Tax Law Improvement Act 1997 (Cth)

Tax Law Improvement Act 1997

Act No. 121 of 1997 as amended

This compilation was prepared on 19 August 2003

[This Act was amended by Act No. 57 of 2002]

Amendments from Act No. 57 of 2002

[Schedule 12 (item 65) amended Heading to Item 69 of Schedule 6

Schedule 12 (item 83) repealed Item 15 of Schedule 4

Schedule 12 (item 65) commenced on 1 July 1997

Schedule 12 (item 83) commenced on 3 July 2002]

Prepared by the Office of Legislative Drafting,

Attorney‑General’s Department, Canberra

Contents

An Act to amend the law about income tax, and for related purposes

[Assented to 8 July 1997]

The Parliament of Australia enacts:

1Short title

This Act may be cited as the Tax Law Improvement Act 1997.

2Commencement

(1)
Subject to this section, this Act commences on the day on which it receives the Royal Assent.
(2)
Schedule 1 commences on 1 July 1997 immediately after the commencement of the Income Tax Assessment Act 1997.
(3)
Each of the other Schedules (except Schedule 12) commences immediately after the commencement of the immediately preceding Schedule.
(4)
If a note specifies the commencement of an item in Schedule 12, the item commences as specified in the note.
(5)
If there is no note specifying the commencement of an item in Schedule 12, the item commences on 1 July 1997 immediately after the commencement of the Income Tax Assessment Act 1997.

3Schedule(s)

Subject to section 2, each Act specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned. Any other item in a Schedule to this Act has effect according to its terms.

4Application of amendments

An amendment made by an item in a Schedule (except Schedule 1) applies to assessments for the 1997-98 income year and later income years, unless otherwise indicated in that Schedule.

Schedule 1Amendment of the Income Tax Assessment Act 1997

Chapter 2 (link note after heading)

Repeal the link note.

Before Part 2‑5

Insert:

Part 2-1—Assessable income

[The next Division is Division 15.]

Division 15—Some items of assessable income

Guide to Division 15

15-1What 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.

Table of sections

Operative provisions
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
15-25 Amount received for lease obligation to repair
15-30 Insurance or indemnity for loss of assessable income
15-35 Interest on overpayments and early payments of tax

Operative provisions

15-3Return 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.

15-5Accrued 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.

15-10Bounties 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.

15-15Profit-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.

15-20Royalties

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.

15-25Amount 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.

15-30Insurance 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.

15-35Interest 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.
[The next Division is Division 20.]

Division 20—Amounts included to reverse the effect of past deductions

Table of Subdivisions

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

Guide to Division 20

20-1What this Division is about

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

Table of sections

20-5......... Other provisions that reverse the effect of deductions

20-5Other 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 charge for property on which you incurred expenditure deductible under a capital allowance is included in your assessable income.	40-25 and 40‑30
2	An amount you receive by way of insurance or indemnity for a loss of trading stock is included in your assessable income.	70-115
3	Because of: • 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.	330-350(3)
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.	51AH
5	A company receives (or becomes entitled to) an amount: • in respect of the results of research and development activities on which it incurred deductible expenditure; or • attributable to it having incurred deductible expenditure on research and development activities. The amount is included in its assessable income.	73B(27A)
6	You receive an amount as recoupment of expenditure on research and development activities that you have deducted at the rate of 150%: the rate of deduction is reduced to 100%.	73C
7	You receive an amount as recoupment for your local governing body election expenses: an amount is included in your assessable income.	74A(4)
8	You receive superannuation benefits as a result of someone’s deductible contributions: the benefits are included in your assessable income.	82AAQ

Subdivision 20-A—Insurance, indemnity or other recoupment for deductible expenses

Guide to Subdivision 20-A

20-10What this Subdivision is about

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.

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
20-45 Effect of balancing charge
20-50 If the expense is only partially deductible
20-55 Meaning of previous recoupment law

20-15How to use this Subdivision

(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.

What is an assessable recoupment?

20-20Assessable 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 receive as *recoupment of a loss or outgoing is an assessable recoupment if:
(a)
you receive 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
(3)
An amount you receive 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.

20-25What 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.
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.

