; you must use: (d) if the former holder was using the *diminishing value method for the asset—the * effective life determined by the Commissioner for the asset under section 40-100 that the former holder would have used if section 40-102 had not applied to the asset; or (e) if the former holder was using the *prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40-100 that: (i) the former holder would have used if section 40-102 had not applied to the asset; and (ii) is yet to elapse at the time you start to hold it. (6) However, you must use an *effective life determined by the Commissioner if: (a) you do not know, and cannot readily find out, which effective life the former holder was using and, if subsection (5B) or (5C) applied to the asset, either of the following matters: (i) the effective life the former holder would have used if section 40-102 had not applied to the asset; (ii) the relevant time that applied to the former holder under subsection 40-102(3); or (b) the former holder did not use an effective life. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(7) The effective life of an intangible *depreciating asset mentioned in this table is the period applicable to that asset under the table.

6 7

8 9 10 14

life of certain intangible depreciating assets For this asset: The effective life is: Standard patent 20 years Innovation patent 8 years Petty patent 6 years Registered design 15 years Copyright (except copyright in a *film) The shorter of: (a) 25 years from when you acquire the copyright; or (b) the period until the copyright ends A licence (except one relating to a The term of the licence copyright or *in-house software) A licence relating to a copyright (except The shorter of: copyright in a *film) (a) 25 years from when you become the licensee; or (b) the period until the licence ends * In-house software 5 years * Spectrum licence The term of the licence * Datacasting transmitter licence 15 years * Telecommunications site access right The term of the right

(8) The effective life of an intangible *depreciating asset that is not mentioned in the table in subsection (7) and is not an *IRU or a *mining, quarrying or prospecting right cannot be longer than the term of the asset as extended by any reasonably assured extension or renewal of that term. (9) The effective life of an *IRU is the *effective life of the telecommunications cable over which the IRU is granted. Exceptions: mining, quarrying or prospecting rights and mining, quarrying or prospecting information

(10) Subject to subsection (12), the effective life of: (a) a *mining, quarrying or prospecting right; or (b) *mining, quarrying or prospecting information; is the period you work out yourself by estimating the period (in years, including fractions of years) set out in column 2 of this table: Effective life of certain mining, quarrying or prospecting rights and mining, quarrying or prospecting information Item Column 1 Column 2 For this asset: Estimate the period until the end of: 1 A *mining, quarrying or prospecting The life of the mine or proposed mine to which the right or information relates or, if there is more right, or *mining, quarrying or than one, the life of the mine that has the longest prospecting information, relating to * estimated life mining and quarrying operations (except obtaining *petroleum or quarry materials) 2 A *mining, quarrying or prospecting The life of the petroleum field or proposed petroleum field to which the right or information right, or *mining, quarrying or relates or, if there is more than one, the life of the prospecting information, relating to * petroleum field that has the longest estimated life mining and quarrying operations to obtain *petroleum 3 A *mining, quarrying or prospecting The life of the quarry or proposed quarry to which the right or information relates or, if there is more right, or *mining, quarrying or than one, the life of the quarry that has the longest prospecting information, relating to * estimated life mining and quarrying operations to obtain quarry materials * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(10A) However, if the only reason that subsection 40-80(1) does not apply to the *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, is that the right or information does not meet the requirements of paragraph 40-80(1)(d) or (e), the effective life of the right or information is the shorter of: (a) the period that would, apart from this subsection, be the effective life of the information or right under subsection (10); and (b) 15 years. (11) You work out the period in subsection (10): (a) as from the *start time of the *mining, quarrying or prospecting right or *mining, quarrying or prospecting information; and (b) by reference only to the period of time over which the reserves, reasonably estimated using an appropriate accepted industry practice, are expected to be extracted from the mine, *petroleum field or quarry. (12) The effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, is 15 years if the right or information does not relate to: (a) a mine or proposed mine; or (b) a petroleum field or proposed petroleum field; or (c) a quarry or proposed quarry. 40-100

Commissioner’s determination of effective life

(1) The Commissioner may make a written determination specifying the effective life of * depreciating assets. The determination may specify conditions for particular depreciating assets. (2) A determination may specify a day from which it takes effect for *depreciating assets specified in the determination. (3) A determination may operate retrospectively to a day specified in the determination if: (a) there was no applicable determination at that day for the *depreciating asset covered by the determination; or (b) the determination specifies a shorter *effective life for the depreciating asset covered by the determination than was previously applicable. Criteria for making a determination

(4) The Commissioner is to make a determination of the effective life of a *depreciating asset in accordance with subsections (5) and (6). (5) Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes: (a) a *taxable purpose; (b) the purpose of producing *exempt income or *non-assessable non-exempt income; (c) the purpose of conducting *R&D activities, assuming that this is reasonably likely. (6) Secondly, if relevant for the asset: (a) assume the asset will be subject to wear and tear at a rate that is reasonable for the Commissioner to assume; and (b) assume the asset will be maintained in reasonably good order and condition; and (c) have regard to the period within which the asset is likely to be scrapped, sold for no more than scrap value or abandoned. However, for paragraph (c), disregard reasons attributable to the technical risk in conducting *R&D activities if it is reasonably likely that the asset will be used for such activities. 40-102

Capped life of certain depreciating assets

(1) If this section applies to a *depreciating asset, the effective life of the asset is the period (the capped life) that applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)). Working out if this section applies

(2) This section applies to a *depreciating asset if: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) you choose, under paragraph 40-95(1)(a), to use an *effective life determined by the Commissioner for the asset under section 40-100; and (b) your choice is limited to a determination in force at the time mentioned in paragraph 40-95(2)(a) or (c); and (c) a *capped life applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)); and (d) the capped life is shorter than the effective life mentioned in paragraph (a). (3) For the purposes of this section, the relevant time is: (a) the *start time of the *depreciating asset if: (i) paragraph 40-95(2)(c) applies to you; or (ii) paragraph 40-95(2)(a) applies to you and a *capped life does not apply to the asset under subsection (4) or (5) at the time mentioned in that paragraph; or (iii) paragraph 40-95(2)(a) applies to you and the capped life that applies to the asset under subsection (4) or (5) at the time mentioned in that paragraph is longer than the capped life that applies to the asset at its start time; or (b) if paragraph (a) does not apply—the time mentioned in paragraph 40-95(2)(a).

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Capped life

(4) If the *depreciating asset corresponds exactly to the description in column 2 of the table, the capped life of the asset is the period specified in column 3 of the table. Period 8 years

ITAA 1997

Capped life of certain depreciating assets Item Kind of depreciating asset 1 Aeroplane used predominantly for agricultural spraying or agricultural dusting 2 Aeroplane to which item 1 does not apply 3 Helicopter used predominantly for mustering, agricultural spraying or agricultural dusting 4 Helicopter to which item 3 does not apply 5 Bus with a *gross vehicle mass of more than 3.5 tonnes 6 Light commercial vehicle with a *gross vehicle mass of 3.5 tonnes or less and designed to carry a load of 1 tonne or more 7 Minibus with a *gross vehicle mass of 3.5 tonnes or less and designed to carry 9 or more passengers 8 Trailer with a *gross vehicle mass of more than 4.5 tonnes 9 Truck with a *gross vehicle mass of more than 3.5 tonnes (other than a truck that is used in *mining and quarrying operations and that is not of a kind that can be registered to be driven on a public road in the place in which the truck is operated) 10 Vessel for which you have a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012

10 years 8 years 10 years 7.5 years 7.5 years 7.5 years 10 years 7.5 years

10 years

(4A) Item 10 of the table in subsection 40-102(4) does not apply to a vessel if: (a) *ordinary income that you *derive, or your *statutory income, in relation to the vessel; or (b) ordinary income that your *associate derives, or your associate’s statutory income, in relation to the vessel; is exempt from income tax under section 51-100 for the income year for which you are working out the vessel’s decline in value. (5) If the *depreciating asset is of a kind described in column 2 of the table and is used in the industry specified in column 3 of the table for the asset, the capped life of the asset is the period specified in column 4 of the table. Capped life of certain depreciating assets used in specified industries Item Kind of depreciating asset Industry in which the asset is used 1 Gas transmission asset Gas supply 2 Gas distribution asset Gas supply

Period 20 years 20 years

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-102 Capped life of certain depreciating assets used in specified industries Item Kind of depreciating asset Industry in which the asset is used 3 Oil production asset (other than an Oil and gas extraction electricity generation asset or an offshore platform) 4 Gas production asset (other than an Oil and gas extraction electricity generation asset or an offshore platform) 5 Offshore platform Oil and gas extraction Petroleum refining 6 Asset (other than an electricity generation asset) used to manufacture condensate, crude oil, domestic gas, liquid natural gas or liquid petroleum gas but not if the manufacture occurs in an oil refinery 7 Harvester Primary production sector 8 Tractor Primary production sector 40-103

Period 15 years 15 years 20 years 15 years

62/3 years 62/3 years

Effective life and remaining effective life of certain vessels

(1) If, at a particular time, item 10 of the table in subsection 40-102(4): (a) starts to apply to a vessel (whether or not that item has previously applied to the vessel); or (b) ceases to apply to a vessel (whether or not that item subsequently applies to the vessel); at that time the effective life of the vessel changes accordingly. (2) If subsection (1) applies and the decline in value of the vessel is worked out using the *prime cost method, the remaining effective life of the vessel just after that time is: Alternative effective life Unadjusted remaining effective life × Unadjusted effective life where:

alternative effective life is: (a) if that item starts to apply to the vessel at that time—what would have been the * effective life of the vessel just before that time if that item had applied to the vessel; or (b) if that item ceases to apply to the vessel at that time—what would have been the effective life of the vessel just before that time if that item had not applied to the vessel. unadjusted effective life is what was the *effective life of the vessel just before that time. unadjusted remaining effective life is what was the *remaining effective life of the vessel just before that time. Example: Assume that item 10 of the table in subsection 40-102(4) ceases to apply to a vessel after having applied to the vessel for 7 years, and again starts to apply after another 4 years. Assume further that the effective life of a vessel of that kind has been determined under section 40-100 to be 20 years. The remaining effective life of the vessel just before that item ceases to apply to the vessel is 3 years. Its alternative effective life is 20 years, and its unadjusted effective life is 10 years. Its remaining effective life just after that time is therefore 6 years. The remaining effective life of the vessel just before that item again starts to apply to the vessel is 2 years. Its alternative effective life is 10 years, and its unadjusted effective life is 20 years. Its remaining effective life just after that time is therefore 1 year. 40-105

Self-assessing effective life

(1) You work out the effective life of a *depreciating asset yourself in accordance with this section. (1A) Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) a *taxable purpose; (b) the purpose of producing *exempt income or *non-assessable non-exempt income; (c) the purpose of conducting *R&D activities, assuming that this is reasonably likely. (1B) Secondly, if relevant for the asset: (a) have regard to the wear and tear you reasonably expect from your expected circumstances of use; and (b) assume that the asset will be maintained in reasonably good order and condition. (2) If, in working out that period, you decide that the asset would be likely to be: (a) scrapped; or (b) sold for no more than scrap value or abandoned; before the end of that period, its effective life ends at the earlier time. However, when making your decision, disregard reasons attributable to the technical risk in conducting *R&D activities if it is reasonably likely that the asset will be used for such activities. (3) You work out the period mentioned in subsection (1A) or (2) beginning at the *start time of the *depreciating asset.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Exception: intangibles

40-110

section does not apply to the following intangible *depreciating assets: assets to which an item in the table in subsection 40-95(7) applies; * mining, quarrying or prospecting rights; * mining, quarrying or prospecting information.

Recalculating effective life

(1) You may choose to recalculate the *effective life of a *depreciating asset from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to the nature of the use of the asset. Example: Some examples of changes in circumstances that may result in your recalculating the effective life of a depreciating asset are: • your use of the asset turns out to be more or less rigorous than you expected (or was anticipated by the Commissioner’s determination); • there is a downturn in demand for the goods or services the asset is used to produce that will result in the asset being scrapped; • legislation prevents the asset’s continued use; • changes in technology make the asset redundant; • there is an unexpected demand, or lack of success, for a film.

(2) You must recalculate a *depreciating asset’s *effective life from a later income year if: (a) you: (i) self-assessed its effective life; or (ii) are using an effective life worked out under section 40-100 (about the Commissioner’s determination), or 40-102 (about the capped life of certain depreciating assets), and the *prime cost method; or (iii) are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C); and (b) its *cost is increased in that year by at least 10%. Note 1: You may conclude that the effective life is the same. Note 2: For the elements of the cost of a depreciating asset, see Subdivision 40-C. Example 1: Paul purchases a photocopier and self-assesses its effective life at 6 years. In a later year he incurs expenditure to increase the quality of the reproductions it makes. He recalculates its effective life, but concludes that it remains the same. Example 2: Fiona also purchases a photocopier and self-assesses its effective life at 6 years. In a later year she incurs expenditure to incorporate a more robust paper handling system. She recalculates its effective life, and concludes that it is increased to 7 years. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(4) This (a) (b) (c)

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(3) You must recalculate a *depreciating asset’s *effective life for the income year in which you started to *hold it if: (a) you are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C); and (b) the asset’s *cost is increased after you started to hold it in that year by at least 10%. (3A) Subsections (1), (2) and (3) do not apply to a *depreciating asset that is a *mining, quarrying or prospecting right or *mining, quarrying or prospecting information. (3B) You may choose to recalculate the *effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, from a later income year if the effective life you have been using is no longer accurate: (a) because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right or information relates; or (b) because that right or information now relates to an existing or proposed mine, petroleum field or quarry; or (c) because that right or information no longer relates to an existing or proposed mine, petroleum field or quarry. (4) A recalculation under this section must be done using: (a) if paragraph (b) does not apply—section 40-105 (about self-assessing effective life); or (b) if the *depreciating asset is a *mining, quarrying or prospecting right or *mining, quarrying or prospecting information: (i) subsections 40-95(10) and (11) (if the right or information relates to an existing or proposed mine, petroleum field or quarry); or (ii) subsection 40-95(12) (if the right or information no longer relates to an existing or proposed mine, petroleum field or quarry). Exception: intangibles

(5) This section does not apply to an intangible *depreciating asset to which an item in the table in subsection 40-95(7) applies. 40-115

Splitting a depreciating asset

(1) If a *depreciating asset you *hold is split into 2 or more assets, this Division applies as if you had stopped holding the original asset and started holding the assets into which it is split. Note 1: For the cost of the split assets, see section 40-205. Note 2: A balancing adjustment event does not occur just because you split a depreciating asset: see section 40-295.

(2) If you stop *holding part of a *depreciating asset, this Division applies as if, just before you stopped holding that part, you had split the original asset into the part you stopped holding and the rest of the original asset. (The rest of the original asset is then taken to be a different asset from the original asset.) Example: Bronwyn sells Tim a part interest in a depreciating asset she owns. They become joint holders under section 40-35. She is taken to have split the underlying asset into the interest she retains and the interest Tim buys. She now holds an interest (a new depreciating asset) in the underlying asset and is taken to have stopped holding the interest sold.

(3) If you grant or assign an interest in an item of *intellectual property, subsection (2) applies to you as if you had stopped *holding part of the item. 40-120

[not reproduced]

40-125

Merging depreciating assets

If a *depreciating asset or assets that you *hold is or are merged into another depreciating asset, this Division applies as if you had stopped holding the original asset or assets and started holding the merged asset. Note 1: For the cost of the merged asset, see section 40-210. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-140 Note 2: A balancing adjustment event does not occur just because you merge depreciating assets: see section 40-295. 40-130

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Choices

(1) A choice you can make under this Division about a *depreciating asset must be made: (a) by the day you lodge your *income tax return for the income year to which the choice relates; or (b) within a further time allowed by the Commissioner. (2) Your choice, once made, applies to that income year and all later income years. Exception: recalculating effective life

(3) However, subsection (2) does not apply to a choice to recalculate the *effective life of a depreciating asset under section 40-110.

*

40-135

Certain anti-avoidance provisions

These anti-avoidance provisions: (a) section 51AD (Deductions not allowable in respect of property under certain leveraged arrangements) of the Income Tax Assessment Act 1936; (b) Division 16D (Certain arrangements relating to the use of property) of Part III of that Act;

apply to your deductions under this Division for a *depreciating asset you *hold as if you were the owner of the asset instead of any other person. Getting tax information from associates

(1) If you acquire a *depreciating asset from an *associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you may give the associate a written notice requiring the associate to tell you: (a) the method the associate was using to work out the decline in value of the asset; and (b) the *effective life the associate was using; and (c) if section 40-102 applied to the asset at any time: (i) the effective life that the associate would have used if section 40-102 had not applied to the asset; and (ii) the relevant time that applied to the associate under subsection 40-102(3). (2) The notice must: (a) be given within 60 days of your acquiring the asset; and (b) specify a period of at least 60 days within which the information must be given; and (c) set out the effect of subsection (3). Note: Subsections (4) and (5) explain how this subsection operates if the associate is a partnership. Requirement to comply with notice

(3) The *associate must not intentionally refuse or fail to comply with the notice. Penalty: 10 penalty units. Giving the notice to a partnership

(4) If the *associate is a partnership: (a) you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and (b) the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them. (5) A partner must not intentionally refuse or fail to comply with that obligation, unless another partner has already complied with it. Penalty: 10 penalty units. Limits on giving a notice

(6) Only one notice can be given in relation to the same *depreciating asset. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Income Tax Assessment Act 1997

s 40-170 SUBDIVISION 40-C – COST GUIDE TO SUBDIVISION 40-C 40-170

What this Subdivision is about

Your cost of a depreciating asset is a component in working out the amounts you can deduct for it. There are 2 elements of the cost of a depreciating asset. This Subdivision shows you how to work out those elements.

