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INCOME TAX ASSESSMENT ACT 1997 - SECT 243.35

Working out the excessive deductions

             (1)  The * capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid if the amount worked out under subsection (2) exceeds the amount worked out under subsection (4).

             (2)  This is how to work out the total net * capital allowance deductions:

Working out the total net capital allowance deductions

Step 1.    Add up all of the debtor's * capital allowance deductions in respect of the expenditure or the * financed property (including deductions because of balancing adjustments) for the income year in which the termination occurs or an earlier income year.

                   Note:             The amount of a capital allowance deduction may be reduced under section 707- 415.

Step 2.    Deduct from that any amount that is included in the assessable income of the debtor of any income year by virtue of a provision of this Act (other than this Division) as a result of the disposal of the * financed property the effect of which is to reverse a deduction covered by Step 1.

Step 3.    Deduct from the result an amount equal to the sum of any amounts included in the entity's assessable income as a result of an earlier application of this Division to the debt.

Step 4.    Add to the result an amount equal to the sum of any deductions to which the entity is entitled under section 243- 45 (repayments of the original debt after termination) or 243-50 (repayments of the replacement debt) because of payments in respect of the debt.

             (3)  The reference in step 2 of the method statement in subsection (2) to an amount that is included in the assessable income of a taxpayer as a result of the disposal of the * financed property includes a reference to an amount that is included under section 26AG of the Income Tax Assessment Act 1936 as a result of the disposal of the financed property.

Note:          Division 20 deals with amounts included to reverse the effect of past deductions.

             (4)  This is how to work out the total net capital allowance deductions that would otherwise be allowable taking into account the amount of the debt that is unpaid:

Working out the total net capital allowance deductions that would otherwise be allowable

Work out the amount that would be worked out under subsection (2) if the deductions and the amounts included in assessable income had been calculated using the following assumptions:

(1)   The original expenditure in respect of which deductions were calculated was reduced by the amount of the debt that was unpaid by the debtor when the debt was terminated. (In calculating the amount unpaid the following are to be disregarded:

               (a)     any reduction in the amount as a result of the * financed property being surrendered or returned to the creditor at the termination of the debt;

              (b)     any reduction in the amount to the extent that it is funded directly or indirectly by * non-arm's length limited recourse debt or by the consideration for the disposal of the debtor's interest in the financed property.)

(2)   Deductions for income years after the income year in which the termination occurred were also taken into account.

(3)   The original expenditure in respect of which deductions were calculated was increased by any amount that is paid by the debtor as consideration for another person assuming a liability under the debt. (This assumption does not apply to the extent that the consideration is funded directly or indirectly by * non-arm's length limited recourse debt or by the consideration for the disposal of the debtor's interest in the * financed property.)

(4)   Step 2 were omitted from subsection (2).

Table of sections

Operative provisions

243-40      Amount included in debtor's assessable income

243-45      Deduction for later payments in respect of debt

243-50      Deduction for payments for replacement debt

243-55      Effect of Division on later capital allowance deductions

243-57      Effect of Division on later capital allowance balancing adjustments

243-58      Adjustment where debt only partially used for expenditure

Operative provisions



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