20-30Tables 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	Description of expense
1.1	8-1 (so far as it allows you to deduct a bad debt, or part of a debt that is bad)	bad debts
1.2	8-1 (so far as it allows you to deduct rates or taxes)	rates or taxes
1.3	25-5	tax-related expenses
1.4	25-35	bad debts
1.5	25-45	embezzlement or larceny by an employee
1.6	25-60	election expenses, Commonwealth and State elections
1.7	25-75	rates and land taxes on premises used to produce mutual receipts
1.8	330-15	exploration or prospecting expenditure
1.9	330-80	allowable capital expenditure relating to mining or quarrying
1.10	330-370	transport capital expenditure relating to mining or quarrying
1.11	330-435	rehabilitation expenditure relating to mining or quarrying
1.12	330-485	balancing adjustment deduction for expenditure relating to mining or quarrying
1.13	Subdivision 387‑A	landcare operations expenditure
1.14	Subdivision 387‑B	expenditure on facilities to conserve or convey water
1.15	Subdivision 387‑D	grapevine establishment expenditure
1.16	Subdivision 387‑E	mains electricity connection expenditure

(2)
This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable.
Note: References are to section numbers except where otherwise indicated.

Provisions of the Income Tax Assessment Act 1936
Item	Provision	Description of expense
2.1	51(1) (so far as it allows you to deduct a bad debt, or part of a debt that is bad)	bad debts
2.2	51(1) (so far as it allows you to deduct rates or taxes)	rates or taxes
2.3	63	bad debts
2.4	69	tax-related expenses
2.5	70A(3)	mains electricity connection expenditure
2.6	71	embezzlement or larceny by an employee
2.7	72	rates and land tax
2.8	73B	research and development activity expenditure
2.9	74	election expenses, Commonwealth and State elections
2.10	75AA(1) or (6)	grape vine establishment expenditure
2.11	75B(2) or (3A)	water conservation or conveyance expenditure
2.12	75D(2)	land degradation prevention expenditure
2.13	82AB	development allowance expenditure
2.14	82BB	environmental impact study expenditure
2.15	82BK	environmental protection expenditure
2.16	82Z(1)	currency exchange loss
2.17	Division 10 of Part III	mining and quarrying expenditure
2.18	Division 10AAA of Part III	expenditure on transport of minerals and quarry materials
2.19	Division 10AA of Part III	expenditure on prospecting and mining for petroleum
2.20	124BA	expenditure on rehabilitating mining, quarrying and petroleum sites
2.21	124ZZF	horticultural plant establishment expenditure (effective life of the plant less than 3 years)
2.22	124ZZG	horticultural plant establishment expenditure (effective life of the plant more than 3 years)
2.23	628	drought mitigation property expenditure by a primary producer
2.24	636	drought mitigation property expenditure by a leasing company

How much is included in your assessable income?

20-35If 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.

20-40If 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.
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.
Step 5. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions.
Step 6. 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.

Example: At the start of the 1997-98 income year, a mining company incurs $100,000 of expenditure on mining operations. $10,000 is deductible for the 1997-98 income year and for each of the following 9 income years under section 330-80.
In the 1997-98 income year, the company receives $20,000 as recoupment. How much is assessable for the 1997-1998 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 – recoupment already assessed,
ie $20,000 – 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 – recoupment already assessed, ie $10,000 – 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, ie $10,000.
Applying the method statement to the 1998-99 income year: a further $10,000 is included in the company’s assessable income.

20-45Effect of balancing charge

(1)
This section may affect the operation of section 20-35 or 20-40 (as appropriate) if:
(a)
a balancing adjustment is required for the *current year (or for an earlier income year) because you have deducted or can deduct an amount for an income year for the loss or outgoing; and
(b)
an amount (the balancing charge) is included in your assessable income for the *current year (or for the earlier income year) because of the balancing adjustment.
To find out about balancing adjustments, see section 40-25.
Effect on section 20-35
(2)
In applying section 20-35, treat each of the following as reduced by the balancing charge:
(a)
the amount of the loss or outgoing;
(b)
the total of what you can deduct for the loss or outgoing for the *current year, or have deducted or can deduct for an earlier income year.