Operative 40-175 40-180 40-185 40-190 40-195 40-200 40-205 40-210 40-215 40-220 40-222 40-225 40-230 40-235

Table of sections provisions Cost First element of cost Amount you are taken to have paid to hold a depreciating asset or to receive a benefit Second element of cost Apportionment of cost Exclusion from cost Cost of a split depreciating asset Cost of merged depreciating assets Adjustment: double deduction Cost reduced by amounts not of a capital nature Cost reduced by water infrastructure improvement expenditure Adjustment: acquiring a car at a discount Adjustment: car limit Adjustment: National Disability Insurance Scheme costs

OPERATIVE PROVISIONS 40-175

Cost

The cost of a *depreciating asset you *hold consists of 2 elements. Note: The cost of a depreciating asset may be modified by one of these provisions: • Subdivision 27-B; • subsection 40-90(2); • paragraph 40-362(3)(c); • paragraph 40-365(5)(a); • section 40-1110; • section 775-70; • section 775-75. 40-180

First element of cost

(1) The first element is worked out as at the time when you began to *hold the *depreciating asset (except for a case to which item 3, 4 or 14 of the table in subsection (2) applies). It is: (a) if an item in that table applies—the amount specified in that item; or (b) otherwise—the amount you are taken to have paid to hold the asset under section 40-185. Note 1: The first element of the cost may be modified by a later provision in this Subdivision. Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

(2) If more than one item in this table covers the asset, apply the last item that covers it. First element of the cost of a depreciating asset Item In this case: The cost is: 1 A *depreciating asset you *hold is split into 2 or more assets For each of the assets into which it is split, the amount worked out under section 40-205 * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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3 4 5

6

7

8

9 10 11 12

13

14

A *balancing adjustment event happens to a *depreciating asset you *hold because you stop using it for any purpose expecting never to use it again, and you continue to hold it A *balancing adjustment event happens to a *depreciating asset you *hold but have not used because you expect never to use it, and you continue to hold it A partnership asset that was *held, just before it became a partnership asset, by one or more partners (whether or not any other entity was a joint holder) or a partnership asset to which subsection 40-295(2) applies

The cost is: For the other asset, the amount worked out under section 40-210 The *termination value of the asset at the time of the event The *termination value of the asset at the time of the event

The *market value of the asset when the partnership started to hold it or when the change referred to in subsection 40-295(2) occurred There is roll-over relief under section 40-340 for a The *adjustable value of the * balancing adjustment event happening to a *depreciating asset to the transferor just before the balancing asset adjustment event occurred You are the legal owner of a *depreciating asset that is hired The *market value of the under a *hire purchase agreement and you start *holding it asset when you started to because the entity to whom it is hired does not become the hold it legal owner You started to *hold the asset under an *arrangement and: The market value of the asset when you started to hold it (a) there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and (b) apart from this item, the first element of the asset’s cost would exceed its *market value The *market value of the You started to *hold the asset under an *arrangement that was private or domestic in nature to you (for example, a gift) asset when you started to hold it The *Finance Minister has determined a cost for you under The cost so determined section 49A, 49B, 50A, 50B, 51A or 51B of the Airports (Transitional) Act 1996 To which Division 58 (which deals with assets previously The amount applicable under owned by an *exempt entity) applies subsections 58-70(3) and (5) The asset’s *adjustable value A *balancing adjustment event happens to a *depreciating asset because a person dies and the asset devolves to you as on the day the person died or, if the asset is allocated to a the person’s *legal personal representative low-value pool, so much of the *closing pool balance for the income year in which the person died as is reasonably attributable to the asset You started to *hold a *depreciating asset because it *passed The *market value of the to you as the beneficiary or a joint tenant asset when you started to hold it reduced by any * capital gain that was disregarded under section 128-10 or subsection 128-15(3), whether by the deceased or by the * legal personal representative * * A balancing adjustment event happens to a depreciating What would, apart from subsection 40-285(3), be the asset you *hold because of subsection 40-295(1B) asset’s *adjustable value on the day the *balancing adjustment event occurs

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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First element of the cost of a depreciating asset Item In this case: 2 A *depreciating asset or assets that you *hold is or are merged into another depreciating asset

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Income Tax Assessment Act 1997

s 40-180

(3) The first element of *cost includes an amount you paid or are taken to have paid in relation to starting to *hold the *depreciating asset if that amount is directly connected with holding the asset. (4) The first element of *cost of a *depreciating asset does not include an amount that forms part of the second element of cost of another depreciating asset. Note: The first element of cost may be reduced under section 40-1130 to account for exploration benefits received under farm-in farm-out arrangements. 40-185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit

(1) This Division applies to you as if you had paid, to *hold a *depreciating asset or for an economic benefit for such an asset, the greater of these amounts: (a) the sum of the amounts that would have been included in your assessable income because you started to hold the asset or received the benefit, or because you gave something to start holding the asset or receive the benefit, if you ignored the value of anything you gave that reduced the amount actually included; or (b) the sum of the applicable amounts set out in this table in relation to holding the asset or receiving the benefit. Example 1: Gold Medals Ltd manufactures some medals for a local sporting association’s annual meeting in return for a die cut stamping machine. The medals have a market value of $20,000. The machine has an arm’s length value of $100,000 but Gold Medals has to contribute $75,000 towards acquiring it from the association. Gold Medals will have to include:

in its assessable income because of section 21A of the Income Tax Assessment Act 1936. The first element of the machine’s cost will be the greater of: • the amount it paid ($75,000) plus the market value of the non-cash benefits it provided ($20,000), which comes to $95,000; and • the amount that was assessable income from receiving the machine ($25,000) plus the amount by which that assessable income was reduced because of the payment Gold Medals made ($75,000), which comes to $100,000. So, in this case, the first element of the machine’s cost to Gold Medals is $100,000. Example 2: Laura travels overseas to purchase a purpose-built vehicle for use in her trade. The purchase of the vehicle is the sole reason for the trip. Laura incurs expenses for airfares and accommodation. These expenses are included in the cost of the vehicle because they are “in relation to starting to hold” the vehicle. Amount you are taken to have paid to hold a depreciating asset or to receive a benefit Item In this case: The amount is: 1 You pay an amount The amount 2 You incur or increase a liability to pay The amount of the liability or increase when you an amount incurred or increased it 3 All or part of a liability to pay an The amount of the liability or part when it is amount owed to you by another entity is terminated terminated 4 You provide a *non-cash benefit The *market value of the non-cash benefit when it is provided 5 You incur or increase a liability to The *market value of the non-cash benefit or the provide a *non-cash benefit increase when you incurred or increased the liability 6 All or part of a liability to provide a The *market value of the non-cash benefit when * non-cash benefit (except the the liability is terminated * depreciating asset) owed to you by another entity is terminated * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-195 Note 1: Item 1 includes not only amounts actually paid but also amounts taken to have been paid. Examples include the price of the notional purchase made when trading stock is converted to a depreciating asset under section 70-110, the cost of an asset held under a hire purchase arrangement under section 240-25 and a lessor’s deemed purchase price when a luxury car lease ends under subsection 242-90(3). Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(2) In applying the table in subsection (1) to a liability of yours to pay an amount or provide a non-cash benefit, don’t count any part of the liability you have already satisfied.

*

40-190

Second element of cost

(1) The second element is worked out after you start to *hold the *depreciating asset. (2) The second element is: (a) the amount you are taken to have paid under section 40-185 for each economic benefit that has contributed to bringing the asset to its present condition and location from time to time since you started to *hold the asset; and (b) expenditure you incur that is reasonably attributable to a *balancing adjustment event occurring for the asset.

The payments he makes for those economic benefits are included in the second element of the ute’s cost. Example 2: Leonie needed to replace one of her old depreciating assets that was fixed to her land with a new, more efficient one. Leonie paid a contractor a fee to demolish and remove the old asset. This resulted in a balancing adjustment event occurring for the old asset, and the fee forms part of the second element of the cost of the old asset that was demolished. Note: The second element of the cost may be modified by a later provision in this Subdivision.

(2A) Paragraph (2)(b) does not apply to a *balancing adjustment event referred to in item 6 or 11 of the table in subsection 40-300(2). (3) However, the second element is worked out using this table if an item in it applies. Use the last applicable item. Second element of the cost of a depreciating asset Item In this case: 1 You received the benefit under an *arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm’s length; and (b) apart from this item, the second element of cost for the benefit would exceed its *market value 2 You received the benefit under an *arrangement that was private or domestic in nature to you 40-195

The second element of cost is: The market value of the benefit when you received it

The *market value of the benefit when you received it

Apportionment of cost

If you pay an amount for 2 or more things that include at least one *depreciating asset, or that include a contribution to bringing a depreciating asset to its present condition and location, you take into account as part of its *cost only that part of what you paid that is reasonably attributable to the asset. Example: Ian buys 3 assets (one depreciating asset and 2 other assets) under the one transaction. He pays $30,000 for the 3 assets. $25,000 of that amount is reasonably attributable to the depreciating asset. The first element of the depreciating asset’s cost is $25,000. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Example 1: Andrew adds a new tray and canopy to his ute. The materials and labour that go into the addition are economic benefits that Andrew received and that contribute to the ute’s present condition.

Income Tax Assessment Act 1997

s 40-200 40-200 Exclusion from cost

The *cost of a *depreciating asset that is not *plant does not include any amount that was incurred: (a) before 1 July 2001; or (b) under a contract entered into before that day. 40-205

Cost of a split depreciating asset

If you split a *depreciating asset into separate assets as mentioned in section 40-115, the first element of the cost of each of the separate assets is a reasonable proportion of the sum of these amounts: (a) the *adjustable value of the original asset just before it was split; and (b) the amount you are taken to have paid under section 40-185 for any economic benefit involved in splitting the original asset. Example: Barry owns a spectrum licence that covers 3 areas: Area A, area B and area C. The licence has an adjustable value of $160,000. He sells area A to Chris, and his costs of splitting are $10,000. Barry is taken to have split the licence into 2 assets. On the basis of their relative market values, Barry apportions $170,000 to area A (that he disposed of) and to the licence he still holds for areas B and C. 40-210

Cost of merged depreciating assets *

If a depreciating asset or assets that you *hold is or are merged into another depreciating asset as mentioned in section 40-125, the first element of the cost of the merged asset is a reasonable proportion of the sum of: (a) the *adjustable value or adjustable values of the original asset or assets just before the merger; and (b) the amount you are taken to have paid under section 40-185 for any economic benefit involved in merging the original asset or assets. 40-215

Adjustment: double deduction

Each element of the *cost of a *depreciating asset is reduced by any portion of that element of cost that you have deducted or can deduct, or that has been or will be taken into account in working out an amount you can deduct, other than under this Division, Division 41 or Division 328. Note: This section does not apply to notional deductions under section 355-305 or 355-520 (about R&D) because those provisions are about deducting the asset’s decline in value, not its cost. 40-220

Cost reduced by amounts not of a capital nature

The *cost of a *depreciating asset is reduced by any portion of it that consists of an amount that is not of a capital nature. 40-222

Cost reduced by water infrastructure improvement expenditure

The *cost of a *depreciating asset is reduced by any portion of it that consists of expenditure that you cannot deduct because of section 26-100. 40-225

Adjustment: acquiring a car at a discount

(1) You must increase the first element of the cost of a *car designed mainly for carrying passengers you acquire at a discount if: (a) it is reasonable to conclude that any portion (the discount portion) of the discount is referable to you or another entity selling another asset for less than its *market value; and (b) you, or another entity, has deducted or can deduct an amount for the other asset for any income year; and (c) the sum of the cost of the car and the discount portion exceeds the *car limit for the * financial year in which you first use the car for any purpose. (2) The first element of the cost of the *car is increased by the discount portion. (3) This section does not apply to a *car that is excluded from the *car limit by subsection 40-230(2). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-285 40-230

Adjustment: car limit

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(1) The first element of the cost of a *car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) is reduced to the *car limit for the *financial year in which you started to *hold it if its cost exceeds that limit. (2) However, the *car limit does not apply to a *car: (a) fitted out for transporting disabled people in wheelchairs for profit; or (b) whose first element of *cost exceeds that limit only because of modifications made to enable an individual with a disability to use it for a *taxable purpose. (3) The car limit for the 2000–01 *financial year is $55,134. The limit is indexed annually. Note: Subdivision 960-M shows you how to index amounts.

(4) If you *hold a *car that is also held by one or more other entities, subsection (1) applies to the cost of the car despite section 40-35. Then section 40-35 applies to the cost of the car as reduced under subsection (1). *

40-235

Adjustment: National Disability Insurance Scheme costs

The *cost of a *depreciating asset does not include an amount to the extent that section 26-97 prevents the amount from being deducted (even if some other provision also prevents it being deducted). Note: Section 26-97 denies deductions for National Disability Insurance Scheme expenditure.

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SUBDIVISION 40-D – BALANCING ADJUSTMENTS GUIDE TO SUBDIVISION 40-D What this Subdivision is about

You may have to make an adjustment to your taxable income if you stop holding a depreciating asset. The adjustment is generally based on the difference between the actual value of the asset when you stop holding it and its adjustable value.

Operative 40-285 40-290 40-292 40-293 40-295 40-300 40-305 40-310 40-320 40-325 40-335 40-340 40-345 40-350 40-360 40-362 40-365 40-370

Table of sections provisions Balancing adjustments Reduction for non-taxable use Adjustments—assets used for both general tax purposes and R&D activities Adjustments—partnership assets used for both general tax purposes and R&D activities Meaning of balancing adjustment event Meaning of termination value Amount you are taken to have received under a balancing adjustment event Apportionment of termination value Car to which section 40-225 applies Adjustment: car limit Deduction for in-house software where you will never use it Roll-over relief What the roll-over relief is Additional consequences Notice to allow transferee to work out how this Division applies Roll-over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012 Involuntary disposals Balancing adjustments where there has been use of different car expense methods

OPERATIVE PROVISIONS 40-285

Balancing adjustments

(1) An amount is included in your assessable income if: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-285

(a) a *balancing adjustment event occurs for a *depreciating asset you *held and: (i) whose decline in value you worked out under Subdivision 40-B; or (ii) whose decline in value you would have worked out under that Subdivision if you had used the asset; and (b) the asset’s *termination value is more than its *adjustable value just before the event occurred. The amount included is the difference between those amounts, and it is included for the income year in which the balancing adjustment event occurred. Note 1: The most common balancing adjustment event is where you sell the depreciating asset. Note 2: There is a different calculation if you had used different car expense methods for a car: see section 40-370. Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25-47.

(2) You can deduct an amount if: (a) a *balancing adjustment event occurs for a *depreciating asset you *held and: (i) whose decline in value you worked out under Subdivision 40-B; or (ii) whose decline in value you would have worked out under that Subdivision if you had used the asset; and (b) the asset’s *termination value is less than its *adjustable value just before the event occurred. The amount you can deduct is the difference between those amounts, and you can deduct it for the income year in which the balancing adjustment event occurred. Note 1: There is a different calculation if you had used different car expense methods for a car: see section 40-370. Note 2: The timing of a deduction allowed under this subsection is determined under Subdivision 170-D where that Subdivision applies to the balancing adjustment event. Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25-47.

(3) The *adjustable value of a *depreciating asset you *hold after this section applies to it is then zero. (4) However, subsection (3) does not apply to a *depreciating asset for which you have a *cost under item 3, 4 or 14 of the table in subsection 40-180(2). Instead, the asset’s *opening adjustable value for the income year (the later year) after the one in which the *balancing adjustment event occurred is that cost plus any amounts included in the second element of that cost after the event occurred and before the start of the later year. Note: Those items deal with a case where a balancing adjustment event happens even though you still hold the asset in question.

(5) Despite subsection (1), an amount included in your assessable income under that subsection is included for the second income year after the income year in which the *balancing adjustment event occurs if: (a) the *depreciating asset is a vessel; and (b) you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that: (i) applies to the day that the balancing adjustment event occurs; and (ii) is not a *shipping exempt income certificate. Note: An amount will not be included in your assessable income in relation to the balancing adjustment event if you choose roll-over relief under section 40-362. 40-290

Reduction for non-taxable use

(1) You must reduce the amount (the balancing adjustment amount) included in your assessable income, or the amount you can deduct, under section 40-285 for a *depreciating asset if your deductions for the asset have been reduced under section 40-25. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(2) The reduction is:

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Sum of reductions × Balancing adjustment amount Total decline

sum of reductions is the sum of: (a) the reductions in your deductions for the asset under section 40-25; and (b) if there has been roll-over relief for the asset under section 40-340—the reductions in deductions for the asset for the transferor or an earlier successive transferor under section 40-25; and (c) if you *hold the asset as the *legal personal representative of an individual—the reductions in deductions for the asset for the individual under section 40-25. total decline is the sum of: (a) the decline in value of the *depreciating asset since you started to *hold it; and (b) if there has been roll-over relief for the asset under section 40-340—the decline in value of the asset for the transferor or an earlier successive transferor; and (c) if you *hold the asset as the *legal personal representative of an individual—the decline in value of the asset for the individual. (3) You must further reduce the amount included in your assessable income, or the amount you can deduct, under section 40-285 for a *depreciating asset (the current asset) if: (a) the asset’s *cost (for you) was worked out under section 40-205 (Cost of a split depreciating asset) or 40-210 (Cost of merged depreciating assets); and (b) you used the depreciating asset from which the current asset was split, or a depreciating asset that was merged into the current asset, or had it *installed ready for use, for a purpose other than a *taxable purpose. (4) The further reduction is such amount as is reasonable having regard to the extent of the use referred to in paragraph (3)(b). Exception: mining, quarrying or prospecting information

(5) This section does not apply to *mining, quarrying or prospecting information. 40-291

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40-292

Adjustments—assets used for both general tax purposes and R&D activities

(1) This section applies if: (a) a *balancing adjustment event happens in an income year (the event year) for an asset you *held and for which: (i) you can deduct, for an income year, an amount under section 40-25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or (ii) you could have deducted, for an income year, an amount as described in subparagraph (i) if you had used the asset; and (b) you are entitled under section 355-100 to *tax offsets for one or more income years for deductions (the R&D deductions) under section 355-305 for the asset. Note: This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-292 of the Income Tax (Transitional Provisions) Act 1997). Section 40-290 to be applied as if use for conducting R&D activities were use for a taxable purpose

(2) In applying section 40-290 (including references in that section to the reduction of deductions under section 40-25) in relation to the asset, assume that using the asset for a *taxable purpose includes using it for the purpose of conducting the *R&D activities to which the R&D deductions relate. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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where:

Income Tax Assessment Act 1997

s 40-292 Increase in amounts deductible under section 40-285

(3) If you are entitled under section 355-100 to a *tax offset for the event year in respect of deductions under Division 355 totalling at least $20,000, any amount (the section 40-285 amount) you can deduct for the asset under section 40-285 (after applying subsection (2) of this section) for the event year is increased by: (a) if your *aggregated turnover for the event year is less than $20 million—1/2 of the amount worked out under subsection (5) of this section; and (b) otherwise—1/3 of the amount worked out under subsection (5) of this section. Increase in amounts assessable under section 40-285

(4) Any amount (the section 40-285 amount) that is included in your assessable income for the asset under section 40-285 (after applying subsection (2) of this section) for the event year is increased by 1/3 of the amount worked out under subsection (5) of this section. Component of any increase in amounts deductible or assessable

(5) The amount is worked out as follows: Sum of your R&D deductions × Adjusted section 40-285 amount Total decline in value where:

adjusted section 40-285 amount means: (a) if the section 40-285 amount is a deduction—the amount of the deduction; or (b) if the section 40-285 amount is an amount included in your assessable income—so much of the section 40-285 amount as does not exceed the total decline in value. total decline in value means the *cost of the asset less its *adjustable value. 40-293 Adjustments—partnership assets used for both general tax purposes and R&D activities

(1) This section applies to an *R&D partnership if: (a) a *balancing adjustment event happens in an income year (the event year) for a * depreciating asset *held by the R&D partnership and for which: (i) the R&D partnership can deduct, for an income year, an amount under section 40-25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or (ii) the R&D partnership could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and (b) one or more partners of the R&D partnership are entitled under section 355-100 to *tax offsets for one or more income years for deductions (the R&D deductions) under section 355-520 for the asset. Note: This section applies in a modified way if the partners have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-293 of the Income Tax (Transitional Provisions) Act 1997). Section 40-290 to be applied as if use for conducting R&D activities were use for a taxable purpose

(2) In applying section 40-290 (including references in that section to the reduction of deductions under section 40-25) in relation to the asset, assume that using the asset for a *taxable purpose includes using it for the purpose of conducting the *R&D activities to which the R&D deductions relate. Increase in amounts deductible or assessable under section 40-285

(3) Any amount (the section 40-285 amount): (a) that the *R&D partnership can deduct for the asset under section 40-285 (after applying subsection (2) of this section) for the event year; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-295

(b)

that is included in the R&D partnership’s assessable income for the asset under section 40-285 (after applying subsection (2) of this section) for the event year; is increased by 1/3 of the following amount:

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Sum of all R&D deductions × Adjusted section 40-285 amount Total decline in value where:

adjusted section 40-285 amount means: (a) if the section 40-285 amount is a deduction—the amount of the deduction; or (b) if the section 40-285 amount is an amount included in the *R&D partnership’s assessable income—so much of the section 40-285 amount as does not exceed the total decline in value. total decline in value means the *cost of the asset less its *adjustable value. Meaning of balancing adjustment event

(1) A balancing adjustment event occurs for a *depreciating asset if: (a) you stop *holding the asset; or (b) you stop using it, or having it *installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again; or (c) you have not used it and: (i) if you have had it installed ready for use—you stop having it so installed; and (ii) you decide never to use it. Note: A balancing adjustment event occurs under paragraph 40-295(1)(a) when you start holding a depreciating asset as trading stock.

(1A) A balancing adjustment event occurs for a *depreciating asset you *hold that is a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, if: (a) the only reason that subsection 40-80(1) does not apply to the right or information is that the right or information does not meet the requirements of paragraph 40-80(1)(d) or (e); and (b) you have neither budgeted nor planned for further expenditure that: (i) will relate to the tenement to which the right or information relates; and (ii) will exceed the minimum expenditure required to maintain the tenement; and (c) you choose to apply this subsection to the right or information. (1B) A balancing adjustment event occurs for a *depreciating asset you *hold that is a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, if: (a) since the last time you commenced to hold the right or information, a *balancing adjustment event occurred, because of subsection (1A), to the right or information; and (b) paragraph (1A)(b) no longer applies. (2) A balancing adjustment event occurs for a *depreciating asset if: (a) for any reason, a change occurs in the *holding of, or in the interests of entities in, the asset; and (b) the entity or one of the entities that had an interest in the asset before the change has an interest in it after the change; and (c) the asset was a partnership asset before the change or becomes one as a result of the change. (3) However, a balancing adjustment event does not occur for a *depreciating asset merely because you split it into 2 or more depreciating assets or you merge it with one or more other depreciating assets. Note: A balancing adjustment event will occur if you stop holding part of a depreciating asset. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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40-295

Income Tax Assessment Act 1997

s 40-300 40-300 Meaning of termination value

(1) The termination value of a *depreciating asset is worked out as at the time when the balancing adjustment event occurs. It is: (a) if an item in the table in subsection (2) applies—the amount specified in that item; or (b) otherwise—the amount you are taken to have received under section 40-305 for the asset.

