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INCOME TAX ASSESSMENT ACT 1997 - SECT 164.20

Debits to non-share capital account

             (1)  The company may debit the whole or a part of a * non-share distribution against the company's * non-share capital account:

                     (a)  to the extent to which the distribution is made as consideration for the surrender, cancellation or redemption of a * non-share equity interest in the company; or

                     (b)  to the extent to which:

                              (i)  the distribution is made in connection with a reduction in the * market value of a non-share equity interest in the company; and

                             (ii)  the amount of the distribution is equal to the amount of the reduction in market value.

             (2)  The total of the amounts debited to the account in respect of a particular * non-share equity interest must not exceed the total of the amounts credited to the account in respect of the interest.

             (3)  If:

                     (a)  an * equity interest in the company changes at a particular time (the change time ) to a * debt interest in the company because of subsection 974-110(1) or (2); or

                     (b)  an equity interest in the company changes to a debt interest in the company, with effect from a time (the change time ) that is the start of a particular income year, because of subsection 974-110(1A); or

                     (c)  the following conditions are satisfied in relation to an interest in the company:

                              (i)  subsection 974-75(6) does not apply to the interest in relation to a particular income year;

                             (ii)  the interest is an equity interest in the company at the end of that income year;

                            (iii)  subsection 974-75(6) applies to the interest from the time (the change time ) that is the start of the next income year;

there is, or is taken to have been, a debit to the * non-share capital account at the change time equal to:

where:

"credits in relation to the interest" is the sum of all the credits that have been made to the * non-share capital account in relation to the interest before the change time.

"debits in relation to the interest" is the sum of all the debits that have been made to the * non-share capital account in relation to the interest before the change time.

             (4)  To avoid doubt, if:

                     (a)  it appears that a debit to the company's * non-share capital account has arisen because an interest in the company appears to be, or have become, a * debt interest at a time in a particular income year; and

                     (b)  because subsection 974-75(6) or 974-110(1A) is subsequently found not to apply in relation to the interest and that income year, the interest was not in fact, or did not in fact become, a debt interest at that time;

the debit referred to in paragraph (a) is taken never to have arisen.

Table of Subdivisions

             Guide to Division 165

165-A   Deducting tax losses of earlier income years

165-B    Working out the taxable income and tax loss for the income year of the change

165-CA Applying net capital losses of earlier income years

165-CB Working out the net capital gain and the net capital loss for the income year of the change

165-CC Change of ownership or control of company that has an unrealised net loss

165-CD Reductions after alterations in ownership or control of loss company

165-C    Deducting bad debts

165-D   Tests for finding out whether the company has maintained the same owners

165-E    Business continuity test

165-F    Special provisions relating to ownership by non-fixed trusts

Guide to Division 165



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