Effect on section 20-40
(3)
In applying the method statement in subsection 20-40(3), reduce the total deductions for the loss or outgoing by the balancing charge.
Example: Continuing the example in subsection 20-40(3): during the 2000-2001 income year, the mining company:
·
· receives a further $10,000 as recoupment of the original expenditure; and
·
· sells its mining operations for $75,000.
As a result of the sale, a balancing charge of $5,000 is included under section 330-485 in the company’s assessable income for that income year.
How much of the recoupment amount received in the 2000-2001 income year is assessable for that income year?
Applying the method statement in subsection 20-40(3):
After Step 1: the total assessable recoupment is $30,000 (received during 1997‑98 and 2000-2001).
After Step 2: the recoupment already assessed is $20,000 (for 1997‑98 and 1998-99).
After Step 3: the unassessed recoupment is:
total assessable recoupment – recoupment already assessed,
ie $30,000 – $20,000 = $10,000.
After Step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 1997-98, 1998-99 and 1999-2000), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), ie $25,000.
After Step 5: the outstanding deductions are:
total deductions for the loss or outgoing – recoupment already assessed, ie $25,000 – $20,000 = $5,000.
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, ie $5,000.

20-50If the expense is only partially deductible

(1)
This section extends the operation of section 20-35 or 20-40 (as appropriate) to a case where the total of what you can deduct under a provision (the deduction provision) for a loss or outgoing is limited to a proportion of the loss or outgoing.
(2)
If you receive an *assessable recoupment of the loss or outgoing, section 20-35 or 20-40 applies as if:
(a)
you had incurred only that proportion of the loss or outgoing, but could deduct the whole of that proportion under the deduction provision; and
(b)
you had received only that proportion of the recoupment.
Example: You incur expenditure of $500. A provision listed in section 20-30 entitles you to deduct 10% of the expenditure ($50) over 5 years. This means you can deduct $10 in each of the 5 years.
You recoup $300 of the expenditure. This section treats you as receiving only 10% of the recoupment. Therefore, $30 is dealt with by section 20-40.

20-55Meaning of previous recoupment law

Previous recoupment law means a provision of the Income Tax Assessment Act 1936 listed in this table.

Previous recoupment law
Item	Provision	What kind of expense the provision relates to:
1	26(j) (so far as it relates to an amount received for or in respect of a loss or outgoing that is an allowable deduction)	a loss or outgoing that is an allowable deduction
2	26(k)	embezzlement or larceny by an employee
3	63(3)	bad debts
4	69(8)	tax-related expenses
5	70A(5)	mains electricity connection expenditure
6	72(2) (so far as it relates to a refund of an amount allowed or allowable as a deduction)	rates or taxes
7	74(2)	election expenses, Commonwealth and State elections

Subdivision 20-B—Disposal of a car for which lease payments have been deducted

Guide to Subdivision 20-B

20-100What 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 depreciation of the car if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income.

Table of sections

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
The associate case
20-125 Disposal of a leased car for profit
Successive leases
20-130 Successive leases
Previous disposals of the car
20-135 No amount included if earlier disposal for market value
20-140 Reducing the amount to be included if there has been an earlier disposal
Miscellaneous rules
20-145 No amount included if you inherited the car
20-150 Reducing the amount to be included if another provision requires you to include an amount for the disposal
20-155 Exception for particular cars taken on hire
Disposals of interests in a car: special rules apply
20-160 Disposal of an interest in a car

20-105Map of this Subdivision

The usual case

20-110Disposal 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
(d)
you acquired the car from the lessor.
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.
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.
(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.

20-115Working 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 a price specific to it	that price, less the expenses of the sale
2	you sell the *car with other property without a specific price being allocated to it	the part of the total sale price that is reasonably attributable to the car less the part of the reasonably attributable expenses of the sale
3	you trade the *car in and buy another car	the value of the trade-in, plus any other consideration you receive
4	you sell the *car and another entity buys another car	the amount by which the cost of the other car is reduced by the sale, plus any other consideration you receive
5	you dispose of the *car to an insurer because it is lost or destroyed	the amount or value received or receivable under the insurance policy

20-120Meaning of notional depreciation

This is how to work out the notional depreciation for a lease period:
Method statement
Step 1. Compare:

• the *car’s *cost to the lessor for the purposes of Subdivision 42-B (which is about working out the cost of *plant for the purposes of depreciation);
with:
• the car’s *termination value for the purposes of section 42-205 when the lessor disposed of it.
Step 2. 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.
Step 3. The result is the notional depreciation for the lease period.
Step 4. 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 depreciation of the car 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.