*

Note: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

(2) If more than one item applies, use the value under the last applicable item. Termination value table Item For this balancing adjustment event: The termination value is: 1 You stop using a *depreciating asset, or having it *installed The *market value of the ready for use, for any purpose and you expect never to use it asset when you* stopped using it or having it installed ready again even though you still *hold it for use 2 You decide never to use a *depreciating asset that you have The *market value of the not used even though you still *hold it asset when you make the decision 3 You stop using *in-house software for any purpose and you Zero expect never to use it again even though you still *hold it Zero 4 You decide never to use *in-house software that you have not used even though you still *hold it 5 One or more partners stop holding a *depreciating asset The *market value of the when it becomes a partnership asset or a *balancing asset when the partnership * adjustment event referred to in subsection 40-295(2) occurs started to hold it or when the balancing adjustment event occurred 6 You stop *holding a *depreciating asset under an The market value of the asset * arrangement and: just before you stopped holding it (a) there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and (b) apart from this item, the *termination value would be less than its *market value 7 You stop *holding a *depreciating asset under an The *market value of the * arrangement that was private or domestic in nature to you asset just before you stopped * holding it (for example, a gift) * 8 A depreciating asset is lost or destroyed The amount or value received or receivable under an insurance policy or otherwise for the loss or destruction 9 You stop *holding a *depreciating asset because you die and The asset’s *adjustable value * the asset starts being held by the legal personal on the day you died or, if the asset is allocated to a representative low-value pool, so much of the *closing pool balance for the income year in which you died as is reasonably attributable to the asset * * * 10 You stop holding a depreciating asset because it passes The *market value of the directly to a beneficiary or joint tenant when you die asset on the day you die 11 A *depreciating asset for which the *Finance Minister has The amount so determined determined an amount for you under section 52A of the Airports (Transitional) Act 1996 13 The *balancing adjustment event occurs under Zero subsection 40-295(1A) * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-310 Termination value table Item For this balancing adjustment event: 14 The *balancing adjustment event occurs under subsection 40-295(1B)

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

The termination value is: What would, apart from subsection 40-285(3), be the asset’s *adjustable value on the day the *balancing adjustment event occurs

(3) The termination value of a *depreciating asset does not include an amount that is included in assessable income as *ordinary income under section 6-5 or as *statutory income under section 6-10 (except an amount that is statutory income under this Division). Note 1: Termination value may be adjusted under Subdivision 27-B so that any GST consequences are accounted for. Note 2: Termination value may be reduced under section 40-1105 to account for exploration benefits received under farm-in farm-out arrangements. Amount you are taken to have received under a balancing adjustment event

(1) This Division applies to you as if you had received, under a *balancing adjustment event, the greater of these amounts: (a) the sum of the amounts you have deducted or can deduct, or has been or will be taken into account in working out an amount you can deduct because of the balancing adjustment event and any amount by which the amount so deductible was reduced because of a case described in the table in this subsection; and (b) the sum of the applicable amounts set out in that table: Amount Item 1 2 3 4 5 6

you are taken to have received under a balancing adjustment event In this case: The amount is: You receive an amount The amount You terminate all or part of a The amount of the liability or part when liability to pay an amount you terminate it You are granted a right to receive The amount of the right or increase when it an amount or an amount to which is granted or increased you are entitled is increased The *market value of the non-cash benefit You receive a *non-cash benefit when it is received The *market value of the non-cash benefit You terminate all or part of a liability to provide a *non-cash or reduction in the non-cash benefit when the liability or part is terminated benefit You are granted a right to receive a The *market value of the non-cash benefit, * or the increase, when it is granted or non-cash benefit or you become increased entitled to an increased non-cash benefit

Note 1: Item 1 includes not only amounts actually received but also amounts taken to have been received. Examples include the price of the notional sale made when a depreciating asset is converted to trading stock under section 70-30, the consideration for an asset held under a hire purchase arrangement under section 240-25 and a lessee’s deemed consideration when a luxury car lease ends under subsection 24290(3). Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

(2) In applying the table in subsection (1) to a right you have to receive an amount or a *non-cash benefit, don’t count any part of the right that has already been satisfied. 40-310

Apportionment of termination value

If you receive an amount for 2 or more things that include a *balancing adjustment event occurring for a *depreciating asset, you take into account as its *termination value only that part of what you received that is reasonably attributable to the asset. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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40-305

Income Tax Assessment Act 1997

s 40-320 40-320 Car to which section 40-225 applies

You must increase the *termination value of a *car the *cost of which was increased under section 40-225 by the discount portion for the car referred to in that section. 40-325

Adjustment: car limit

The termination value of a *car the *cost of which was worked out by applying section 40-230 (Car limit) is the amount worked out under subsection 40-300(1) multiplied by the fraction: CL + Amounts included in the second element of the * car’s *cost Total cost of the car (ignoring the *car limit) after applying Subdivision 27-B where:

CL is the *car limit for the *car for the *financial year in which you first used it for any purpose. 40-335

Deduction for in-house software where you will never use it

(1) You can deduct expenditure you incurred on *in-house software if: (a) you incurred the expenditure with the intention of using the software for a *taxable purpose; and (b) the expenditure relates to a unit of software that you have not used or had *installed ready for use; and (c) the expenditure is not allocated to a software development pool (see Subdivision 40-E); and (d) in the *current year, you have decided that you will never use the software, or have it installed ready for use. (2) The amount that you can deduct in the *current year is: (a) the total of your expenditure on the *in-house software in the current year and any previous income year; less (b) any amount of consideration you *derive in relation to the software or any part of it (but no more than the total in paragraph (a)); but only to the extent that, when you incurred the expenditure, you intended to use the software, or have it *installed ready for use, for a *taxable purpose. Example: Shannon has abandoned a software project that she was working on. She could not deduct expenditure on the project for the current year or any previous income year under any other provision. Shannon can deduct it under this section, to the extent that she intended to use it, or have it installed ready for use, for a taxable purpose. Note: If an amount of the expenditure is recouped, the amount may be included in her assessable income: see Subdivision 20-A. 40-340 Roll-over relief Automatic roll-over relief

(1) There is roll-over relief if: (a) there is a *balancing adjustment event because an entity (the transferor) disposes of a * depreciating asset in an income year to another entity (the transferee); and (b) the disposal involves a *CGT event; and (c) the conditions in an item in this table are satisfied. CGT roll-overs that qualify transferor for relief Item Type of CGT roll-over Conditions 1 Disposal of asset to The transferor is able to choose a roll-over under wholly-owned company Subdivision 122-A for the *CGT event. 2 Disposal of asset by The transferor is a partnership, the property is partnership partnership to wholly-owned property and the partners are able to choose a roll-over company under Subdivision 122-B for the disposal by the partners of the *CGT assets consisting of their interests in the property. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-340 CGT roll-overs that qualify transferor for relief Item Type of CGT roll-over Conditions 2A Transfer of a *CGT asset of a The transferor and transferee are able to choose a roll-over trust to a company under a under Subdivision 124-N for the *CGT event. trust restructure 3 Marriage or relationship There is a roll-over under Subdivision 126-A for the *CGT breakdown event. 4 Disposal of asset to another The transferor is able to choose a roll-over under member of the same Subdivision 126-B for the *CGT event. wholly-owned group * 5 Disposal of asset between The trustees of the trusts choose to obtain a roll-over under certain trusts Subdivision 126-G in relation to the disposal. 6 Disposal of asset as part of The transferor chooses a roll-over under Subdivision 310-D merger of superannuation in relation to the disposal. funds 8 Transfer of asset under a A roll-over under Subdivision 328-G would be available in small business restructure relation to the asset if the asset were not a *depreciating roll-over asset.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(2) In applying an item in the table in subsection (1), disregard the following so far as they relate to the *depreciating asset you disposed of: (a) an exemption in Division 118 (which contains the general exemptions from CGT); and (b) subsection 122-25(3) (which excludes certain assets from some kinds of CGT roll-over); and (c) subsection 124-870(5) (which excludes certain assets from roll-over relief under Subdivision 124-N). Choosing roll-over relief

(3) There is also roll-over relief if: (a) there is a *balancing adjustment event for a *depreciating asset because of subsection 40295(2) (about a change in the holding of, or in interests in, the asset); and (b) the entity or entities that had an interest in the asset before the change (also the transferor) and the entity or entities that have an interest in the asset after the change (also the transferee) jointly choose the roll-over relief. Example: The change could be a variation in the constitution of a partnership or in the interests of the partners. Note 1: Section 40-345 sets out what the relief is. Note 2: Subdivision 328-D sets out what the relief is for small business entities that calculate deductions for their depreciating assets under that Subdivision.

(4) The choice must: (a) be in writing; and (b) contain enough information about the transferor’s holding of the property for the transferee to work out how this Division or Subdivision 328-D applies to the transferee’s holding of the *depreciating asset; and (c) be made within 6 months after the end of the transferee’s income year in which the * balancing adjustment event occurred, or within a longer period allowed by the Commissioner. (5) If you die before the end of the time allowed for jointly choosing roll-over relief, the trustee of your estate may be a party to the choice. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note 1: Section 40-345 sets out what the relief is. Note 2: This Act also applies as if there were roll-over relief under this subsection in the circumstances set out in section 620-30 (which is about a body incorporated under one law ceasing to exist and disposing of its assets to a company incorporated under another law that has not significantly different ownership).

Income Tax Assessment Act 1997

s 40-340

(6) The transferor must keep the choice or a copy of it for 5 years after the *balancing adjustment event occurred. Penalty: 30 penalty units. (7) The transferee must keep the choice or a copy of it until the end of 5 years after the next * balancing adjustment event occurs for the *depreciating asset. Penalty: 30 penalty units. Exception: Subdivision 170-D applies

(8) There can be no roll-over relief if Subdivision 170-D (about transactions by a company that is a member of a linked group) applies to the disposal of the *depreciating asset or the change in interests in it. 40-345

What the roll-over relief is

(1) Section 40-285 does not apply to the *balancing adjustment event for the transferor. (2) The transferee can deduct the decline in value of the *depreciating asset using the same method and *effective life (or *remaining effective life if that method is the *prime cost method) that the transferor was using. 40-350

Additional consequences

(1) For the purposes of Division 45: (a) if the transferor, or a partnership of which the transferor was a member, leased the * depreciating asset to another entity for most of the time that the transferor or partnership * held the asset, the transferee is taken also to have done so; and (b) if the transferor, or a partnership of which the transferor was a member, leased the asset to another entity for a period on or after 22 February 1999, the transferee is taken also to have done so; and (c) if the main *business of the transferor, or a partnership of which the transferor was a member, was to lease assets, the main business of the transferee is taken also to have been to lease assets. (2) However, subsection (1) does not apply to roll-over relief under subsection 40-340(3) if the sum of the amounts specified in paragraph 45-5(1)(e) or 45-10(1)(f), or subsection 45-5(4) or 45-10(4), is at least equal to the *market value of the *plant or interest concerned. 40-360

Notice to allow transferee to work out how this Division applies

(1) This section applies if there is roll-over relief because of subsection 40-340(1). (2) The transferor must give the transferee a notice containing enough information about the transferor’s *holding of the property for the transferee to work out how this Division applies to the transferee’s holding of the *depreciating asset. (3) The transferor must give the notice within 6 months after the end of the transferee’s income year in which the *balancing adjustment event occurred, or within a longer period allowed by the Commissioner. (4) The transferee must keep the notice until the end of 5 years after the earlier of these events: (a) the transferee disposes of the property; (b) the property is lost or destroyed. Penalty: 30 penalty units. 40-362 Roll-over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012 Circumstances giving rise to roll-over relief

(1) There is roll-over relief if: (a) there is a *balancing adjustment event under section 40-295 because you cease to *hold a * depreciating asset that is a vessel (the original vessel); and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(b)

on the day that the balancing adjustment event occurs, you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that: (i) applies to that day; and (ii) is not a *shipping exempt income certificate; and (c) there is no roll-over relief under section 40-340 relating to the original vessel; and (d) on the day occurring 2 years after the day you cease to hold the original vessel, you are the holder of another depreciating asset that is a vessel (the other vessel): (i) for which you choose to apply roll-over relief in relation to the original vessel; and (ii) for which you have a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 (other than a shipping exempt income certificate) that applies to the day of that choice; and (e) you became the holder of the other vessel during the period starting 1 year before the day you cease to hold the original vessel and ending 2 years after that day.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Choosing to apply roll-over relief

(2) The choice must: (a) be in writing; and (b) be made within 6 months after the end of the second income year after the income year in which the *balancing adjustment event occurs, or within a longer period allowed by the Commissioner. (3) If there is roll-over relief under this section: (a) subsection 40-285(1) does not apply to the *balancing adjustment event in relation to the original vessel; and (b) an amount is included in your assessable income if the original vessel’s *termination value exceeds the sum of: (i) the original vessel’s *adjustable value just before the balancing adjustment event occurred; and (ii) the *cost of the other vessel (disregarding paragraph (3)(c)); and (c) for the purpose of applying this Act to the other vessel, its cost is reduced (but not below zero) by the difference between: (i) the original vessel’s termination value; and (ii) the original vessel’s adjustable value just before the balancing adjustment event occurred. (4) The amount included in your assessable income under paragraph (3)(b) is the amount of the excess mentioned in that paragraph. It is included in the second income year after the income year in which the *balancing adjustment event occurs. 40-363 and 40-364 40-365

[not reproduced]

Involuntary disposals

(1) You may exclude some or all of an amount that has been included in your assessable income for a *depreciating asset (the original asset) as a result of a *balancing adjustment event to the extent that you choose to treat it as an amount to be applied under subsection (5) for one or more replacement assets. (2) You can only make this choice if you stop *holding the asset because: (a) the original asset is lost or destroyed; or (b) the original asset is compulsorily acquired by an *Australian government agency; or (c) the original asset is acquired by an entity (other than an Australian government agency or a *foreign government agency) under a power of compulsory acquisition conferred by a law covered under subsection (2A); or (d) you dispose of the original asset to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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The effect of roll-over relief

Income Tax Assessment Act 1997

s 40-365

(i)

the disposal takes place after a notice was served on you by or on behalf of the entity; (ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement; (iii) the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity; (iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (2A); or (e) you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: (i) a mining lease was compulsorily granted over the land; (ii) the lease significantly affected your use of the land; (iii) the lease was in force just before the disposal; (iv) the entity to which you dispose of the land was the lessee under the lease; or (f) you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: (i) a mining lease would have been compulsorily granted over the land if you had not disposed of it; (ii) that lease would have significantly affected your use of the land; (iii) the entity to which you dispose of the land would have been the lessee under the lease. (2A) A law is covered under this subsection if it is: (a) an *Australian law (other than Chapter 6A of the Corporations Act 2001); or (b) a *foreign law (other than a foreign law corresponding to Chapter 6A of the Corporations Act 2001). (3) You can only make this choice for a replacement asset if you incur the expenditure on the replacement asset, or you start to *hold it: (a) no earlier than one year, or within a further period the Commissioner allows, before the * balancing adjustment event occurred; and (b) no later than one year, or within a further period the Commissioner allows, after the end of the income year in which the balancing adjustment event occurred. (4) You can only make this choice for a replacement asset if: (a) at the end of the income year in which you incurred the expenditure on the asset, or you started to *hold it, you used it, or had it *installed ready for use, wholly for a *taxable purpose; and (b) you can deduct an amount for it. (5) For the purposes of applying this Act to the replacement asset: (a) its *cost is reduced by the amount covered by the choice for the income year in which the asset’s *start time occurs; and (b) if the income year is later than the one in which the asset’s *start time occurs—the sum of its *opening adjustable value for that later year and any amount included in the second element of the asset’s cost for that later year is reduced by the amount covered by the choice. (6) If you are making the choice for 2 or more replacement assets, you apportion the amount covered by the choice between those items in proportion to their *cost. 40-370 Balancing adjustments where there has been use of different car expense methods

(1) An amount is included in your assessable income or you can deduct an amount under this section instead of section 40-285 if: (a) a *balancing adjustment event occurs for a *car you *held; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-425

(b)

you have deducted or can deduct an amount for the decline in value of the car for an income year under this Division; and (c) you chose the “cents per kilometre” method in Subdivision 28-C for deducting your car expenses for the car for one or more other income years.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Note 1: This means if you have only used the “log book” method since you began using the car, you calculate the assessable amount or deductible amount under section 40-285. Note 2: Also, if you have only used the “cents per kilometre” method since you began using the car, no amount is assessable or deductible under this section or section 40-285.

(2) Work out the amount you include in your assessable income or the amount you can deduct in this way:

(3) In working out the *adjustable value for the income years for which you chose the “cents per kilometre method”, assume the decline in value was calculated under this Division on the same basis as those income years when that method did not apply. (4) In working out the reduction in step 2 for the income years for which you chose the “cents per kilometre method”, assume that: (a) you had not chosen that method for the *car; and (b) Division 28 (about car expenses) had not applied to the car; and (c) 20% was the extent of your use of the car for *taxable purposes. SUBDIVISION 40-E – LOW-VALUE AND SOFTWARE DEVELOPMENT POOLS GUIDE TO SUBDIVISION 40-E 40-420

What this Subdivision is about

You may choose to work out the decline in value of low-cost assets (assets costing less than $1,000) and certain other depreciating assets through a low-value pool. You may also choose to deduct amounts for expenditure you incur on in-house software through a software development pool.

Operative 40-425 40-430 40-435 40-440 40-445 40-450 40-455 40-460

Table of sections provisions Allocating assets to a low-value pool Rules for assets in low-value pools Private or exempt use of assets How you work out the decline in value of assets in low-value pools Balancing adjustment events Software development pools How to work out your deduction Your assessable income includes consideration for pooled software

OPERATIVE PROVISIONS 40-425

Allocating assets to a low-value pool

(1) You may choose to allocate a *low cost asset you *hold to a low-value pool for the income year in which you start to use it, or have it *installed ready for use, for a *taxable purpose. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Method statement Step 1. Subtract the *car’s *adjustable value just before the *balancing adjustment event occurred from the car’s *termination value. Step 2. Reduce the step 1 amount by the part of the *car’s decline in value that is attributable to your using the car, or having it *installed ready for use, for purposes other than *taxable purposes. You do this by applying the formula in subsection 40-290(2). Step 3. Multiply the step 2 amount by the total number of days for which you deducted the decline in value of the *car under this Division. Step 4. Divide the step 3 amount by the total number of days you *held the *car. Step 5. The step 4 amount is a deduction if it is negative or it is included in your assessable income if it is positive.

Income Tax Assessment Act 1997

s 40-425

(2) A low-cost asset is a *depreciating asset (except a *horticultural plant) whose *cost as at the end of the income year in which you start to use it, or have it *installed ready for use, for a *taxable purpose is less than $1,000. (3) You may also choose to allocate a *low-value asset to a low-value pool. (4) You cannot allocate a *depreciating asset to a low-value pool if: (a) its *cost does not exceed $300; and (b) you use the asset predominantly for the *purpose of producing assessable income that is not income from carrying on a *business; and (c) the asset is not part of a set of assets that you started to hold in that income year where the total cost of the set of assets exceeds $300; and (d) the total cost of the asset and any other identical, or substantially identical, asset that you start to hold in that income year does not exceed $300. (5) A low-value asset is a *depreciating asset, except a *horticultural plant, you *hold: (a) if you have deducted or can deduct amounts for it under this Division for a previous income year—for which you used the *diminishing value method; and (b) that has an *opening adjustable value for the current year of less than $1,000 (worked out using the diminishing value method); and (c) that is not a *low-cost asset. (6) A *depreciating asset: (a) to which Division 58 (about assets previously owned by an exempt entity) applied for an entity sale situation; and (b) for which you used the *diminishing value method; and (c) whose *adjustable value as at the end of the income year before the *current year is less than $1,000; is also a low-value asset. Exception: small business entities

(7) You cannot allocate a *depreciating asset to a low-value pool if you deduct amounts for it under Subdivision 328-D (about capital allowances for small business entities). Exception: medium sized businesses

(7A) You cannot allocate a *depreciating asset to a low-value pool if the decline in value of the asset for any income year is determined by section 40-82 (about assets costing less than $30,000). Exception: R&D

(8) You cannot allocate a *depreciating asset to a low-value pool if you are entitled under section 355-100 to a *tax offset for a deduction under section 355-305 for the asset for an income year starting before, or at the same time as, the allocation has effect. Note: A similar rule applies if you deducted or could have deducted amounts under former 73BA of the Income Tax Assessment Act 1936 (see section 40-430 of the Income Tax (Transitional Provisions) Act 1997). 40-430

Rules for assets in low-value pools

(1) Once you have made a choice to allocate a *low-cost asset to a low-value pool for an income year, you must allocate all low-cost assets you start to *hold in that income year or a later one to the pool. Note 1: This rule does not apply to low-value assets. Note 2: If you are a small business entity for the income year and you calculate your deductions for your depreciating assets under Subdivision 328-D, you must deduct amounts for your depreciating assets under that Subdivision unless deductions for particular assets are specifically excluded by that Subdivision.