The associate case

20-125Disposal of a leased car for profit

(1)
Your assessable income includes the *profit you make on disposing of a *car if:
(a)
section 20-110 does not include an amount in your assessable income because of the disposal; and
(b)
the car was designed mainly for carrying passengers; and
(c)
the car was leased to you or your *associate; and
(d)
you, your associate or another entity can deduct for the income year any of the lease payments paid or payable by the lessee, or have deducted or can deduct any of them for an earlier income year, under this Act; and
(e)
either:
(i)
you, your associate, or entities including you or your associate, acquired the car from the lessor; or
(ii)
another entity acquired the car from the lessor under an *arrangement that enabled you or your associate to acquire the car.
Note 1: Even if subsection (1) does not apply, an amount may be included in your assessable income 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 smallest of these limits:
(a)
the total lease payments for the lease that you, your *associate 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;
(c)
if an entity other than you, or if entities including you, acquired the *car from the lessor—the amount by which the *consideration receivable for the disposal of the car by you exceeds the total of:
(i)
the car’s cost to that entity, or those entities; and
(ii)
any capital expenditure that entity, or any of those entities, incurred on the car after that acquisition and before you acquired it.
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.
Example: Your associate leases a car for 5 years and then acquires it from the lessor for $4,000. Your associate sells it to you for $3,000. You sell it for $10,000.
Your profit is $10,000 (the consideration receivable) less $3,000 (the car’s cost to you) = $7,000.
The first 2 limits on the amount to be included in your assessable income are $9,000 (total deductible lease payments for the lease) and $8,000 (notional depreciation for the lease period).
Since your associate acquired the car from the lessor, the third limit is $10,000 (the consideration receivable by you) less $4,000 (the car’s cost to the associate) = $6,000.
The amount you include in your assessable income cannot exceed the smallest of the limits. So, you do not include your profit of $7,000. Instead, you include $6,000 (the smallest of the limits).
(3)
You increase the first 2 limits if you, or your associate, 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, your *associate 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.

Successive leases

20-130Successive leases

If, because of 2 or more leases of the *car, there are different amounts that could be included in your assessable income because of the disposal, only the largest of those amounts is included.

Previous disposals of the car

20-135No amount included if earlier disposal for market value

You do not include an amount in your assessable income because of the disposal if, after the lessor disposed of the *car and before you disposed of it, an entity other than you disposed of the car and:
(a)
the *consideration receivable for that disposal was at least the market value of the car at the time of that disposal; or
(b)
because of that disposal, that market value was included, or an amount worked out using that market value was included, in the entity’s assessable income under this Act.

20-140Reducing the amount to be included if there has been an earlier disposal

Each limit on the amount to be included in your assessable income because of your disposal of the *car is reduced if, after the lease period began and before your disposal, the car, or an interest in it, was disposed of in one of these situations:

Reducing each limit on the amount to be included
Item	In this situation:	reduce each limit by:
1	Section 20-110 or 20-125 included an amount in your assessable income in respect of such an earlier disposal by you	that amount
2	Section 20-110 or 20-125 included an amount in another entity’s assessable income in respect of such an earlier disposal by the other entity	that amount
3	Section 20-110 or 20-125 would have included an amount in your assessable income in respect of such an earlier disposal by you but for the operation of section 20-145	that amount
4	Section 20-110 or 20-125 would have included an amount in another entity’s assessable income in respect of such an earlier disposal by the other entity but for the operation of section 20‑145	that amount
5	Section 20-150 reduced the amount to be included in your assessable income in respect of such an earlier disposal by you	the amount of the reduction
6	Section 20-150 reduced the amount to be included in another entity’s assessable income in respect of such an earlier disposal by the other entity	the amount of the reduction

Examples: Your associate leases a car for 5 years and then acquires it. Your associate disposes of it to you and section 20-110 includes $500 in your associate’s assessable income.
You later dispose of the car.
In working out the amount to include in your assessable income for your disposal, you can reduce each limit in subsection 20-125(2) by $500 because the disposal by your associate occurred after the lease period began.
Contrast this case:
You lease a car for 5 years and then acquire it. You dispose of it to another entity and section 20-110 includes $1,000 in your assessable income.
You lease the car from that entity for 2 years and then acquire it. You later dispose of it.
In working out the amount to include in your assessable income in respect of the second lease, you cannot reduce each limit in subsection 20‑110(2) by $1,000 because the first disposal did not occur after the start of that lease.
Note: If the earlier disposal occurred in the 1996-97 income year or an earlier income year, each limit may be able to be reduced by a further amount: see section 20-115 of the Income Tax (Transitional Provisions) Act 1997.

Miscellaneous rules

20-145No amount included if you inherited the car

You do not include an amount in your assessable income because of the disposal if you inherited the *car.

20-150Reducing the amount to be included if another provision requires you to include an amount for the disposal

The amount to be included in your assessable income because of the disposal is reduced by any amount that another provision of this Act (except sections 42-190 and 42-240) requires you to include in your assessable income because of the disposal.
Note: Sections 42-190 and 42-240 are about including an amount after making a balancing adjustment on the disposal of a car.

20-155Exception for particular cars taken on hire

This Subdivision does not apply to these kinds of leases:
(a)
letting a *car on hire under a hire purchase agreement; or
(b)
letting a *car on hire under an agreement of a kind ordinarily entered into by people who take cars on hire intermittently on an hourly, daily, weekly or monthly basis.

Disposals of interests in a car: special rules apply

20-160Disposal of an interest in a car

(1)
This Subdivision applies to the disposal of an interest in a *car in almost the same way as it does to the disposal of the car itself. The differences are set out below.
(2)
Your assessable income includes so much of your *profit on the disposal as is reasonable. The limits in subsections 20-110(2) and 20-125(2) do not apply.
(3)
The cost of the interest to you is taken to be a reasonable amount.
(4)
Sections 20-135 and 20-140 do not apply to the disposal.
Note 1: Section 20-135 says that you do not include an amount if there has been an earlier disposal of the car for market value.
Note 2: Section 20-140 allows you to reduce the amount to be included if there has been an earlier disposal of the car.
(5)
Section 20-145 applies to the disposal if you inherited either the interest or the *car itself.
Note: Section 20-145 says that you do not include an amount if you inherited the car.
[The next Part is Part 2-5.]

Part 2-5 (link note after heading)

Omit “Division 26”, substitute “Division 25”.

Before Division 26

Insert:

Division 25—Some amounts you can deduct

Guide to Division 25

25-1What 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.

Table of sections

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.
25-50 Payments of pensions, gratuities or retiring allowances
25-55 Payments to associations
25-60 Parliament election expenses
25-70 Deduction for election expenses does not extend to entertainment
25-75 Rates and land taxes on premises used to produce mutual receipts

Operative provisions

25-5Tax-related expenses

(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)
interest under section 170AA (Underpayment of tax) or 207A (Late payment of tax) of the Income Tax Assessment Act 1936.
Note: 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.
No deduction for certain expenditure
(2)
You cannot deduct under subsection (1):
(a)
*tax; or
(b)
an amount payable under Part VI (Collection and recovery of tax) of the Income Tax Assessment Act 1936; 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.
However, to the extent that you use the computer in preparing your income tax return, you will be able to depreciate your computer and deduct an amount under section 54 (Depreciation) of the Income Tax Assessment Act 1936. 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).

25-10Repairs

(1)
You can deduct expenditure you incur for repairs to premises (or part of premises), *plant, machinery, tools or articles 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.

25-15Amount 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.

25-20Lease 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.

25-25Borrowing 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 of Schedule 2C to the Income Tax Assessment Act 1936.
Income year when money used solely for the purpose of producing assessable income
(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
(4)
You work out as follows the maximum amount that you can deduct for the expenditure 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 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:
1. (a)
  the period of the loan as specified in the original loan contract;
2. (b)
  the period starting on the first day on which the money was borrowed and ending on the day the loan is repaid;
3. (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:
1. (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;
2. (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).