(2) Once you allocate any *depreciating asset to a low-value pool, it must remain in the pool. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-450 40-435

Private or exempt use of assets

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(1) When you allocate a *depreciating asset to a low-value pool, you must make a reasonable estimate of the percentage (the taxable use percentage) of your use of the asset (including any past use) that will be for a *taxable purpose over: (a) for a *low-cost asset—its *effective life; or (b) for a *low-value asset—any period of its effective life that is yet to elapse at the start of the income year for which you allocate it to the pool. (2) For the purposes of subsection (1), disregard a *taxable purpose that is the *purpose of producing assessable income: (a) from the use of *residential premises to provide residential accommodation; but (b) not in the course of carrying on a *business; if, apart from subsections 40-25(5) and 40-27(6), section 40-27 would reduce your deductions under subsection 40-25(1) for the asset. 40-440

How you work out the decline in value of assets in low-value pools

Step 1. Step 2.

Step 3.

Step 4.

Work out the amount obtained by taking 18¾% of the taxable use percentage of the *cost of each *low-cost asset you allocated to the pool for that year. Add those amounts. Add to the step 1 amount 18¾% of the taxable use percentage of any amounts included in the second element of the *cost for that year of: (a) assets allocated to the pool for an earlier income year; and (b) *low-value assets allocated to the pool for the *current year. Add to the step 2 amount 37½% of the sum of: (a) the *closing pool balance for the previous income year; and (b) the taxable use percentage of the *opening adjustable values of *low-value assets, at the start of the income year, that you allocated to the pool for that year. The result is the decline in value of the *depreciating assets in the pool.

(2) The closing pool balance of a low-value pool for an income year is the sum of: (a) the *closing pool balance of the pool for the previous income year; and (b) the taxable use percentage of the *costs of *low-cost assets you allocated to the pool for that year; and (c) the taxable use percentage of the *opening adjustable values of any *low-value assets you allocated to the pool for that year as at the start of that year; and (d) the taxable use percentage of any amounts included in the second element of the cost for the income year of: (i) assets allocated to the pool for an earlier income year; and (ii) low-value assets allocated to the pool for the *current year; less the decline in value of the *depreciating assets in the pool worked out under subsection (1). Note: The closing pool balance may be reduced under section 40-445 if a balancing adjustment event happens. 40-445

Balancing adjustment events

(1) If a *balancing adjustment event happens to a *depreciating asset in a low-value pool in an income year, the *closing pool balance for that year is reduced (but not below zero) by the taxable use percentage of the asset’s *termination value. (2) If the sum of the *termination values, or the part of it, applicable under subsection (1) exceeds the *closing pool balance of the pool for that year, the excess is included in your assessable income. 40-450

Software development pools

(1) You may choose to allocate amounts of expenditure you incur on *in-house software in an income year to a software development pool if it is expenditure on developing, or having another entity develop, computer software. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) You work out the decline in value of *depreciating assets in a low-value pool for an income year in this way:

Income Tax Assessment Act 1997

s 40-450 Note: You cannot allocate expenditure on in-house software to a software development pool if it is expenditure on acquiring computer software or a right to use computer software.

(2) Once you choose to create a software development pool for an income year, any amounts of the kind referred to in subsection (1) you incur after the pool is created (whether in that income year or a later one) must be allocated to a software development pool. (3) However, an amount of expenditure on *in-house software can only be allocated to a software development pool if you intend to use the software solely for a *taxable purpose. (4) You must create a separate software development pool for each income year for which you incur amounts of the kind referred to in subsection (1). 40-455

How to work out your deduction

For all the expenditure on *in-house software in a software development pool that was incurred in a particular income year (Year 1), you get deductions in successive income years as follows: Deductions allowed for software development pool Column 1 Column 2 Item Income year Amount of expenditure you can deduct for that year 1 Year 1 Nil 2 Year 2 30% 3 Year 3 30% 4 Year 4 30% 5 Year 5 10% 40-460

Your assessable income includes consideration for pooled software

(1) If expenditure on *in-house software is (or was) in your software development pool, your assessable income includes any amount you *derive as consideration in relation to the software. (2) However, subsection (1) does not apply if subsection 40-340(3) (roll-over relief) applies to the change. SUBDIVISION 40-F – PRIMARY PRODUCTION DEPRECIATING ASSETS GUIDE TO SUBDIVISION 40-F 40-510

What this Subdivision is about

You can deduct amounts for capital expenditure on depreciating assets that are water facilities, horticultural plants, fodder storage assets or fencing assets. The amount you can deduct is equal to the asset’s decline in value during an income year (as measured under this Subdivision).

Operative 40-515 40-520 40-525 40-530 40-535 40-540 40-545 40-555 40-560 40-565

Table of sections provisions Water facilities, horticultural plants, fodder storage assets and fencing assets Meaning of water facility, horticultural plant, fodder storage asset and fencing asset Conditions When declines in value start Meaning of horticulture and commercial horticulture How you work out the decline in value for water facilities How you work out the decline in value for horticultural plants Amounts you cannot deduct Non-arm’s length transactions Extra deduction for destruction of a horticultural plant

OPERATIVE PROVISIONS 40-515

Water facilities, horticultural plants, fodder storage assets and fencing assets

(1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Subdivision) of a *depreciating asset that is one of these: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-520

(a) a *water facility; (b) a *horticultural plant; (c) a *fodder storage asset; (d) a *fencing asset.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Note 1: Sections 40-540, 40-545, 40-548 and 40-551 show you how to work out the decline. Note 2: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35. Conditions

(2) However, the applicable condition in section 40-525 must be satisfied for the *depreciating asset. Limit on deduction

(3) You cannot deduct more in total than: (a) for a *water facility—the amount of capital expenditure (disregarding expenditure that you cannot deduct because of section 26-100 (about water infrastructure improvement expenditure)) incurred on the facility; or (b) for a *horticultural plant—the amount of capital expenditure incurred on the plant; or (c) for a *fodder storage asset—the amount of capital expenditure incurred on the asset; or (d) for a *fencing asset—the amount of capital expenditure incurred on the asset. (4) You must reduce your deduction for a *water facility, *fodder storage asset or *fencing asset for an income year by the part of the decline in value of the facility or asset that is attributable to the period (if any) in the income year when it was: (a) not wholly used in carrying on a *primary production business on land in Australia; or (b) not wholly used for a *taxable purpose. (5) Paragraph (4)(a) does not apply to a *water facility if the expenditure incurred on the construction, manufacture, installation or acquisition of the water facility was incurred by an * irrigation water provider. Meaning of irrigation water provider

(6) An irrigation water provider is an entity whose *business is primarily and principally the supply (otherwise than by using a *motor vehicle) of water to entities for use in *primary production businesses on land in Australia. 40-520 asset

Meaning of water facility, horticultural plant, fodder storage asset and fencing

(1) A water facility is: (a) *plant or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to plant or a structural improvement, that is primarily and principally for the purpose of conserving or conveying water; or (b) a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to conserving or conveying water. Example: Examples of a water facility include a dam, tank, tank stand, bore, well, irrigation channel, pipe, pump, water tower and windmill. Examples of things reasonably incidental to conserving or conveying water include a culvert, a fence to prevent live stock entering an irrigation channel and a bridge over an irrigation channel.

(2) A horticultural plant is a live plant or fungus that is cultivated or propagated for any of its products or parts. (3) A fodder storage asset is an asset or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to an asset or a structural improvement, that is primarily and principally for the purpose of storing fodder. (4) A fencing asset is: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Reduction of deduction: water facilities, fodder storage assets and fencing assets

Income Tax Assessment Act 1997

s 40-520

(a) an asset or a structural improvement that is a fence; or (b) a repair of a capital nature, or an alteration, addition or extension, to a fence. 40-525 Conditions Water facilities

(1) The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the *water facility must have been incurred: (a) primarily and principally for the purpose of conserving or conveying water for use in a * primary production business that you conduct on land in Australia; or (b) for expenditure incurred by an *irrigation water provider—primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia, being entities supplied with water by the irrigation water provider. Note: If Division 250 applies to you and an asset that is a water facility: (a) if section 250-150 applies—the condition in this subsection is taken not to be satisfied for the facility to the extent specified under subsection 250-150(3); or (b) otherwise—the condition in this subsection is taken not to be satisfied for the facility. Horticultural plants

(2) One of the conditions in this table must be satisfied: Conditions relating to horticultural plants Item Condition 1 You own the *horticultural plant and any holder of a lease, lesser interest or licence relating to the land does not carry on a *business of *horticulture on the land 2 The *horticultural plant is attached to land you hold under a lease, or a *quasi-ownership right granted by an *exempt Australian government agency or an *exempt foreign government agency, and: (a) the lease or quasi-ownership right enables you to carry on a *business of *horticulture on the land; and (b) any holder of a lesser interest or licence relating to the land does not carry on a * business of *horticulture on the land. 3 You: (a) hold a licence relating to the land to which the *horticultural plant is attached; and (b) carry on a *business of *horticulture on the land as a result of holding the licence. Note: If Division 250 applies to you and an asset that is a horticultural plant: (a) if section 250-150 applies—a condition in this subsection is taken not to be satisfied for the plant to the extent specified under subsection 250-150(3); or (b) otherwise—the conditions in this subsection are taken not to be satisfied for the horticultural plant. Fodder storage assets

(3) The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the *fodder storage asset must have been incurred primarily and principally for use in a *primary production business that you conduct on land in Australia. Note: If Division 250 applies to you and an asset that is a fodder storage asset: (a) if section 250-150 applies—the condition in this subsection is taken not to be satisfied for the asset to the extent specified under subsection 250-150(3); or (b) otherwise—the condition in this subsection is taken not to be satisfied for the asset. Fencing assets

(4) The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the *fencing asset must have been incurred primarily and principally for use in a * primary production business that you conduct on land in Australia. Note: If Division 250 applies to you and an asset that is a fencing asset: (a) if section 250-150 applies—the condition in this subsection is taken not to be satisfied for the asset to the extent specified under subsection 250-150(3); or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-545 (b)

otherwise—the condition in this subsection is taken not to be satisfied for the asset.

40-530

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

When declines in value start

(1) A *water facility, *fodder storage asset or *fencing asset starts to decline in value in the income year in which you first incur expenditure on the facility or asset. (2) A *horticultural plant starts to decline in value in: (a) if you are the first entity to satisfy a condition in subsection 40-525(2) for the plant—the income year in which the first commercial season starts; or (b) if not—the later of the income year in which you first satisfied that condition and the income year in which the first commercial season starts. 40-535

Meaning of horticulture and commercial horticulture

(1) Horticulture includes: (a) propagation and cultivation of a *horticultural plant in any environment (whether natural or artificial); and (b) propagation and cultivation of seeds, bulbs, spores and similar things; and (c) propagation and cultivation of fungi. (2) Use for commercial horticulture means use for the *purpose of producing assessable income in a *business of *horticulture. How you work out the decline in value for water facilities

(1) The decline in value of a *water facility for the income year in which you incurred the expenditure is the amount of capital expenditure you incurred on the construction, manufacture, installation or acquisition of the water facility. (2) However, disregard expenditure that you cannot deduct because of section 26-100 (about water infrastructure improvement expenditure). 40-545

How you work out the decline in value for horticultural plants

(1) The decline in value of a *horticultural plant for the income year in which it starts to decline in value is all of the capital expenditure attributable to the establishment of the plant if its *effective life is less than 3 years. (2) You work out the decline in value for an income year of a *horticultural plant whose *effective life is 3 years or more in this way: Establishment expenditure ×

Write-off days in income year × Write-off rate 365

where:

establishment expenditure is the amount of capital expenditure incurred that is attributable to the establishment of the *horticultural plant. write-off days in income year is the number of days in the income year on which you satisfied a condition in subsection 40-525(2) for the plant and either used it for *commercial horticulture or held it ready for that use. write-off rate is the rate shown in this table for the *horticultural plant according to its *effective life. Write-off Item 1 2 3 4 5 6

rate for horticultural plant Effective life of: 3 to fewer than 5 years 5 to fewer than 6 2/3 years 6 2/3 to fewer than 10 years 10 to fewer than 13 years 13 to fewer than 30 years 30 years or more

The write-off rate is: 40% 27% 20% 17% 13% 7%

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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40-540

Income Tax Assessment Act 1997

s 40-545 Limit on write-off days

(3) Disregard your use of the *horticultural plant on a day outside the period that: (a) starts when the plant can first be used for *commercial horticulture; and (b) extends for the time shown in this table (depending on the plant’s *effective life). Period after which you cannot count use of horticultural plant Item Effective life: Time limit: 1 3 to fewer than 5 years 2 years and 183 days 2 5 to fewer than 6 2/3 years 3 years and 257 days 3 6 2/3 to fewer than 10 years 5 years 4 10 to fewer than 13 years 5 years and 323 days 5 13 to fewer than 30 years 7 years and 253 days 6 30 years or more 14 years and 105 days 40-548 to 40-551

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40-555 Amounts you cannot deduct Water facilities

(1) You cannot deduct an amount for any income year for capital expenditure on the acquisition of a *water facility if any entity has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on: (a) the construction or manufacture of the facility; or (b) a previous acquisition of the facility. Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a water facility are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

(2) [Repealed] Horticultural plants

(3) In working out your deduction under this Subdivision for a *horticultural plant, disregard expenditure incurred: (a) in draining swamp or low-lying land; or (b) in clearing land. Fodder storage assets

(4) You cannot deduct an amount for any income year for capital expenditure on the acquisition of a *fodder storage asset if any entity has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on: (a) the construction or manufacture of the asset; or (b) a previous acquisition of the asset. Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a fodder storage asset are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53. Fencing assets

(5) You cannot deduct an amount for any income year for capital expenditure on the acquisition of a *fencing asset if any entity has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on: (a) the construction or manufacture of the fencing asset; or (b) a previous acquisition of the fencing asset. Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a fencing asset are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

(6) You cannot deduct an amount for any income year for capital expenditure on a *fencing asset to the extent that any entity has deducted or can deduct the amount under subsection 40-630(1) (about landcare operations). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(7) You cannot deduct an amount for any income year for capital expenditure on a *fencing asset if the fencing asset is (or is a repair, alteration, addition or extension to): (a) a stockyard or pen; or (b) a portable fence. 40-560

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Non-arm’s length transactions

If you incurred capital expenditure under an *arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and (b) apart from this section, the amount of the expenditure would be more than the *market value of what it was for;

the amount of expenditure you take into account under this Subdivision is that market value. 40-565

Extra deduction for destruction of a horticultural plant

Method statement Step 1. Work out the total of the amounts you could have deducted under this Subdivision for the * horticultural plant for the period: (a) starting when the plant could first be used for *commercial horticulture; and (b) ending when it was destroyed; assuming that, during that period, you satisfied a condition in section 40-525 for the plant and used it for commercial horticulture. Step 2. Subtract from the capital expenditure that is attributable to the establishment of the * horticultural plant: (a) the result from step 1; and (b) any amount you received (under an insurance policy or otherwise) for the destruction. The remaining amount (if any) is your deduction under subsection (1).

(3) This deduction is in addition to any deduction for the income year under section 40-545. 40-570 and 40-575

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SUBDIVISION 40-G – CAPITAL EXPENDITURE OF PRIMARY PRODUCERS AND OTHER LANDHOLDERS GUIDE TO SUBDIVISION 40-G 40-625

What this Subdivision is about

You can deduct amounts for capital expenditure you incur: • on landcare operations; or • on electricity connections or telephone lines.

Operative 40-630 40-635 40-640 40-645 40-650 40-655 40-660

Table of sections provisions Landcare operations Meaning of landcare operation Meaning of approved management plan Electricity and telephone lines Amounts you cannot deduct under this Subdivision Meaning of connecting power to land or upgrading the connection and metering point Non-arm’s length transactions

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) You can deduct the amount worked out under subsection (2) for a *horticultural plant for an income year if its *effective life is 3 years or more and it is destroyed during the income year while you own it and use it for *commercial horticulture. (2) Work out your deduction as follows:

Income Tax Assessment Act 1997

s 40-630 OPERATIVE PROVISIONS 40-630

Landcare operations

(1) You can deduct capital expenditure you incur at a time in an income year on a *landcare operation for: (a) land in Australia you use at the time for carrying on a *primary production business; or (b) rural land in Australia you use at the time for carrying on a *business for a *taxable purpose from the use of that land (except a business of *mining and quarrying operations). Note: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies—you are taken not to be using the land for the purpose of carrying on a primary production business, or a business for the purpose of producing assessable income from the use of rural land (except a business of mining and quarrying operations), to the extent specified under subsection 250-150(3); or (b) otherwise—you are taken not to be using the land for such a purpose.

(1A) A *rural land irrigation water provider can deduct capital expenditure it incurs at a time in an income year on a *landcare operation for: (a) land in Australia that other entities use at the time for carrying on *primary production businesses; or (b) rural land in Australia that other entities use at the time for carrying on *businesses for a * taxable purpose from the use of that land (except a business of *mining and quarrying operations); being entities supplied with water by the rural land irrigation water provider. (1B) A rural land irrigation water provider is: (a) an *irrigation water provider; or (b) an entity whose *business is primarily and principally the supply (otherwise than by using a *motor vehicle) of water to entities for use in carrying on *businesses (except businesses of *mining and quarrying operations) using rural land in Australia. Exception: plant

(2) However, you cannot deduct an amount under this Subdivision for capital expenditure on plant, except: (a) a fence erected for a purpose described in paragraph 40-635(1)(a) or (b); or (b) a dam or structural improvement (except a fence) covered by paragraph (1)(c), (d), (e) or (f) of the definition of plant in section 45-40. (2A) In applying paragraph (2)(b) to capital expenditure incurred by a *rural land irrigation water provider on a dam or structural improvement, the requirement in paragraph 45-40(1)(c) that the land on which the dam or structural improvement is situated be used for agricultural or pastoral operations is to be disregarded. *

Exception: deduction available under Subdivision 40-F

(2B) A *rural land irrigation water provider cannot deduct an amount under this Subdivision for capital expenditure if the entity can deduct an amount for that expenditure under Subdivision 40-F. Exception: deduction available under Subdivision 40-J

(2C) You cannot deduct an amount under this Subdivision for capital expenditure if any entity can deduct an amount for that expenditure for any income year under Subdivision 40-J. Reduction of deduction

(3) You must reduce your deduction by a reasonable amount to reflect your use of the land in the income year after the time when you incurred the expenditure for a purpose other than the purpose of carrying on: (a) a *primary production business; or (b) a *business for the *purpose of producing assessable income from the use of rural land (except a business of *mining and quarrying operations). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-645

(4) Subsection (3) does not apply to expenditure incurred by a *rural land irrigation water provider. Instead, a rural land irrigation water provider must reduce its deduction in relation to particular land by a reasonable amount to reflect an entity’s use of the land in the income year after the rural land irrigation water provider incurred the expenditure for a purpose other than a *taxable purpose. Meaning of landcare operation

(1) Landcare operation for land means: (a) erecting a fence to separate different land classes on the land in accordance with an * approved management plan for the land; or (b) erecting a fence on the land primarily and principally for the purpose of excluding animals from an area affected by land degradation: (i) to prevent or limit extension or worsening of land degradation in the area; and (ii) to help reclaim the area; or (c) constructing a levee or a similar improvement on the land; or (d) constructing drainage works on the land primarily and principally for the purpose of controlling salinity or assisting in drainage control; or (e) an operation primarily and principally for the purpose of: (i) eradicating or exterminating from the land animals that are pests; or (ii) eradicating, exterminating or destroying plant growth detrimental to the land; or (iii) preventing or fighting land degradation (except by erecting fences on the land); or (f) a repair of a capital nature, or an alteration, addition or extension, to an asset described in paragraph (a), (b), (c) or (d) or an extension of an operation described in paragraph (e); or (g) constructing a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to an asset described in paragraph (c) or (d). Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset are not the same asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

(2) Paragraph (1)(d) does not apply to an operation draining swamp or low-lying land. 40-640