25-30Expenses 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.

25-35Bad 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:
• the expenditure you incurred in buying the debt;
exceeds:
• so much of the debt as has not yet been written off as bad.
Special rules affecting deductions under this section
(5)
Your entitlement to deductions under this section may be affected by the rules 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.

Rules affecting deductions for bad debts
Item	For the rules about this situation:	See:
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 carried on the same business.	sections 63A and 63C
2	A company cannot deduct a bad debt in various other cases that may involve trafficking in bad debts.	sections 63B and 63D
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.	section 245‑90 of Schedule 2C

25-40Loss 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.
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.

25-45Loss 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.
25-50Payments 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.

25-55Payments to associations

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

25-60Parliament election expenses

You can deduct expenditure you incur in contesting an election for membership of:
(a)
the Parliament of the Commonwealth; or
(b)
the Parliament of a State; or
(c)
the Legislative Assembly for the Australian Capital Territory; or
(d)
the Legislative Assembly of the Northern Territory of Australia.
Note: Entertainment expenses are excluded: see section 25-70.
[The next section is section 25-70.]
25-70Deduction 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.
(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.
25-75Rates and land taxes on premises used to produce mutual receipts
(1)
An entity can deduct these amounts it pays for premises:
(a)
rates which are annually assessed;
(b)
land tax imposed under a *State law or *Territory law.
But only if it uses the premises:
(c)
for the purpose of producing mutual receipts; or
(d)
in carrying on a *business for the purpose of producing mutual receipts.
When premises used only for deductible purposes
(2)
The entity can deduct the whole of the rates or land tax if it uses the premises only in one or more of these ways:
(a)
for the purpose of producing mutual receipts;
(b)
in carrying on a *business for the purpose of producing mutual receipts;
(c)
for the *purpose of producing assessable income.
When premises used partly for deductible purposes
(3)
If the entity uses the premises partly in one or more of the ways referred to in subsection (2) and partly in some other way, it can deduct the rates or land tax to the extent that it uses the premises in one or more of the ways referred to in that subsection.
No deduction under section 8-1
(4)
The entity cannot deduct the rates or land tax under section 8-1 (which is about general deductions).

Division 26 (heading and link note)

Repeal the heading and the link note, substitute:

Division 26—Some amounts you cannot deduct, or cannot deduct in full

Guide to Division 26

26-1What this Division is about

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

Table of sections

Operative provisions
26-5 Penalties
26-10 Leave payments
26-20 HECS and student assistance
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
26-50 Expenses for a leisure facility or boat

Operative provisions

26-5Penalties

You cannot deduct under this Act:
(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.

26-10Leave 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.
[The next section is section 26-20.]

26-20HECS and student assistance

(1)
You cannot deduct under this Act:
(a)
a contribution made under Chapter 4 of the Higher Education Funding Act 1988; or

(b)
a basic charge within the meaning of Chapter 5 of that Act; or
(c)
a payment made to reduce a debt to the Commonwealth under Chapter 5A of that Act; or
(d)
a payment made to reduce a debt to the Commonwealth, or to a participating corporation, under 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.
[The next section is section 26-30.]

26-30Relative’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:
(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 applies to PAYE earners
(4)
If an individual is not an employee, but is a *PAYE earner, this section applies to him or her as if:
(a)
he or she were an employee; and
(b)
the entity (the notional employer) who pays (or is liable to pay) *PAYE earnings because of which he or she is (or would be) a *PAYE earner were his or her employer; and
(c)
any other individual who receives (or is entitled to receive) *PAYE earnings:
(i)
because of which the other individual is (or would be) a *PAYE earner; and
(ii)
that the notional employer pays (or is liable to pay) to the other individual;
were also an employee of the notional employer.
This section applies to entities liable to PAYE earnings
(5)
If an entity is not an employer, but pays (or is liable to pay) *PAYE earnings, 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) *PAYE earnings were the entity’s employee.