Meaning of approved management plan

An approved management plan for *land is a plan that: (a) shows the different classes within the land and the location of any fencing needed to separate any of the land classes to prevent land degradation; and (b) describes the kind of fencing and how it will prevent land degradation; and (c) has been prepared by, or approved in writing as a suitable plan for the land by:

an officer of an *Australian government agency responsible for land conservation who has authority to do so; or (ii) an individual who was at the time approved as a farm consultant under this Subdivision. (i)

40-645

Electricity and telephone lines

(1) You can deduct amounts for capital expenditure you incur on *connecting power to land or upgrading the connection if, when you incur the expenditure: (a) you have an interest in the land or are a share-farmer carrying on a *business on the land; and (b) you or another entity intends to use some or all of the electricity to be supplied as a result of the expenditure in carrying on a business on the land for a *taxable purpose at a time when you have an interest in the land or are a share-farmer carrying on a business on the land. (2) You can also deduct amounts for capital expenditure you incur on a telephone line on or extending to land if, when you incurred the expenditure: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) a *primary production business was carried on the land; and (b) you had an interest in the land or you were a share-farmer carrying on a primary production business on the land. (3) The amount you can deduct is 10% of the expenditure: (a) for the income year in which you incur it; and (b) for each of the next 9 income years. Note 1: Various provisions may reduce the amount you can deduct or stop you deducting. For example, see: • Division 26 (limiting deductions generally); and • section 40-650 (specifying expenditure you cannot deduct under this Subdivision); and • Division 245 (which may affect your entitlement to a deduction if your debts are forgiven). Note 2: If you recoup an amount of the expenditure, the amount will be included in your assessable income. See Subdivision 20-A. 40-650

Amounts you cannot deduct under this Subdivision

(1) You cannot deduct amounts for capital expenditure you incur on *connecting power to land or upgrading the connection if, during the 12 months after electricity is first supplied to the land as a result of the expenditure, no electricity supplied as a result of the expenditure is used in carrying on a *business on the land for a *taxable purpose. (2) If you deducted an amount for any income year under this Subdivision for the expenditure, your assessment for that income year may be amended under section 170 of the Income Tax Assessment Act 1936 to disallow the deduction. (3) You cannot deduct an amount for capital expenditure you incur on *connecting power to land or upgrading the connection for: (a) expenditure in providing water, light or power for use on, access to or communication with the site of *mining and quarrying operations; or (b) a contribution to the cost of providing water, light or power for those operations. (4) You cannot deduct an amount for any income year for your capital expenditure on a part of a telephone line if: (a) any entity has deducted, or can deduct, an amount for any income year for the cost of that part under a provision of this Act (except this Subdivision); or (b) the cost of that part has been, or must be, taken into account in working out: (i) the amount of any entity’s deduction (including a deduction for a *depreciating asset) for any income year under a provision of this Act (except this Subdivision); or (ii) the net income, or partnership loss, of a partnership under section 90 of the Income Tax Assessment Act 1936. (5) However, you can deduct an amount under this Subdivision for your expenditure on a part of a telephone line even if: (a) an entity that worked on installing that part has deducted, or can deduct, an amount relating to that part for any income year under this Act (except this Subdivision); or (b) the cost of that part has been, or must be, taken into account: (i) in working out the amount of such an entity’s deduction for any income year under a provision of this Act (except this Subdivision); or (ii) under section 90 of the Income Tax Assessment Act 1936 in working out the net income, or partnership loss, of a partnership that worked on installing that part. (6) Subsection (5) has effect whether the entity did the work itself or through one or more employees or *agents. (7) If you can deduct, or have deducted, an amount for any income year under section 40-645 for your expenditure: (a) an entity cannot deduct an amount for any income year under a provision of this Act (except this Subdivision) for the expenditure; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(b)

the expenditure cannot be taken into account to work out the amount of an entity’s deduction for any income year under a provision of this Act (except this Subdivision). (8) Subsection (7) also applies in working out the net income, or partnership loss, of a partnership under section 90 of the Income Tax Assessment Act 1936. Meaning of connecting power to land or upgrading the connection and metering

(1) Each of these operations is connecting power to land or upgrading the connection: (a) connecting a mains electricity cable to a *metering point on the land (whether or not the point from which the cable is connected is on the land); (b) providing or installing equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land; (c) providing or installing equipment for use directly in connection with the supply of electricity through a mains electricity cable to a metering point on the land; (d) work to increase the amount of electricity that can be supplied through a mains electricity cable to a metering point on the land; (e) work to modify or replace equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land, if the modification or replacement results from increasing the amount of electricity supplied to the land; (f) work to modify or replace equipment for use directly in connection with the supply of electricity through a mains electricity cable to the land, if the modification or replacement results from increasing the amount of electricity supplied to the land; (g) work carried out as a result of a contribution to the cost of a project consisting of the connection of mains electricity facilities to that land and other land. (2) However, an operation described in subsection (1) done in the course of replacing or relocating mains electricity cable or equipment is connecting power to land or upgrading the connection only if done to increase the amount of electricity that can be supplied to a *metering point on the land. (3) A metering point on land is a point where consumption of electricity supplied to the land through a mains electricity cable is measured. 40-660

Non-arm’s length transactions

If you incurred capital expenditure under an *arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and (b) apart from this section, the amount of the expenditure would be more than the *market value of what it was for;

the amount of expenditure you take into account under this Subdivision is that market value. 40-665 to 40-675

[not reproduced]

SUBDIVISION 40-H – CAPITAL EXPENDITURE THAT IS IMMEDIATELY DEDUCTIBLE GUIDE TO SUBDIVISION 40-H 40-725 You • • • •

What this Subdivision is about

get an immediate deduction for certain capital expenditure on: exploration or prospecting; and rehabilitation of mining or quarrying sites; and paying petroleum resource rent tax; and environmental protection activities.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Income Tax Assessment Act 1997

s 40-725

Operative 40-730 40-735 40-740 40-745

Table of sections provisions Deduction for expenditure on exploration or prospecting Deduction for expenditure on mining site rehabilitation Meaning of ancillary activities and mining building site No deduction for certain expenditure

OPERATIVE PROVISIONS 40-730

Deduction for expenditure on exploration or prospecting

(1) You can deduct expenditure you incur in an income year on *exploration or prospecting for * minerals, or quarry materials, obtainable by *mining and quarrying operations if, for that expenditure, you satisfy one or more of these paragraphs: (a) you carried on mining and quarrying operations; (b) it would be reasonable to conclude you proposed to carry on such operations; (c) you carried on a *business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and the expenditure was necessarily incurred in carrying on that business. Note: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies—you cannot deduct expenditure you incur in relation to the land to the extent specified under subsection 250-150(3); or (b) otherwise—you cannot deduct such expenditure.

(2) However, you cannot deduct expenditure under subsection (1) if it is expenditure on: (a) development drilling for *petroleum; or (b) operations in the course of working a mining property, quarrying property or petroleum field. (2A) [Repealed] (2B) [Repealed] (3) Also, you cannot deduct expenditure under subsection (1) to the extent that it forms part of the * cost of a *depreciating asset. Definitions

(4) Exploration or prospecting includes: (a) for mining in general, and quarrying: (i) geological mapping, geophysical surveys, systematic search for areas containing * minerals (except *petroleum) or quarry materials, and search by drilling or other means for such minerals or materials within those areas; and (ii) search for ore within, or near, an ore-body or search for quarry materials by drives, shafts, cross-cuts, winzes, rises and drilling; and (b) for petroleum mining: (i) geological, geophysical and geochemical surveys; and (ii) exploration drilling and appraisal drilling; and (c) feasibility studies to evaluate the economic feasibility of mining minerals or quarry materials once they have been discovered; and (d) obtaining *mining, quarrying or prospecting information associated with the search for, and evaluation of, areas containing minerals or quarry materials. (5) Minerals includes *petroleum. (6) Petroleum means: (a) any naturally occurring hydrocarbon or naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid or solid state; or (b) any naturally occurring mixture of: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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40-735

Deduction for expenditure on mining site rehabilitation

(1) You can deduct for an income year expenditure you incur in that year to the extent it is on * mining site rehabilitation of: (a) a site on which you: (i) carried on *mining and quarrying operations; or (ii) conducted *exploration or prospecting; or (iii) conducted *ancillary mining activities; or (b) a *mining building site. Note 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20-A. Note 2: If Division 250 applies to you and an asset that is land: (a) if section 250-150 applies—you cannot deduct expenditure you incur in relation to the land to the extent specified under subsection 250-150(3); or (b) otherwise—you cannot deduct such expenditure.

(2) However, a provision of this Act (except Division 8 (which is about deductions)) that expressly prevents or restricts the operation of that Division applies in the same way to this section. (3) However, you cannot deduct expenditure under subsection (1) to the extent that it forms part of the *cost of a *depreciating asset. (4) Mining site rehabilitation is an act of restoring or rehabilitating a site or part of a site to, or to a reasonable approximation of, the condition it was in before *mining and quarrying operations, * exploration or prospecting or *ancillary mining activities were first started on the site, whether by you or by someone else. (5) Partly restoring or rehabilitating such a site counts as mining site rehabilitation (even if you had no intention of completing the work). (6) For a *mining building site, the time when *ancillary mining activities were first started on the site is the earliest time when the buildings, improvements or *depreciating assets concerned were located on the site. 40-740

Meaning of ancillary mining activities and mining building site

(1) Any of the following are ancillary mining activities: (a) preparing a site for you to carry on *mining and quarrying operations; * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(i) one or more hydrocarbons, whether in a gaseous, liquid or solid state; and (ii) one or more of the following: hydrogen sulphide, nitrogen, helium or carbon dioxide; whether or not that substance has been returned to a natural reservoir. (7) Mining and quarrying operations means: (a) mining operations on a mining property for extracting *minerals (except *petroleum) from their natural site; or (b) mining operations for the purpose of obtaining petroleum; or (c) quarrying operations on a quarrying property for extracting quarry materials from their natural site; for the *purpose of producing assessable income. (7A) [Repealed] (7B) [Repealed] (8) Mining, quarrying or prospecting information is geological, geophysical or technical information that: (a) relates to the presence, absence or extent of deposits of *minerals or quarry materials in an area; or (b) is likely to help in determining the presence, absence or extent of such deposits in an area. (9) [Repealed]

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s 40-740

(b)

providing water, light or power for, access to, or communications with, a site on which you carry on, or will carry on, mining and quarrying operations; (c) *minerals treatment of *minerals or minerals treatment of quarry materials, obtained by you in carrying on mining and quarrying operations; (d) storing (whether before or after minerals treatment) such minerals, *petroleum or quarry materials in relation to the operation of a *depreciating asset for use primarily and principally in treating such minerals or quarry materials; (e) liquefying natural gas obtained from mining and quarrying operations you carry on. (2) A mining building site is a site, or a part of a site, where there are *depreciating assets that are or were necessary for you to carry on *mining and quarrying operations. However, a mining building site does not include anything covered by the definition of housing and welfare. 40-745

No deduction for certain expenditure

Expenditure on these things is not deductible under section 40-735: (a) acquiring land or an interest in land or a right, power or privilege to do with land; (b) a bond or security, however described, for performing *mining site rehabilitation; (c) *housing and welfare. 40-750 to 40-765

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SUBDIVISION 40-I – CAPITAL EXPENDITURE THAT IS DEDUCTIBLE OVER TIME GUIDE TO SUBDIVISION 40-I 40-825

What this Subdivision is about

You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amounts over the life of the project using a pool. You can also deduct amounts for certain business related costs. You deduct these amounts over 5 years (or immediately in the case of some start-up expenses for small businesses) if the amounts are not otherwise taken into account and are not denied a deduction.

Operative 40-830 40-832 40-835 40-840 40-845 40-855 40-860 40-865 40-880 40-885

Table of sections provisions Project pools Project pools for post-9 May 2006 projects Reduction of deduction Meaning of project amount Project life When you start to deduct amounts for a project pool Meaning of mining capital expenditure Meaning of transport capital expenditure Business related costs Non-arm’s length transactions

OPERATIVE PROVISIONS 40-830

Project pools

(1) You can allocate *project amounts to a project pool. (2) You can deduct amounts for *project amounts that are allocated to the project pool. (3) You calculate your deduction for an income year for a project pool in this way: Pool value × 150% DV project pool life where:

DV project pool life is: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(a) the *project life of the project; or (b) if its project life has been recalculated—its most recently recalculated project life. pool value is: (a) for the first income year that a *project amount is allocated to the pool—the sum of the project amounts allocated to the pool for that year; or (b) for a later income year—the sum of the pool’s *closing pool value for the previous income year and any project amounts allocated to the pool for the later year.

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

(4) If, in an income year, you abandon, sell or otherwise dispose of a project for which you have a project pool, you can deduct for that year the sum of the pool’s *closing pool value for the previous income year and any *project amounts allocated to the pool for the income year. (5) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal. (6) Your assessable income for an income year includes other capital amounts that you *derive in that year in relation to a *project amount allocated to your project pool or in relation to something on which the project amount is expended. (7) The closing pool value of a project pool for an income year is: (a) for the first income year that a *project amount is allocated to the pool—the sum of the project amounts allocated to the pool for that year less the amount you could deduct for the pool for that year (apart from section 40-835); or (b) for a later income year—the sum of the pool’s *closing pool value for the previous income year and any project amounts allocated to the pool for the later year less the amount you could deduct for the pool for the later year (apart from section 40-835). (8) Your deduction for an income year cannot be more than the amount of the component “pool value” in the formula in subsection (3) for that year. 40-832

Project pools for post-9 May 2006 projects

(1) You calculate your deduction for an income year for a project pool in this way if the project pool contains only *project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day: Pool value × 200% DV project pool life where:

DV project pool life has the same meaning as in subsection 40-830(3). pool value has the same meaning as in subsection 40-830(3). (2) If, in an income year, you abandon, sell or otherwise dispose of a project for which you have a project pool, you can deduct for that year the sum of the pool’s *closing pool value for the previous income year and any *project amounts allocated to the pool for the income year. (3) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal. (4) Your assessable income for an income year includes other capital amounts that you *derive in that year in relation to a *project amount allocated to your project pool or in relation to something on which the project amount is expended. (5) Your deduction for an income year cannot be more than the amount of the component “pool value” in the formula in subsection (1) for that year. 40-835

Reduction of deduction

You must reduce your deduction under section 40-830 or 40-832 for an income year by a reasonable amount for the extent (if any) to which the project operates in the year for purposes other than *taxable purposes. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note: The calculation is made under subsection 40-832(3) for project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day.

Income Tax Assessment Act 1997

s 40-835 Note: If Division 250 applies to you and an asset: (a) if section 250-150 applies—you are taken not to be using the asset for taxable purposes to the extent specified under subsection 250-150(3); or (b) otherwise—you are taken not to be using the asset for such purposes. 40-840

Meaning of project amount

(1) An amount of *mining capital expenditure or *transport capital expenditure you incur is a project amount if: (a) it does not form part of the *cost of a *depreciating asset you *hold or held; and (b) you cannot deduct it under a provision of this Act outside this Subdivision; and (c) it is directly connected with: (i) for mining capital expenditure—carrying on the *mining and quarrying operations in relation to which the expenditure is incurred; or (ii) for transport capital expenditure—carrying on the *business in relation to which the expenditure is incurred. (2) Another amount of capital expenditure you incur is also a project amount so far as: (a) it does not form part of the *cost of a *depreciating asset you *hold or held; and (b) you cannot deduct it under a provision of this Act outside this Subdivision; and (c) it is directly connected with a project you carry on or propose to carry on for a *taxable purpose; and (d) it is one of these: (i) an amount paid to create or upgrade community infrastructure for a community associated with the project; or (ii) an amount incurred for site preparation costs for depreciating assets (except, for * horticultural plants, in draining swamp or low-lying land or in clearing land); or (iii) an amount incurred for feasibility studies for the project; or (iv) an amount incurred for environmental assessments for the project; or (v) an amount incurred to obtain information associated with the project; or (vi) an amount incurred in seeking to obtain a right to *intellectual property; or (vii) an amount incurred for ornamental trees or shrubs. 40-845

Project life

You work out the project life of a project by estimating how long (in years, including fractions of years) it will be from when the project starts to operate until it stops operating. 40-855

When you start to deduct amounts for a project pool

You start to deduct amounts for a project pool for the first income year when the project starts to operate. 40-860

Meaning of mining capital expenditure

(1) Mining capital expenditure is capital expenditure you incur: (a) in carrying on *mining and quarrying operations; or (b) in preparing a site for those operations; or (c) on buildings or other improvements necessary for you to carry on those operations; or (d) in providing, or in contributing to the cost of providing: (i) water, light or power for use on the site of those operations; or (ii) access to, or communications with, the site of those operations; or (e) on buildings for use directly in connection with operating or maintaining *plant that is primarily and principally for *treating *minerals, or quarry materials, that you obtain by carrying on such operations; or (f) on buildings or other improvements for use directly in connection with storing minerals or quarry materials or to facilitate *minerals treatment of them (whether the storage happens before or after the treatment). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Meaning of transport capital expenditure

(1) Transport capital expenditure is capital expenditure you incur, in carrying on a *business for * a taxable purpose, on: (a) a *transport facility; or (b) obtaining a right to construct or install a transport facility, or part of one, on land owned or leased by another entity or in an area referred to in subsection 960-505(2) (about offshore areas and installations); or (c) paying compensation for any damage or loss caused by constructing or installing a transport facility or part of one; or (d) earthworks, bridges, tunnels or cuttings that are necessary for a transport facility. (2) Transport capital expenditure also includes capital expenditure you incur, in carrying on a * business for a *taxable purpose, by way of contribution to: (a) someone else’s capital expenditure on a *transport facility or on anything else covered by a paragraph of subsection (1); or (b) an *exempt Australian government agency’s capital expenditure on railway rolling-stock. (3) Transport capital expenditure does not include expenditure on: (a) road vehicles or ships; or (b) railway rolling-stock; or (c) a thing covered by the definition of housing and welfare; or (d) works for providing water, light or power, in connection with a port facility or other facility for ships; and does not include expenditure by way of contribution to that expenditure (except expenditure by way of contribution to an *exempt Australian government agency’s capital expenditure on railway rolling-stock). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(2) Capital expenditure you incur on *housing and welfare in carrying on *mining and quarrying operations (except quarrying operations) is also mining capital expenditure, but only if: (a) for residential accommodation—the accommodation is provided by you, on or adjacent to a site where you carry on those operations, for the use of: (i) your employees, or someone else’s employees, who are employed or engaged in those operations, or in operations of yours that are connected with those operations; or (ii) dependants of such employees; or (b) for health, education, recreation or other similar facilities, or facilities for meals—the facilities: (i) are on or adjacent to a site where you carry on those operations, and are principally for the benefit of the employees or dependants covered by paragraph (a); and (ii) are not run for profit by any person, except in the case of facilities for meals (which may be run for profit); or (c) in the case of works, including works for providing water, light, power, access or communications—the works are carried out directly in connection with the accommodation or facilities covered by this section. (3) However, expenditure on these is not mining capital expenditure: (a) railway lines, roads, pipelines or other facilities, for use wholly or partly for transporting * minerals or quarry materials, or their products, other than facilities used for transport wholly within the site of *mining and quarrying operations you carry on; (b) works carried out in connection with, or buildings or other improvements constructed or acquired for use in connection with, establishing, operating or using a port facility or other facility for ships; (c) an office building that is not at or adjacent to the site of mining and quarrying operations you carry on; (d) *housing and welfare in relation to quarrying operations.