26-35Reducing 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 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.
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.
If you can’t deduct, then related entity doesn’t include amount as income
(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.
Amendments of assessments
(5)
The Commissioner can amend an assessment at any time for the purpose of giving effect to subsection (4).
Example: An amount was not included in the related entity’s assessable income because at the time you could not deduct the amount. At a later time you discover that you could deduct the amount and your assessment is amended. The Commissioner can amend the entity’s assessment so that the amount is included in the entity’s assessable income.

26-40Maintaining 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.

26-45Recreational 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 recreationalclub 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.

26-50Expenses for a leisure facility or boat

(1)
You cannot deduct under this Act a loss or outgoing to the extent you incur it:
(a)
to acquire ownership of a *leisure facility or boat; or
(b)
to retain ownership of a *leisure facility or boat; or
(c)
to acquire rights to use a *leisure facility or boat; or
(d)
to retain rights to use a *leisure facility or boat; or
(e)
to use, operate, maintain or repair a *leisure facility or boat; or
(f)
in relation to any obligation associated with your ownership of a *leisure facility or boat; or
(g)
in relation to any obligation associated with your rights to use a *leisure facility or boat.
However, there are exceptions (see subsections (3), (4), (5), (6) and (8)).
What is a leisure facility?
(2)
Aleisure facility is land, a building, or part of a building or other structure, that is used (or held for use) for holidays or *recreation.
Exception—leisure facilities
(3)
Subsection (1) does not stop you deducting a loss or outgoing for a *leisure facility if at all times in the income year:
(a)
you hold the leisure facility for sale in the ordinary course of your business of selling leisure facilities; or
(b)
you use the leisure facility (or hold it for use) mainly to provide it:
(i)
in the ordinary course of your *business of providing leisure facilities for payment; or
(ii)
to produce your assessable income in the nature of rents, lease premiums, licence fees or similar charges; or
(iii)
for your employees to use; or
(iv)
for the care of your employees’ children.
In the case of a company, subparagraphs (b)(iii) and (iv) do not apply to employees who are *members or directors of the company.
Exception—part year use of leisure facilities
(4)
If you use a *leisure facility (or hold it) as described in subsection (3) at all times during part of the income year, then subsection (1) does not stop you deducting so much of the loss or outgoing as is reasonable in the circumstances.
Exception—boats
(5)
Subsection (1) does not stop you deducting a loss or outgoing for a boat if at all times in the income year you:
(a)
hold the boat as *trading stock for sale in the ordinary course of a *business that you carry on; or
(b)
use the boat (or hold it) mainly for letting it on hire in the ordinary course of a *business that you carry on; or
(c)
use the boat (or hold it) mainly for transporting for payment in the ordinary course of a *business that you carry on, the public or goods; or
(d)
use the boat for a purpose that is essential to the efficient conduct of a *business that you carry on.
Exception—part year use of boats
(6)
If you use a boat (or hold it) as described in subsection (5) at all times during part of the income year, then subsection (1) does not stop you deducting so much of the loss or outgoing as is reasonable in the circumstances.
Anti-avoidance—when exceptions do not apply
(7)
A *leisure facility or boat is taken not to be used (or held) as described in subsection (3) or (5) if:
(a)
apart from this subsection, the leisure facility or boat would be used (or held) in that way because of a *scheme; and
(b)
in the Commissioner’s opinion, the scheme would not have been entered into or carried out if this section had not been enacted.
Exception when you provide a fringe benefit
(8)
Subsection (1) does not stop you deducting expenditure you incur in *providing a *fringe benefit.

Section 28-185 (link note)

Omit “Division 36”, substitute “Division 30”.

After Division 28

Insert:

Division 30—Gifts or contributions

Table of Subdivisions

Guide to Division 30
30-A Deductions for gifts or contributions
30-B Tables of recipients for deductible gifts
30-C Rules applying to particular gifts of property
30-D Testamentary gifts under the Cultural Bequests Program
30-E Register of environmental organisations
30-F Register of cultural organisations
30-G Index to this Division

Guide to Division 30

30-1What this Division is about

This Division sets out the rules for working out deductions for certain gifts or contributions that you make.