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Income Tax Assessment Act 1997

s 40-870 and 40-875 40-870 and 40-875 [not reproduced] 40-880 Object

Business related costs

(1) The object of this section is to make certain *business capital expenditure deductible over 5 years, or immediately in the case of some start-up expenses for small businesses, if: (a) the expenditure is not otherwise taken into account; and (b) a deduction is not denied by some other provision; and (c) the business is, was or is proposed to be carried on for a *taxable purpose. Note: If Division 250 applies to you and an asset: (a) if section 250-150 applies—you cannot deduct an amount for capital expenditure you incur in relation to the asset to the extent specified under subsection 250-150(3); or (b) otherwise—you cannot deduct an amount for such expenditure. Deduction

(2) You can deduct, in equal proportions over a period of 5 income years starting in the year in which you incur it, capital expenditure you incur: (a) in relation to your *business; or (b) in relation to a business that used to be carried on; or (c) in relation to a business proposed to be carried on; or (d) to liquidate or deregister a company of which you were a *member, to wind up a partnership of which you were a partner or to wind up a trust of which you were a beneficiary, that carried on a business. (2A) However, you can deduct the capital expenditure in the income year in which you incur it if: (a) the expenditure is incurred in relation to a business that is proposed to be carried on; and (b) the expenditure is incurred: (i) in obtaining advice or services relating to the proposed structure, or proposed operation of the business; or (ii) in payment to an *Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure; and (c) you are a *small business entity for the income year, or both of the following apply: (i) you are not carrying on a *business in the income year; (ii) you are not *connected with, or an *affiliate of, another entity that carries on a business in the income year and that is not a small business entity for the income year. Limitations and exceptions

(3) You can only deduct the expenditure, for a *business that you carry on, used to carry on or propose to carry on, to the extent that the business is carried on, was carried on or is proposed to be carried on for a *taxable purpose. (4) You can only deduct the expenditure, for a *business that another entity used to carry on or proposes to carry on, to the extent that: (a) the business was carried on or is proposed to be carried on for a *taxable purpose; and (b) the expenditure is in connection with: (i) your deriving assessable income from the business; and (ii) the business that was carried on or is proposed to be carried on. (5) You cannot deduct anything under this section for an amount of expenditure you incur to the extent that: (a) it forms part of the *cost of a *depreciating asset that you *hold, used to hold or will hold; or (b) you can deduct an amount for it under a provision of this Act other than this section; or (c) it forms part of the cost of land; or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note: Some examples of market value substitution rules are subsection 40-180(2) (table item 8), subsection 40-190(3) (table item 1) and sections 40-765 and 112-20.

(9) You cannot deduct anything under this section for an amount of expenditure you incur: (a) by way of returning an amount you have received (except to the extent that the amount was included in your assessable income or taken into account in working out an amount so included); or (b) to the extent that, for another entity, the amount is a *return on or of: (i) an *equity interest; or (ii) a *debt interest that is an obligation of yours. 40-885

Non-arm’s length transactions

If you incurred capital expenditure, or received an amount, under an *arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and (b) apart from this section:

the amount of the expenditure would be more than the *market value of what it was for; or (ii) the amount you received would be less than the market value of what it was for; the amount of expenditure, or the amount received, you take into account under this Subdivision is that market value. (i)

SUBDIVISION 40-J – CAPITAL EXPENDITURE FOR THE ESTABLISHMENT OF TREES IN CARBON SINK FORESTS GUIDE TO SUBDIVISION 40-J 40-1000

What this Subdivision is about

You can deduct amounts for capital expenditure incurred for establishing trees that meet the requirements for constituting a carbon sink forest. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-1000

(d) it is in relation to a lease or other legal or equitable right; or (e) it would, apart from this section, be taken into account in working out: (i) a profit that is included in your assessable income (for example, under section 6-5 or 15-15); or (ii) a loss that you can deduct (for example, under section 8-1 or 25-40); or (f) it could, apart from this section, be taken into account in working out the amount of a * capital gain or *capital loss from a *CGT event; or (g) a provision of this Act other than this section would expressly make the expenditure non-deductible if it were not of a capital nature; or (h) a provision of this Act other than this section expressly prevents the expenditure being taken into account as described in paragraphs (a) to (f) for a reason other than the expenditure being of a capital nature; or (i) it is expenditure of a private or domestic nature; or (j) it is incurred in relation to gaining or producing *exempt income or *non-assessable non-exempt income. (6) The exceptions in paragraphs (5)(d) and (f) do not apply to expenditure you incur to preserve (but not enhance) the value of goodwill if the expenditure you incur is in relation to a legal or equitable right and the value to you of the right is solely attributable to the effect that the right has on goodwill. (7) You cannot deduct an amount under paragraph (2)(c) in relation to a *business proposed to be carried on unless, having regard to any relevant circumstances, it is reasonable to conclude that the business is proposed to be carried on within a reasonable time. (8) You cannot deduct anything under this section for an amount of expenditure that, because of a market value substitution rule, was excluded from the *cost of a *depreciating asset or the *cost base or *reduced cost base of a *CGT asset.

ITAA 1997

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Income Tax Assessment Act 1997

s 40-1000 Operative 40-1005 40-1010 40-1015 40-1020 40-1025 40-1030 40-1035

Table of sections provisions Deduction for expenditure for establishing trees in carbon sink forests Expenditure for establishing trees in carbon sink forests Carbon sequestration by trees Certain expenditure disregarded Non-arm’s length transactions Extra deduction for destruction of trees in carbon sink forest Getting information if you acquire a carbon sink forest

OPERATIVE PROVISIONS 40-1005

Deduction for expenditure for establishing trees in carbon sink forests

(1) You can deduct an amount for an income year if: (a) you or another entity incurred capital expenditure that is covered under section 40-1010 in relation to particular trees; and (b) you satisfy a condition in subsection (5) for the trees for at least part of the income year; and (c) you are carrying on a *business in the income year; and (d) you use the land occupied by the trees for the primary and principal purpose of *carbon sequestration by the trees (see section 40-1015); and (e) your purposes in using the land occupied by the trees do not include any of the following: (i) felling the trees; (ii) using the trees for *commercial horticulture; and (f) you do not use the land in connection with: (i) a *managed investment scheme; or (ii) a *forestry managed investment scheme. (2) The amount of the deduction is worked out under this formula: Establishment expenditure ×

Write-off days in income year × Write-off rate 365

where:

establishment expenditure is the amount of expenditure mentioned in subsection (1). write-off days in income year is the number of days in the income year: (a) that occur within the period: (i) starting on the first day of the income year in which the trees are established; and (ii) ending 14 years and 105 days after that day; and (b) on which you use the land occupied by the trees for the primary and principal purpose of *carbon sequestration by the trees; and (c) on which you satisfy a condition in subsection (5) for the trees. write-off rate is 7%. (3) You cannot deduct more in total than the amount of capital expenditure incurred for establishing the trees up to the time at which they are established. (4) [Repealed] (5) The conditions are as follows: Conditions for deduction for establishing trees in carbon sink forest Item Condition 1 You own the trees and any holder of a lease, lesser interest or licence relating to the land occupied by the trees does not use the land for the primary and principal purpose of *carbon sequestration by the trees. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-1010 Conditions for deduction for establishing trees in carbon sink forest Item Condition 2 The trees occupy land you hold under a lease, or a *quasi-ownership right granted by an * exempt Australian government agency or an *exempt foreign government agency, and: (a) the lease or quasi-ownership right enables you to use the land for the primary and principal purpose of *carbon sequestration by the trees; and (b) any holder of a lesser interest or licence relating to the land does not use the land for the primary and principal purpose of carbon sequestration by the trees. 3 You: (a) hold a licence relating to the land occupied by the trees; and (b) use the land for the primary and principal purpose of *carbon sequestration by the trees, as a result of holding the licence. Expenditure for establishing trees in carbon sink forests

(1) Expenditure is covered under this section in relation to particular trees if: (a) the trees are established in an income year; and (b) you incur or another entity incurs the expenditure in the income year or an earlier income year for establishing the trees; and (c) the entity incurring the expenditure (the establishing entity) is carrying on a *business in the income year; and (d) the establishing entity’s primary and principal purpose for establishing the trees is * carbon sequestration by the trees (see section 40-1015); and (e) the establishing entity’s purposes for establishing the trees do not include any of the following: (i) felling the trees; (ii) using the trees for *commercial horticulture; and (f) the establishing entity does not incur the expenditure under: (i) a *managed investment scheme; or (ii) a *forestry managed investment scheme; and (g) all of the conditions in subsection (2) are satisfied for the trees; and (h) the establishing entity gives the Commissioner, in accordance with subsection (4), a statement that: (i) sets out all information necessary to determine whether all of the conditions in subsection (2) are satisfied for the trees; and (ii) is in the *approved form. (2) The conditions are as follows: (a) at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more; (b) at the time the trees are established, it is more likely than not that they will: (i) attain a crown cover of 20% or more; and (ii) reach a height of at least 2 metres; (c) on 1 January 1990, the area occupied by the trees was clear of other trees that: (i) attained, or were more likely than not to attain, a crown cover of 20% or more; and (ii) reached, or were more likely than not to reach, a height of at least 2 metres; (d) the establishment of the trees meets the requirements of the guidelines mentioned in subsection (3). (3) The *Climate Change Minister must, by legislative instrument, make guidelines about environmental and natural resource management in relation to the establishment of trees for the purposes of *carbon sequestration. (4) The statement mentioned in paragraph (1)(h) is to be given to the Commissioner no later than: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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40-1010

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 40 – Capital allowances

Income Tax Assessment Act 1997

s 40-1010

(a) if the establishing entity lodges its *income tax return for the income year within 5 months after the end of the income year—the day the establishing entity lodges that income tax return; or (b) otherwise—5 months after the end of the income year. (5) However, expenditure is not covered under this section if the *Climate Change Secretary gives the Commissioner a notice under subsection (6) in relation to the trees. (6) The *Climate Change Secretary must give the Commissioner a notice in writing under this subsection if the Climate Change Secretary is satisfied that one or more of the conditions in subsection (2) have not been satisfied for the trees. (7) A person may apply to the *AAT for review of a decision (as defined in the Administrative Appeals Tribunal Act 1975) of the *Climate Change Secretary to give a notice under subsection (6). (8) The Commissioner may give the *Climate Change Secretary a copy of the statement mentioned in paragraph (1)(h), for the purposes of subsections (5), (6) and (7). 40-1015

Carbon sequestration by trees

Carbon sequestration by trees means the process by which trees absorb carbon dioxide from the atmosphere. 40-1020

Certain expenditure disregarded

In working out a deduction under this Subdivision in relation to the establishment of trees, disregard expenditure incurred: (a) in draining swamp or low-lying land; or (b) in clearing land. 40-1025

Non-arm’s length transactions

If an entity incurred capital expenditure under an *arrangement and: (a) there is at least one other party to the arrangement with whom the entity did not deal at *arm’s length; and (b) apart from this section, the amount of the expenditure would be more than the *market value of what it was for;

the amount of expenditure taken into account under this Subdivision is that market value. 40-1030

Extra deduction for destruction of trees in carbon sink forest

(1) You can deduct the amount worked out under subsection (2) for an income year if: (a) you or another entity incurred capital expenditure that is covered under section 40-1010 in relation to particular trees; and (b) you use the land occupied by the trees for the primary and principal purpose of *carbon sequestration by the trees; and (c) the trees are destroyed during the income year; and (d) you satisfy a condition in subsection 40-1005(5) for the trees just before they are destroyed. (2) Work out the amount of the deduction as follows: Method statement Step 1. Work out the total of the amounts you could have deducted under this Subdivision in relation to the trees for the period: (a) starting on the first day of the income year in which the trees are established; and (b) ending when the trees were destroyed; assuming that, during that period, you satisfied a condition in the table in subsection 40-1005(5). Step 2. Subtract from the expenditure that is covered under section 40-1010 in relation to the trees: (a) the result from step 1; and (b) any amount you received (under an insurance policy or otherwise) for the destruction. The remaining amount (if positive) is your deduction under subsection (1). * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 40-1035

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

(3) This deduction is in addition to any deduction for the income year under section 40-1005. 40-1035

Getting information if you acquire a carbon sink forest

Note: Subsections (5), (6) and (7) explain how this subsection operates if the entity to which the notice is to be given is a partnership. Requirement to comply with notice

(4) The entity to whom the notice is given must not intentionally refuse or fail to comply with the notice. Penalty: 10 penalty units. Giving the notice to a partnership

(5) If the entity to whom the notice is given is a partnership: (a) you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and (b) the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them. (6) A partner must not intentionally refuse or fail to comply with that obligation. Penalty: 10 penalty units. (7) Subsection (6) does not apply if another partner has already complied with that obligation. Note: A defendant bears an evidential burden in relation to the matters in subsection (7), see subsection 13.3(3) of the Criminal Code. Limits on giving a notice

(8) Only one notice can be given in relation to the same trees. [Subdivision 40-K – Farm-in farm-out arrangements and Division 41 – Additional deduction for certain new business investment not reproduced] DIVISION 43 – DEDUCTIONS FOR CAPITAL WORKS

43-A 43-B 43-C 43-D 43-E 43-F 43-G

Table of Subdivisions Guide to Division 43 Key operative provisions Establishing the deduction base Your area and your construction expenditure Deductible uses of capital works Special rules about uses Calculation of deduction Undeducted construction expenditure

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(1) This section applies if: (a) you or another entity incurred capital expenditure; and (b) the expenditure is covered under section 40-1010 in relation to particular trees; and (c) you begin to satisfy a condition in the table in subsection 40-1005(5) for the trees. (2) You may give the last entity (if any) that satisfied a condition mentioned in subsection 401005(5) for the trees a written notice requiring the entity to give you any or all of the following information: (a) the amount of the expenditure covered under section 40-1010 in relation to the trees; (b) the income year in which the trees were established. (3) The notice must: (a) be given within 60 days of your beginning to satisfy the condition mentioned in paragraph (1)(c); and (b) specify a period of at least 60 days within which the information must be given; and (c) set out the effect of subsection (4).

Income Tax Assessment Act 1997

s 43-1 43-H

Balancing deduction on destruction of capital works

GUIDE TO DIVISION 43 43-1

What this Division is about

You can deduct certain capital expenditure on assessable income producing buildings and other capital works. This Division sets out the rules for working out those deductions.

43-2 43-2

Table of sections Key concepts used in this Division Key concepts used in this Division

The following graphic introduces the key concepts used in this Division and shows the relationships between them.

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-5

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

SUBDIVISION 43-A – KEY OPERATIVE PROVISIONS GUIDE TO SUBDIVISION 43-A 43-5

What this Subdivision is about

This Subdivision contains the key operative provisions for this Division, including all of the deduction entitlement provisions. You should read all of this Subdivision to understand how this Division works. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-5 Operative 43-10 43-15 43-20 43-25 43-30 43-40

Table of sections provisions Deductions for capital works Amount you can deduct Capital works to which this Division applies Rate of deduction No deduction until construction is complete Deduction for destruction of capital works

OPERATIVE PROVISIONS 43-10

Deductions for capital works

(1) You can deduct an amount for capital works for an income year. (2) You can only deduct the amount if: (a) the capital works have a *construction expenditure area; and (b) there is a *pool of construction expenditure for that area; and (c) you use *your area in the income year in the way set out in Table 43-140 (Current year use). Note 1: The deduction is limited to capital works to which this Division applies, see section 43-20. Note 2: Amongst other things, the definition of your area ensures that only owners and certain lessees of capital works, and certain holders of quasi-ownership rights over land on which capital works are constructed, can deduct an amount under this Division. 43-15

Amount you can deduct

(1) The amount you can deduct is a portion of *your construction expenditure. However, it cannot exceed the amount of *undeducted construction expenditure for *your area. Note: The limit in this subsection has 2 effects: • It ensures that not more than 100% of your construction expenditure can be deducted. • It imposes a time limit on the period over which your construction expenditure can be deducted. For capital works begun before 27 February 1992, that period will be 25 years if the rate of deduction is 4% or 40 years if the rate is 2.5%. For other capital works, the period will be 25 years or 40 years or some period between 25 and 40 years depending on their use.

(2) Your deduction is calculated under section 43-210 or 43-215. 43-20 Capital works to which this Division applies Buildings

(1) This Division applies to capital works being a building, or an extension, alteration or improvement to a building: (a) begun in Australia after 21 August 1979; or (b) begun outside Australia after 21 August 1990. Note: Section 43-80 explains when capital works begin. Structural improvements

(2) This Division also applies to capital works (other than capital works referred to in subsection (1)) begun after 26 February 1992 that are structural improvements, or extensions, alterations or improvements to structural improvements, whether they are in or outside Australia. (3) Some examples of structural improvements are: (a) sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields; and (b) earthworks that are integral to the construction of a structural improvement (other than a structural improvement described in subsection (4)), for example, embankments, culverts and tunnels associated with a runway, road or railway. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-40

(4) This Division does not apply to structural improvements being: (a) earthworks that: (i) are not integral to the installation or construction of a structure; and (ii) are permanent (assuming they are maintained in reasonably good order and condition); and (iii) can be economically maintained in reasonably good order and condition for an indefinite period; for example, unlined channels, unlined basins, earth tanks and dirt tracks; or (b) earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

Environment protection earthworks

(5) This Division also applies to capital works being earthworks, or extensions, alterations or improvements to earthworks, if: (a) they are constructed as a result of carrying out of *environmental protection activities; and (b) they can be economically maintained in reasonably good order and condition for an indefinite period; and (c) they are not integral to the construction of capital works; and (d) the expenditure on the capital works was incurred after 18 August 1992.

43-25

Rate of deduction

(1) For capital works begun after 26 February 1992, there is a basic entitlement to a rate of 2.5% for parts used as described in Table 43-140 (Current year use). The rate increases to 4% for parts used as described in Table 43-145 (Use in the 4% manner). (2) For capital works begun before 27 February 1992 and used as described in Table 43-140, the rate is: (a) 4% if the capital works were begun after 21 August 1984 and before 16 September 1987; or (b) 2.5% in any other case. Note: Section 43-80 explains when capital works begin. 43-30

No deduction until construction is complete

You cannot deduct an amount for any period before the completion of construction of the capital works even though you used them, or part of them, before completion. 43-35

[not reproduced]

43-40

Deduction for destruction of capital works

(1) You can deduct an amount if all or a part of *your area is destroyed in an income year and: (a) you have been allowed, or can claim, a deduction under this Division, or former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936, for your area; and (b) there is an amount of *undeducted construction expenditure for your area; and (c) you were using your area in the way that applies to it under Table 43-140 (Current year use) immediately before the destruction or, if not, neither you nor any other entity used your area for any purpose since it was last used by you in that way. (2) The deduction is allowable in the income year in which the destruction occurs, and is calculated under section 43-250. Note: The effect of this provision is to allow you to deduct an amount in the income year in which the capital works are destroyed for all of your construction expenditure that has not yet been deducted. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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Note: This subsection allows you to deduct an amount for some earthworks that are excluded by paragraph (4)(a) if the earthworks are constructed in carrying out an environmental protection activity.

Income Tax Assessment Act 1997

s 43-40 However, you must reduce the deduction by any insurance and salvage receipts. 43-45 to 43-55

[not reproduced]

SUBDIVISION 43-B – ESTABLISHING THE DEDUCTION BASE GUIDE TO SUBDIVISION 43-B 43-60

What this Subdivision is about

This Subdivision explains the meaning of the terms construction expenditure, construction expenditure area and pool of construction expenditure.

43-65 Operative 43-70 43-75 43-80 43-85 43-90 43-65

Table of sections Explanatory material provisions What is construction expenditure? Construction expenditure area When capital works begin Pools of construction expenditure Table of intended use at time of completion of construction

Explanatory material

Expenditure in respect of the construction of capital works is only eligible for a deduction under this Division if there is a construction expenditure area for the capital works. The area defined as the construction expenditure area may comprise the whole of the capital works or only part of them. Whether there is a construction expenditure area for capital works and how it is identified depends on the following factors: • the type of expenditure incurred; • the time when the capital works began; • the area of the capital works that is to be owned, leased or held by the entity that incurred the expenditure; • for capital works begun before 1 July 1997, the area of the capital works that was to be used in a particular manner. A pool of construction expenditure is that part of an amount of construction expenditure that is attributable to a particular construction expenditure area. OPERATIVE PROVISIONS 43-70

What is construction expenditure?

(1) Construction expenditure is capital expenditure incurred in respect of the construction of capital works. (2) Construction expenditure does not include: (a) expenditure on acquiring land; or (b) expenditure on demolishing existing structures; or (c) expenditure on clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation works; or (d) expenditure on landscaping; or (e) expenditure on *plant; or (f) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for the *purpose of producing assessable income, under: (i) Subdivision 40-F (about primary production depreciating assets), Subdivision 40-G (about capital expenditure of primary producers and other landholders), Subdivision 40-H (about capital expenditure that is immediately deductible) or Subdivision 40-I (about capital expenditure that is deductible over time); or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(fa)

(g) (h) (i)

the former Division 330 of this Act or the former Division 10, 10AAA or 10AA of Part III of the Income Tax Assessment Act 1936 (all of which dealt with mining and/or quarrying); or (iii) section 73A of the Income Tax Assessment Act 1936 (about expenditure on scientific research); or (iv) the former Subdivision 387-A of this Act or the former section 75D of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure to prevent land degradation); or (v) the former Subdivision 387-B of this Act or the former section 75B of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure on facilities to conserve or convey water); or (vi) the former Subdivision 387-G of this Act or the former section 124F or 124JA of the Income Tax Assessment Act 1936 (all of which allowed deductions for capital expenditure on forestry roads and/or timber mill buildings); or any of these kinds of expenditure if a deduction is allowable for the expenditure, or would be allowable if property had been used for the purpose of producing assessable income: (i) *mining capital expenditure or *transport capital expenditure; (ii) expenditure on a *forestry road in connection with carrying on a *timber operation for a *taxable purpose; (iii) expenditure for the construction or acquisition of a *timber mill building; (iv) expenditure on a *depreciating asset you can deduct under subsection 40-80(1) (about exploration and prospecting); or expenditure on property for which a deduction under section 355-305 or 355-520 is allowable for the property, or would be allowable if the property were for use for conducting *R&D activities; or eligible heritage conservation expenditure within the meaning of the former Subdivision AAD of Division 17 of Part III of the Income Tax Assessment Act 1936; or expenditure that you cannot deduct because of section 26-100 (about water infrastructure improvement expenditure).

43-72

[not reproduced]

43-75

Construction expenditure area

(1) The construction expenditure area of capital works begun after 30 June 1997 is the part of the capital works on which the *construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency. Note: Section 43-80 explains when capital works begin.

(2) The construction expenditure area of capital works begun before 1 July 1997 is the part of the capital works on which the *construction expenditure was incurred that: (a) at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency; and (b) at the time of completion of construction, was to be used in the way described in Column 3 of Table 43-90 (intended use at completion) for the time period when the capital works began as set out in Column 1. (3) There is taken to be a construction expenditure area for capital works purchased by an entity from another entity if: (a) the capital works would have had a construction expenditure area but for the fact that the other entity did not incur capital expenditure in constructing the capital works; and (b) the other entity is not an *associate of the entity; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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(ii)

ITAA 1997

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

Income Tax Assessment Act 1997

s 43-75

(c) the other entity constructed the capital works on land that it owned or leased in the course of a business that included the construction and sale of capital works of that kind. Note: Subsection (3) makes capital works purchased from a speculative builder eligible for deduction in the hands of the first and subsequent purchasers.

(4) The construction of the capital works must be complete before the *construction expenditure area is determined. (5) Only one *construction expenditure area is created each time an entity constructs capital works. Example: An entity undertakes the construction of a building. During the course of construction, the entity makes 3 progress payments to the builder. There is still only one construction expenditure area.

(6) A separate *construction expenditure area will be created each time an entity undertakes the construction of capital works.

43-80

When capital works begin

Capital works are taken to begin when the first step in the construction phase starts. For example, the pouring of foundations or sinking of pilings for a building. Note 1: Capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220. Note 2: The time when capital works begin is relevant for determining whether the capital works qualify for deduction, the use to which those works must be put, the rate of deduction and the calculation mechanism used. However, the time when capital works begin does not limit what qualifies as construction expenditure. 43-85

Pools of construction expenditure

(1) A pool of construction expenditure is so much of the *construction expenditure incurred by an entity on capital works as is attributable to the *construction expenditure area. (2) In applying subsection (1) in a case to which subsection 43-75(3) (dealing with purchases from speculative builders) applies, assume that the expenditure incurred by the other entity was capital expenditure, but that the limitations in subsection 43-70(2) (which sets out types of expenditure that are not *construction expenditure) still apply to the other entity’s expenditure. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-90 Note: The builder’s profit margin does not form part of the construction expenditure of the purchaser. Table of intended use at time of completion of construction

Column 1 Date capital works begin Time period 1: 22/8/79 to 19/7/82 (inclusive)

Column 2 Type of capital works Hotel building

Column 3 Intended use on completion

For use by any entity wholly or mainly to operate a hotel, motel or guest house that has at least 10 bedrooms that are for use wholly or mainly to provide short-term accommodation for travellers. Apartment building The building consisted of: (a) at least 10 apartments, units or flats each of which was for use wholly or mainly to provide short-term accommodation for travellers; or (b) at least 10 apartments, units or flats each of which was for use for that purpose and facilities that are wholly or mainly for use in association with providing short-term accommodation for travellers in those apartments, units or flats. Time period 2: Hotel building As for time period 1. 20/7/82 to 17/7/85 Apartment building As for time period 1. (inclusive) Non-residential For: building (a) use by the entity that incurred the expenditure for the * purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income. Time period 3: Any building For: 18/7/85 to 20/11/87 (a) use by the entity that incurred the expenditure for the * (inclusive) purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation. Time period 4: Any building For: 21/11/87 to 26/2/92 (a) use by the entity that incurred the expenditure for the * (inclusive) purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation; or (d) use by the entity that incurred the expenditure to carry on research and development activities (within the meaning of former section 73B of the Income Tax Assessment Act 1936) by or for that entity, or for disposal by that entity to another entity for use by the other entity for carrying on research and development activities (within the meaning of that former section) by or for the other entity. Time period 5: Hotel building As for time period 1. 27/2/92 to 18/8/92 Apartment building As for time period 1. (inclusive) Other buildings As for any building in time period 4. Structural As for any building in time period 4. improvements * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

Income Tax Assessment Act 1997

s 43-90 Column 1 Date capital works begin Time period 6: 19/8/92 to 30/6/97 (inclusive)

Column 2 Type of capital works Hotel building Apartment building Other buildings Structural improvements Environment protection earthworks

Column 3 Intended use on completion As As As As

for for for for

time period 1. time period 1. any building in time period 4. any building in time period 4.

As for any building in time period 4.

Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example, certain facilities that are not commonly provided in a hotel, motel or guest house in Australia are taken not to be used or for use to operate a hotel, motel or guest house, see subsection 43-180(6). 43-95 and 43-100

[not reproduced]

SUBDIVISION 43-C – YOUR AREA AND YOUR CONSTRUCTION EXPENDITURE GUIDE TO SUBDIVISION 43-C 43-105

What this Subdivision is about

This Subdivision explains your area and your construction expenditure.

43-110 Operative 43-115 43-120 43-125 43-130 43-110

Table of sections Explanatory material provisions Your area and your construction expenditure—owners Your area and your construction expenditure—lessees and quasi-ownership right holders Lessees’ or right holders’ pools can revert to owner Identifying your area on acquisition or disposal

Explanatory material

You can only get a deduction under this Division for an income year if you own, lease or hold part of a construction expenditure area of capital works. The area you own, lease or hold is called your area. In working out your deductions, you must identify your area for each construction expenditure area of the capital works. Your area may comprise the whole of the construction expenditure area or part of it. Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)). OPERATIVE PROVISIONS 43-115

Your area and your construction expenditure—owners

(1) Your area is the part of the *construction expenditure area that you own. (2) Your construction expenditure is the portion of the *pool of construction expenditure that is attributable to your area. 43-120 Your area and your construction expenditure—lessees and quasi-ownership right holders Own expenditure

(1) Your area is the part of the *construction expenditure area that you lease, or hold under a quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and that:

*

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-135

(a) is attributable to a *pool of construction expenditure that you incurred; and (b) you have continuously leased or held since the construction was completed.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

Earlier lessees’ or holders’ expenditure

(2) Your area is the part of the *construction expenditure area that you lease, or hold under a quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and that: (a) is attributable to a *pool of construction expenditure incurred by another lessee or holder of a quasi-ownership right over land; and (b) has been continuously leased or held since the construction was completed by the lessee or holder who incurred the expenditure or an assignee of that lessee’s lease or that holder’s quasi-ownership right over land. (3) Your construction expenditure is the portion of the *pool of construction expenditure that is attributable to your area. *

Lessees’ or right holders’ pools can revert to owner

(1) An amount that relates to a *pool of construction expenditure that arises as a result of expenditure incurred by a lessee or a holder of a *quasi-ownership right over land: (a) can only be deducted by a lessee or a holder of a quasi-ownership right over land who satisfies subsection 43-120(1) or (2); and (b) cannot be deducted by the owner of the capital works while there is a lessee or a holder of a quasi-ownership right over land who satisfies that subsection. (2) The owner of the capital works may deduct an amount that relates to that pool if there is no longer a lessee or a holder of a *quasi-ownership right over land who satisfies subsection 43-120(1) or (2). 43-130

Identifying your area on acquisition or disposal

There will be a separate *your area at each time in an income year when you: (a) acquire an additional part of a *construction expenditure area; or (b) dispose of some but not all of a construction expenditure area. Example: You own half of a building (part A) throughout the income year, and you acquire the other half (part B) on 1 January. This section ensures that part A is your area for the entire year and that part B is your area for the second 6 months of the year. Note: This ensures that the same area is not counted twice in calculating your deduction. You will have to make separate deduction calculations if you have identified more than one area as your area of the capital works. SUBDIVISION 43-D – DEDUCTIBLE USES OF CAPITAL WORKS GUIDE TO SUBDIVISION 43-D 43-135

What this Subdivision is about

You can only get a deduction under this Division if you use your area in a way described in Table 43-140 or 43-145 of this Subdivision.

Operative 43-140 43-145 43-150

Table of sections provisions Using your area in a deductible way Using your area in the 4% manner Meaning of industrial activities

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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43-125

Income Tax Assessment Act 1997

s 43-140 OPERATIVE PROVISIONS 43-140

Using your area in a deductible way

(1) The following table sets out the way you must use *your area in an income year for a deduction to be allowed under section 43-10 (the main deduction provision). The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use. Table 43-140—Current year use Column 1 Column 2 Date capital works Type of capital begin works Time period 1: Any capital works After 30/6/97 Time period 2: 27/2/92 to 30/6/97 (inclusive)

*

Hotel building

Column 3 Use of your area at some time in the income year You use *your area for the purpose of: (a) producing assessable income; or (b) conducting *R&D activities. You use *your area for the *purpose of producing assessable income.

*

Time period 3: Before 27/2/92

Apartment You use *your area for the *purpose of producing assessable building income. Other capital works You use *your area for the purpose of: (a) producing assessable income; or (b) conducting *R&D activities. * Hotel building You use *your area for the *purpose of producing assessable income and: (a) all or part of that area is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. * Apartment Other capital works You use *your area for the *purpose of producing assessable income and: building (a) that area is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that area is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). Other capital works You use *your area for the purpose of: (a) producing assessable income; or (b) conducting *R&D activities.

Note 1: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example: • Your area is taken to be used, for use or available for use for a purpose or in a way if it is maintained ready for use for that purpose or in that way. See section 43-160. • R&D activities must be conducted in connection with a business carried on for the purpose of producing assessable income, see section 43-195. Note 2: If Division 250 applies to you and an asset that is a capital work: (a) if section 250-150 applies—you are taken not to be using the capital work for the purpose of producing assessable income, or for the purpose of conducting R&D activities, to the extent specified under subsection 250-150(3); or * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-145 (b)

otherwise—you are taken not to be using the capital work for such a purpose.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

(2) This Division applies to an entity as if the entity used property for the *purpose of producing assessable income if the entity uses the property for: (a) *environmental protection activities; or (b) the environmental impact assessment of a project; unless a provision of this Act expressly provides that that use is not for the purpose of producing assessable income. 43-145

Using your area in the 4% manner

Table 43-145—Use Column 1 Date capital works begin Time period 1: After 30/6/97

in the 4% manner Column 2 Type of capital works Capital works that are buildings

Time period 2: 27/2/92 to 30/6/97 (inclusive)

*

Hotel building

*

Apartment building

Column 3 Use of a part of *your area at some time in the income year You use the part of *your area for the *purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. You use the part of *your area for the *purpose of producing assessable income and: (a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). You use the part of *your area for the *purpose of producing assessable income, and that part is used by any entity: (a) wholly or mainly for *industrial activities; or (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. You use the part of *your area for the *purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short-term accommodation for travellers. You use the part of *your area for the *purpose of producing assessable income and:

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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You use a part of *your area in the 4% manner if you use it as described in the following Table. The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use.

Income Tax Assessment Act 1997

s 43-145 Table 43-145—Use Column 1 Date capital works begin

in the 4% manner Column 2 Column 3 Type of capital Use of a part of *your area at some time in the income year works (a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short-term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short-term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short-term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). Other buildings You use the part of *your area for the *purpose of producing assessable income, and that part is used by any entity: (a) wholly or mainly for *industrial activities; or (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers.

Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43-E (sections 43-155 to 43-195). For example: • Your area is taken to be used, for use or available for use for a purpose or in a way if it is maintained ready for use for that purpose or in that way. See section 43-160. • A suite of rooms in a hotel building may be treated as one bedroom, see subsection 43-180(2). 43-150

Meaning of industrial activities

Industrial activities means: (a) any of the following activities (core activities): (i) operations where manufactured items are derived from other goods even if those manufactured items are themselves used as parts or materials in the manufacture of other items; (ii) operations (other than packing, placing in containers or labelling) by which manufactured items are brought into or maintained in the form or condition in which they are sold or used, even if they are for sale or use as parts or materials in the manufacture of other items; (iii) the separation of a metal or a compound of a metal from its ore (not including crushing, grinding, breaking, screening or sizing to facilitate that separation) or the treatment or processing of a metal or a compound of a metal after its separation; (iv) for a metal or a compound of a metal not requiring separation—applying to the metal or compound a treatment or process which, if the metal or compound had required separation, would not have been applied until after the separation; (v) refining *petroleum; (vi) scouring or carbonising wool; (vii) milling timber; (viii) freezing primary products; * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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printing, lithographing or engraving, or a similar process, in the course of carrying on a business as a publisher, printer, lithographer or engraver; (x) curing meat or fish; (xi) producing chilled or frozen meat; (xii) pasteurising milk; (xiii) canning or bottling foodstuffs; (xiv) producing electric current, hydraulic power, steam, compressed air or gases (other than natural gas) for the purpose of sale, or use wholly or mainly in carrying on another activity mentioned in this paragraph; or (b) any of the following activities: (i) the packing, placing in containers or labelling of any goods resulting from the carrying on of core activities; (ii) the disposal of waste substances resulting from the carrying on of core activities; (iii) the cleansing or sterilising of bottles, vats or other containers used by the entity to store goods to be used in carrying on core activities or goods resulting from the carrying on of core activities; (iv) the assembly, maintenance, cleansing, sterilising or repair of property used in carrying on core activities; (v) the storage, within premises in which core activities are carried on, or premises contiguous to those premises, of goods in carrying on core activities, goods in relation to which core activities have commenced but not finally been completed or goods resulting from core activities; but does not include the preparation of food or drink (whether for consumption on the premises where it is prepared or elsewhere) in, or in premises occupied in connection with, a hotel, motel, boarding house, catering establishment, restaurant, cafe, milk-bar, coffee shop, retail shop or similar establishment. SUBDIVISION 43-E – SPECIAL RULES ABOUT USES GUIDE TO SUBDIVISION 43-E 43-155

What this Subdivision is about

This Subdivision contains special rules about uses of capital works. It is relevant to whether you can get a deduction for capital works and also to the rate of that deduction. The rules in this Subdivision affect the uses of capital works described in Tables 43-90, 43-140 and 43-145.

Operative 43-160 43-165 43-170

Table of sections provisions Your area is used for a purpose if it is maintained ready for use for the purpose Temporary cessation of use Own use—capital works other than hotel and apartment buildings

OPERATIVE PROVISIONS 43-160

Your area is used for a purpose if it is maintained ready for use for the purpose

A part of *your area is taken to be used, for use or available for use for a particular purpose or in a particular manner at a time if, at that time: (a) it was maintained ready for use for that purpose or in that manner; and (b) it was not used or for use for any other purpose or in any other manner; and (c) its use or intended use for that purpose or in that manner had not been abandoned. Note 1: Construction must be complete before you can deduct an amount, see section 43-30. Note 2: This section affects Tables 43-140 and 43-145. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-160

(ix)

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Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

Income Tax Assessment Act 1997

s 43-165 43-165 Temporary cessation of use

A part of *your area is taken to be used, for use or available for use for a particular purpose or in a particular manner if its use for that purpose or in that manner temporarily ceases because of: (a) the construction of an extension, alteration or improvement, or the making of repairs; or (b) seasonal or climatic factors. Note: This section affects Tables 43-140 and 43-145. 43-170

Own use—capital works other than hotel and apartment buildings

(1) A part of capital works, other than a *hotel building or an *apartment building, is taken not to be used for the *purpose of producing assessable income if that part is for use mainly for, or in association with, residential accommodation by you or an *associate. Note: This subsection affects Tables 43-140 and 43-145.

(2) Subsection (1) does not apply to use by an *associate under an *arrangement: (a) to which you and the associate are parties; and (b) that is of a kind that the parties could reasonably be expected to have entered into if they had been dealing with each other at *arm’s length; and (c) that was not entered into for the purpose of obtaining a deduction under this Division. (3) not reproduced 43-175 to 43-195

[not reproduced]

SUBDIVISION 43-F – CALCULATION OF DEDUCTION GUIDE TO SUBDIVISION 43-F 43-200

What this Subdivision is about

This Subdivision shows you how to calculate the amount of a deduction under section 43-10. The calculations must be made separately for each area that is identified as your area. There are 2 separate calculation provisions: One for capital works begun before 27 February 1992; and the other for capital works begun after 26 February 1992.

43-205 Operative 43-210 43-215 43-205

Table of sections Explanatory material provisions Deduction for capital works begun after 26 February 1992 Deduction for capital works begun before 27 February 1992

Explanatory material

Capital works begun before 27 February 1992 The calculation for these works is based on *your construction expenditure and the applicable rate of deduction. There can be only one rate of deduction that applies to *your area. However, reductions of deductions may apply. You must reduce your deduction for any period in the income year that you did not own *your area and use it in the way described in Table 43-140 (Current year use). Because there are 2 use tests in Table 43-140 for * hotel buildings and *apartment buildings (a general income producing test and a more specific hotel and short-term traveller accommodation use test), there are 2 reduction steps. The first step reduces your deduction if part of *your area was not used as a *hotel building or *apartment building. The second step reduces the deduction to the extent that your area is used only partly for the * purpose of producing assessable income. This occurs, for example, if you *derive both assessable and exempt income, or if part of your area is not used to produce assessable income for all or part of the period it was used as a hotel building or apartment building. Capital works begun after 26 February 1992 The calculation for these works is based on a portion of *your construction expenditure and the applicable rate of deduction. There can be 2 rates of deduction for your area depending on the way you use it. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-210 If 2 rates apply, there will be a separate calculation for the part of *your area used in the way described in Table 43-140 and for the part of *your area used in the way described in Table 43-145 (Use in the 4% manner). A gross deduction and subsequent reduction is calculated for each. The reduction is the same as the second reduction for capital works begun before 27 February 1992.

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

OPERATIVE PROVISIONS 43-210

Deduction for capital works begun after 26 February 1992

Step 1 Calculate the amount worked out using the formula: Portion of your CE × Days used × 0.04 365 where:

Step 2 Reduce the Step 1 amount by the extent to which the part referred to in Step 1 was used only partly for the *purpose of producing assessable income. Note: This Step applies if: • part of your income from the part referred to in Step 1 is exempt income; or • part of the part referred to in Step 1 was not used for the purpose of producing assessable income or was not available for that use; or • the part of the part referred to in Step 1 was not used for such a purpose during a part of the days used period. Step 3 Calculate the amount worked out using the formula: Portion of your CE × Days used × 0.025 365 where:

portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you did not use in the *4% manner but was used as described in Table 43-140 (Current year use). days used is the number of days in the income year that: (a) you owned or were the lessee of that part of *your area and used it in that manner; or (b) you were the holder of that part of *your area under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in that manner. Step 4 Reduce the Step 3 amount by the extent to which the part referred to in Step 3:

(a) for a *hotel building or *apartment building—was used only partly for the * purpose of producing assessable income; or (b) for any other capital works—was used only partly for the purpose of *producing assessable income or conducting *R&D activities. Note: This Step applies if: • part of your income from the part referred to in Step 3 is exempt income; or • part of the part referred to in Step 3 was not used for the purpose of producing assessable income (or R&D activities) or was not available for that use; or • the part of the part referred to in Step 3 was not used for such a purpose during a part of the days used period. Step 5 Add the Step 2 and Step 4 amounts. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you used in the *4% manner. days used is the number of days in the income year that: (a) you owned or were the lessee of that part of *your area and used it in the *4% manner; or (b) you were the holder of that part of *your area under a *quasi-ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in the 4% manner.

Income Tax Assessment Act 1997

s 43-210 Step 6 The amount of your deduction is the lesser of your Step 5 amount or the *undeducted construction expenditure for *your area. 43-215

Deduction for capital works begun before 27 February 1992

Step 1 Calculate the amount worked out using the formula: Your CE × Days used × Applicable rate 365 where:

your CE is *your construction expenditure. days used is the number of days in the income year that you owned or were the lessee of *your area and used it in the way that applies to the capital works under Table 43-140 (Current year use). applicable rate is: (a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or (b) 0.025 in any other case. Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220. Step 2 This step applies only to *hotel buildings and *apartment buildings. Reduce the Step 1 amount by the extent to which:

for a hotel building—any part of *your area was not used wholly or mainly to operate a hotel, motel or guest house; or (b) for an apartment building—any part of *your area was not used wholly for or in association with providing short-term accommodation for travellers. (a)

Step 3 Reduce the Step 1 or 2 amount by the extent to which:

(a) for a *hotel building or *apartment building—*your area was used only partly for the *purpose of producing assessable income; or (b) for any other capital works—*your area was used only partly for the *purpose of producing assessable income or conducting *R&D activities. Note: This Step applies if: • part of your income from the capital works is exempt income; or • part of the capital works were not used for the purpose of producing assessable income or were not available for that use; or • the capital works were not used for such a purpose during a part of the days used period. Step 4 The amount of your deduction is the lesser of your Step 3 amount or the *undeducted construction expenditure for *your area. 43-220

[not reproduced]

SUBDIVISION 43-G – UNDEDUCTED CONSTRUCTION EXPENDITURE GUIDE TO SUBDIVISION 43-G 43-225

What this Subdivision is about

The undeducted construction expenditure for your area is the part of your construction expenditure you have left to write off. It is used to work out: • the number of years in which you can deduct amounts for your construction expenditure; and • the amount that you can deduct under section 43-40 if your area or a part is destroyed. Table of sections Operative provisions * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-240 43-230 43-235 43-240

Calculating undeducted construction expenditure—common step Post-26 February 1992 undeducted construction expenditure Pre-27 February 1992 undeducted construction expenditure

CORE TAX

Part 2-10 – Capital allowances: rules about deductibility of capital expenditure Division 43 – Deductions for capital works

OPERATIVE PROVISIONS 43-230

Calculating undeducted construction expenditure—common step

(1) Identify the date when the capital works began. Note 1: The date determines whether your calculation is to be made under section 43-235 (for post-26/2/92 expenditure) or 43-240 (for pre-27/2/92 expenditure). Note 2: Section 43-80 explains when capital works begin.

(2) If you are calculating a deduction under Subdivision 43-F, identify the period (use period) that: (a) started when *your area, or a part of it, was first used by any entity for any purpose after completion of the relevant construction; and (b) ended at the end of the preceding income year or, if you acquired your area during the income year, at the end of the day before the time of the acquisition. (3) If you are calculating a deduction under Subdivision 43-H, identify the period (use period) that started at the time described in paragraph (2)(a) and ended at the time of the destruction. 43-235

Post-26 February 1992 undeducted construction expenditure ITAA 1997

Step 1 Calculate for each day in the use period the amount worked out using the formula: Portion of your CE × 0.04 365 where:

portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you used in the *4% manner. Step 2 Calculate for each day in the use period the amount worked out using the formula: Portion of your CE × 0.025 365 where:

portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you did not use in the *4% manner. Step 3 Add the aggregate of the amounts calculated under Steps 1 and 2. Step 4 Deduct the sum of those amounts from *your construction expenditure. The result is the undeducted construction expenditure for *your area. 43-240

Pre-27 February 1992 undeducted construction expenditure

Step 1 Calculate for each day in the use period the amount worked out using the formula: your CE × applicable rate 365 where:

your CE is *your construction expenditure. applicable rate is: (a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or (b) 0.025 in any other case. Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43-220. Step 2 Deduct the sum of the amounts calculated under Step 1 from *your construction expenditure. The result is the undeducted construction expenditure for *your area. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 43-245 SUBDIVISION 43-H – BALANCING DEDUCTION ON DESTRUCTION OF CAPITAL WORKS GUIDE TO SUBDIVISION 43-H 43-245

What this Subdivision is about

You may deduct an amount for the undeducted construction expenditure for your area if your area or part of it is destroyed in the circumstances described in section 43-40. This Subdivision shows you how to work out that deduction. The calculations in this Subdivision are made separately for each part of the capital works that is identified as your area.

Operative 43-250 43-255 43-260

Table of sections provisions The amount of the balancing deduction Amounts received or receivable Apportioning amounts received for destruction

OPERATIVE PROVISIONS 43-250

The amount of the balancing deduction

Method statement Step 1. Calculate the amount (if any) by which the *undeducted construction expenditure for the part of *your area that was destroyed exceeds the amounts you have received or have a right to receive for the destruction of that part. Step 2. Reduce the amount at Step 1 if one or more of these happened to that part of *your area: (a) Step 2 or 4 in section 43-210, or Step 2 or 3 in section 43-215, applied to you or another person for it; (b) you were, or another person was, not allowed a deduction for it under this Division; (c) a deduction for it was not allowed or was reduced (for you or another person) under former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936. The reduction under this step must be reasonable. 43-255

Amounts received or receivable

The amounts you have received or have a right to receive for the destruction of that part of *your area include: (a) an amount received under an insurance policy or otherwise for the destruction of that part; and (b) an amount received for disposing of property that was included in that part of your area, less any demolition expenditure incurred on the property. 43-260

Apportioning amounts received for destruction

If an amount received or receivable in respect of the destruction of property relates to both the part of *your area for which you are claiming the balancing deduction and to property: (a) the cost of which did not form part of *your construction expenditure; or (b) that is capital works that was not part of your area;

you must apportion the amount received or receivable to the amount that is attributable to the part of your area that was destroyed. The apportionment must be reasonable. [Division 45 – Disposal of leases and leased plant not reproduced]

Part 2-15 – Non-assessable income DIVISION 50 – EXEMPT ENTITIES Table of Subdivisions 50-A

Various exempt entities

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 50-10 50-B

Endorsing charitable entities as exempt from income tax

CORE TAX

Part 2-15 – Non-assessable income Division 50 – Exempt entities

SUBDIVISION 50-A – VARIOUS EXEMPT ENTITIES

50-1

Table of sections Entities whose ordinary income and statutory income is exempt Charity, education and science Community service Employees and employers Government Health Mining Primary and secondary resources, and tourism Sports, culture and recreation Special condition for all items Special conditions for item 1.1 Special condition for item 1.1 Special conditions for items 1.3, 1.4, 6.1 and 6.2 Entities whose ordinary income and statutory income is exempt

The total *ordinary income and *statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions. Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20. The note to subsection 6-15(2) describes some of the other consequences of it being exempt income. Note 2: Even if you are an exempt entity, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936. Note 3: In all cases the exemption is subject to the special condition in section 50-47 (about an entity that is an ACNC type of entity). 50-5

Charity, education and science

Charity, education, science and religion Item Exempt entity 1.1 registered charity 1.3 scientific institution 1.4 public educational institution 1.6 fund established to enable scientific research to be conducted by or in conjunction with a public university or public hospital 1.7 society, association or club established for the encouragement of science

Special conditions see sections 50-50 and 50-52 see section 50-55 see section 50-55 see section 50-65 see section 50-70

Note 1: Section 50-52 has the effect that certain charities are exempt from income tax only if they are endorsed under Subdivision 50-B. Note 2: Section 50-80 may affect which item a trust is covered by. 50-10

Community service

Community service Item Exempt entity 2.1 society, association or club established for community service purposes (except political or lobbying purposes)

Special conditions see section 50-70

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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50-1 50-5 50-10 50-15 50-25 50-30 50-35 50-40 50-45 50-47 50-50 50-52 50-55

Income Tax Assessment Act 1997

s 50-15 50-15 Employees and employers Employees and employers Item Exempt entity 3.1 (a) employee association; or (b) employer association

3.2

50-25

trade union

Special conditions the association: (a) is registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an *Australian law relating to the settlement of industrial disputes; and (b) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia; and (c) complies with all the substantive requirements in its governing rules; and (d) applies its income and assets solely for the purpose for which the association is established the trade union: (a) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia; and (b) complies with all the substantive requirements in its governing rules; and (c) applies its income and assets solely for the purpose for which the trade union is established

Government

Government Item Exempt entity 5.1 (a) a municipal corporation; or (b) a *local governing body 5.2 a public authority constituted under an *Australian law 5.3 a *constitutionally protected fund

Special conditions none none none

Note: The ordinary and statutory income of a State or Territory body is exempt: see Division 1AB of Part III of the Income Tax Assessment Act 1936. 50-30 Health Item 6.1 6.2 6.3

50-35 Mining Item 7.2

Health Exempt entity public hospital hospital carried on by a society or association private health insurer within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015

Special conditions see section 50-55 not carried on for the profit or gain of its individual members, see also section 50-55 not carried on for the profit or gain of its individual members

Mining Exempt entity the British Phosphate Commissioners Banaba Contingency Fund (established on 1 June 1981)

Special conditions none

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 50-47 Primary and secondary resources, and tourism

Primary and secondary resources, and tourism Item Exempt entity 8.1 a society or association established for the purpose of promoting the development of: (a) aviation; or (b) tourism 8.2 a society or association established for the purpose of promoting the development of any of the following Australian resources: (a) agricultural resources; (b) horticultural resources; (c) industrial resources; (d) manufacturing resources; (e) pastoral resources; (f) viticultural resources; (g) aquacultural resources; (h) fishing resources 8.3 a society or association established for the purpose of promoting the development of Australian information and communications technology resources 8.4 Global Infrastructure Hub Ltd

50-45

Special conditions not carried on for the profit or gain of its individual members not carried on for the profit or gain of its individual members

not carried on for the profit or gain of its individual members only amounts included as *ordinary income or *statutory income: (a) on or after 24 December 2014; and (b) before 1 July 2023

Sports, culture and recreation

Sports, culture, film and recreation Item Exempt entity 9.1 a society, association or club established for the encouragement of: (a) animal racing; or (b) art; or (c) a game or sport; or (d) literature; or (e) music 9.2 a society, association or club established for musical purposes 9.3 ICC Business Corporation FZ-LLC

Special conditions see section 50-70

see section 50-70 both of the following: (a) the entity is a *wholly-owned subsidiary of International Cricket Council Limited; (b) only amounts included as * ordinary income or *statutory income:

(i)

on or after 1 July 2018; and (ii) before 1 July 2023 50-47

Special condition for all items

An entity that: (a) is covered by any item; and * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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CORE TAX

Part 2-15 – Non-assessable income Division 50 – Exempt entities

Income Tax Assessment Act 1997

s 50-47 (b)

is an *ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for-profits Commission Act 2012. 50-50

Special conditions for item 1.1

(1) An entity covered by item 1.1 is not exempt from income tax unless the entity: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or (d) is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia; and the entity satisfies the conditions in subsection (2). Note 1: Certain distributions may be disregarded: see section 50-75. Note 2: The entity must also meet other conditions to be exempt from income tax: see section 50-52.

(2) The entity must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. 50-52

Special condition for item 1.1

(1) An entity covered by item 1.1 is not exempt from income tax unless the entity is endorsed as exempt from income tax under Subdivision 50-B. (3) This section has effect despite all the other sections of this Subdivision. 50-55

Special conditions for items 1.3, 1.4, 6.1 and 6.2

(1) An entity covered by item 1.3, 1.4, 6.1 or 6.2 is not exempt from income tax unless the entity: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or (b) is an institution that meets the description and requirements in item 1 of the table in section 30-15; or (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; and the entity satisfies the conditions in subsection (2). Note: Certain distributions may be disregarded: see section 50-75.

(2) The entity must: (a) comply with all the substantive requirements in its governing rules; and (b) apply its income and assets solely for the purpose for which the entity is established. 50-65 to 50-75

[not reproduced]

SUBDIVISION 50-B – ENDORSING CHARITABLE ENTITIES AS EXEMPT FROM INCOME TAX GUIDE TO SUBDIVISION 50-B 50-100

What this Subdivision is about

This Subdivision sets out rules about endorsement of charities as exempt from income tax. Such entities are only exempt from income tax if they are endorsed. Table of sections Endorsing charitable entities as exempt from income tax * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 50-110 50-105 50-110

Endorsement by Commissioner Entitlement to endorsement

CORE TAX

Part 2-15 – Non-assessable income Division 51 – Exempt amounts

ENDORSING CHARITABLE ENTITIES AS EXEMPT FROM INCOME TAX 50-105

Endorsement by Commissioner

The Commissioner must endorse an entity as exempt from income tax if the entity: (a) is entitled to be endorsed as exempt from income tax; and (b) has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953. Note: For procedural rules relating to endorsement, see Division 426 in Schedule 1 to the Taxation Administration Act 1953. 50-110 Entitlement to endorsement General rule

(1) An entity is entitled to be endorsed as exempt from income tax if the entity meets all the relevant requirements of this section. Which entities are entitled to be endorsed?

(2) To be entitled, the entity must be an entity covered by item 1.1 of the table in section 50-5. Requirement for ABN ITAA 1997

(3) To be entitled, the entity must have an *ABN. (4) [Repealed] Requirement to meet special conditions

(5) To be entitled: (a) the entity must meet the relevant conditions referred to in the column headed “Special conditions” of item 1.1 of the table in section 50-5; or (b) both of the following conditions must be met: (i) the entity must not have carried on any activities as a charity; (ii) there must be reasonable grounds for believing that the entity will meet the relevant conditions referred to in the column headed “Special conditions” of item 1.1 of the table. The entity must also satisfy section 50-47, if the entity is an *ACNC type of entity. (6) To avoid doubt, the condition set out in section 50-52 (requiring the entity to be endorsed under this Subdivision) is not a relevant condition for the purposes of subsection (5). DIVISION 51 – EXEMPT AMOUNTS 51-1 51-5 51-10 51-30 51-32 51-33 51-35 51-40 51-42 51-43 51-50 51-57 51-100 51-105 51-110

Table of sections Amounts of ordinary income and statutory income that are exempt Defence Education and training Welfare Compensation payments for loss of deployment allowance for warlike service Compensation payments for loss of pay and/or allowances as a Defence reservist Payments to a full-time student at a school, college or university Payments to a secondary student Bonuses for early completion of an apprenticeship Income collected or derived by copyright collecting society Maintenance payments to a spouse or child Interest on judgment debt relating to personal injury Shipping Shipping activities Core shipping activities

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 51-1 Incidental shipping activities 2018 storms—relief payments

51-115 51-125 51-1

Amounts of ordinary income and statutory income that are exempt

The amounts of *ordinary income and *statutory income covered by the following tables are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both. Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20. The note to subsection 6-15(2) describes some of the other consequences of it being exempt income. Note 2: Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936. 51-5

Defence

Defence Item 1.1

1.1A 1.2 1.4

1.5

1.6

1.7

... the following amounts are If you are: exempt from income tax: a member of the Defence Force (a) payments of allowances or bounty of a kind prescribed in the regulations; and (b) the *market value of rations and quarters supplied to you without charge a member of the Defence Force compensation payments for loss of deployment allowance for warlike service a recipient of a payment in respect payments of allowances or bounty of a member of the Defence Force of a kind prescribed in the regulations a member of: pay and allowances as a member (a) the Naval Reserve; or (b) the Army Reserve; or (c) the Air Force Reserve a former member of: compensation payments for loss of (a) the Naval Reserve; or pay and/or allowances as a (b) the Army Reserve; or member (c) the Air Force Reserve a recipient of an ex-gratia payment the ex-gratia payment from the Commonwealth known as the F-111 Deseal/Reseal Ex-gratia Lump Sum Payment a recipient of a reparation payment the reparation payment or or an additional payment from the additional payment Commonwealth in relation to a recommendation by the Defence Force Ombudsman performing a function conferred by section 14 or 14B of the Ombudsman Regulations 2017

... subject to these exceptions and special conditions: none

see section 51-32 none except pay and allowances for continuous full time service see section 51-33

none

none

Note: Reparation payments under section 14 or 14B of the Ombudsman Regulations 2017 relate to abuse in the Defence Force. * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 51-30 Education and training

Education and training Item If you are: 2.1A 2.1B

2.1

a full-time student at a school, a scholarship, bursary, educational college or university allowance or educational assistance (a) a student; or a payment under a Commonwealth scheme for assistance of: (b) a recipient of a payment (a) secondary education; or in respect of a student (b) the education of isolated children a recipient of a grant made by the grant the Australian-American Educational Foundation

2.2

an employer

2.3

a recipient of a scholarship known as a Commonwealth Trade Learning Scholarship a recipient of a payment known as the Apprenticeship Wage Top-Up a recipient of: (a) a research fellowship under the Endeavour Awards; or (b) an Endeavour Executive Award a recipient of a bonus for early completion of an apprenticeship a recipient of a payment under the program known as Skills for Sustainability for Australian Apprentices a recipient of a payment under the program known as Tools for Your Trade (within the program known as the Australian Apprenticeships Incentives Program)

2.4 2.5

2.6 2.7

2.8

51-30

... the following amounts are exempt from income tax:

... subject to these exceptions and special conditions: see section 51-35 see section 51-40

the grant is from funds made available to the Foundation under the agreement establishing it payments under the CRAFT Scheme each payment is for (the Commonwealth Rebate for an apprentice who Apprentice Full-Time Training Scheme) most recently started work with you before 1 January 1998 the scholarship none ITAA 1997

51-10

the payment

none

the fellowship or award

none

so much of the bonus as does not exceed $1,000

see section 51-42

the payment

none

the payment

none

Welfare

Welfare Item 5.1

... the following amounts are exempt If you are: from income tax: an individual in receipt of periodic the payments payments in the nature of maintenance

... subject to these exceptions and special conditions: see section 51-50

* To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 51-30 Welfare Item 5.2

5.6

51-32

... the following amounts are exempt from income tax: the payment

If you are: an individual in receipt of an ex-gratia payment from the Commonwealth known as disaster recovery payment for special category visa (subclass 444) holders for a disaster: (a) that occurred in Australia during the 2014-15 *financial year or a later financial year; and (b) for which a determination under section 1061L of the Social Security Act 1991 has been made an individual in receipt of a the payment payment from the Thalidomide Australia Fixed Trust

... subject to these exceptions and special conditions:

the payment must be: (a) made to you, or applied for your benefit, as a beneficiary of the Trust; or (b) made to you in respect of a beneficiary of the Trust

Compensation payments for loss of tax exempt payments

(1) A compensation payment for the loss of pay or an allowance for your warlike service is exempt from income tax if: (a) the compensation payment is made under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) you suffered your injury while covered by a certificate in force under paragraph 23AD(1)(a) of the Income Tax Assessment Act 1936; and (c) your injury or disease caused the loss of your pay or allowance; and (d) your pay or allowance was payable under the Defence Act 1903 or under a determination under that Act. (2) A compensation payment for the loss of pay or an allowance for your warlike service is exempt from income tax if: (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) you sustained your service injury or contracted your service disease, or your service injury or disease was aggravated or materially contributed to, while covered by a certificate in force under paragraph 23AD(1)(a) of the Income Tax Assessment Act 1936; and (c) your injury or disease caused the loss of your pay or allowance; and (d) your pay or allowance was payable under the Defence Act 1903 or under a determination under that Act. (3) Subsections (4) and (5) apply to: * To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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s 51-40

(a) a deployment allowance; or (b) some other allowance that is exempt from income tax specified in writing by the * Defence Minister for the purposes of this subsection; that is payable under a determination under the Defence Act 1903 for your non-warlike service. (4) A compensation payment for the loss of the allowance is exempt from income tax if: (a) the compensation payment is made under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) your injury caused the loss of your allowance. (5) A compensation payment for the loss of the allowance is exempt from income tax if: (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) your injury or disease caused the loss of your allowance. 51-33

CORE TAX

Part 2-15 – Non-assessable income Division 51 – Exempt amounts

Compensation payments for loss of pay and/or allowances as a Defence reservist

(1) A compensation payment for the loss of your pay or an allowance is exempt from income tax (a) the compensation payment is made under the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 in respect of an injury (as defined in that Act) you suffered; and (b) you suffered your injury while serving as a member of the Naval Reserve, Army Reserve or Air Force Reserve (but not while on continuous full time service); and (c) your pay or allowance was payable for service of a kind described in paragraph (b). (2) A compensation payment for the loss of your pay or an allowance is exempt from income tax if: (a) the compensation payment is made under the Military Rehabilitation and Compensation Act 2004 in respect of a service injury or disease (as defined in that Act); and (b) you sustained your service injury or contracted your service disease, or your service injury or disease was aggravated or materially contributed to, while serving as a member of the Naval Reserve, Army Reserve or Air Force Reserve; and (c) your pay or allowance was payable for service of a kind describe