Table of sections

30-5 How to find your way around this Division
30-10 Index

30-5How to find your way around this Division

(1)
You should start at Subdivision 30-A unless you are making a testamentary gift under the Cultural Bequests Program.
Note: Subdivision 30-D deals with the deductibility of such a gift.
(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.
(5)
Subdivision 30-E requires the establishment of a register of *environmental organisations. 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 either register.

30-10Index

There is an index to this Division in Subdivision 30-G.

Subdivision 30-A—Deductions for gifts or contributions

Table of sections

30-15 Table of gifts or contributions that you can deduct

30-15Table 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-D deals with the deductibility of testamentary gifts under the Cultural Bequests Program.

Deductible gifts or contributions
Recipient		Type of gift or contribution	How much you can deduct	Special conditions
1	A fund, authority or institution covered by an item in any of the tables in Subdivision 30-B.	A gift of: (a) money; or (b) property (including trading stock) that you purchased during the 12 months before making the gift; or (c) an item of your trading stock if: · the gift is a disposal of the item outside the ordinary course of your business; and · no election has been made, or is made, in relation to the item under Subdivision 385-E (about electing to spread or defer profit from the forced disposal or death of live stock).	(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))—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; the market value of the item on the day you made the gift.	(a) the fund, authority or institution must be in Australia; and (b) the value of the gift must be $2 or more; and (c) any conditions set out in the relevant table item in Subdivision 30-B must be satisfied.
2	A public fund established and maintained under a will or instrument of trust solely for: (a) the purpose of providing money, property or benefits: · to a fund, authority or institution covered by an item in any of the tables in Subdivision 30-B; and · for any purposes set out in the item; or (b) the establishment of such a fund, authority or institution.	A gift of: (a) money; or (b) property (including trading stock) that you purchased during the 12 months before making the gift; or (c) an item of your trading stock if: · the gift is a disposal of the item outside the ordinary course of your business; and · no election has been made, or is made, in relation to the item under Subdivision 385-E (about electing to spread or defer profit from the forced disposal or death of live stock).	(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))—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; the market value of the item on the day you made the gift.	(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 fund receives because of the gift only in a way that an *Australian law allows trustees to invest trust money.
3	A political party that is registered under Part XI of the Commonwealth Electoral Act 1918.	A contribution of: (a) money; or (b) property that you purchased during the 12 months before making the contribution.	(a) if the contribution is money—the amount of the contribution; or (b) if the contribution is property—the lesser of the market value of the property on the day you made the contribution and the amount you paid for the property.	(a) a company cannot deduct a contribution it makes; and (b) the value of the contribution must be $2 or more; and (c) you cannot deduct more than $100 of contributions for any one income year.
4	(a) the Australiana Fund; or (b) a public library in Australia; or (c) a public museum in Australia; or (d) a public art gallery in Australia; or (e) an institution in Australia consisting of a public library, a public museum and a public art gallery or any 2 of them.	A gift of property (except an estate or interest in land or in a building or part of a building).	The general rule is that you can deduct the average of the market values specified in the written valuations you get from approved valuers. Subdivision 30-C sets out: (a) how a person becomes an approved valuer; and (b) the exceptions to the general 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.	(a) the property must be accepted by the recipient for inclusion in a collection it is maintaining or establishing; and (b) the value of the gift must be $2 or more; and (c) you must satisfy the valuation requirements in section 30-200, unless section 30-205 (about the sale price being assessable) applies.
5	The Commonwealth (for the purposes of Artbank).	A gift of property (except an estate or interest in land or in a building or part of a building).	The general rule is that you can deduct the average of the market values specified in the written valuations you get from approved valuers. Subdivision 30-C sets out: (a) how a person becomes an approved valuer; and (b) the exceptions to the general 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.	(a) the property must be accepted by the Commonwealth for inclusion in a collection maintained, or being established, for the purposes of Artbank; and (b) you must satisfy the valuation requirements in section 30-200, unless section 30-205 (about the sale price being assessable) applies.
6	(a) the National Trust of Australia (New South Wales); or (b) the National Trust of Australia (Victoria); or (c) The National Trust of Queensland; or (d) The National Trust of South Australia; or (e) The National Trust of Australia (W.A.); or (f) the National Trust of Australia (Tasmania); or (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.	A gift of a place listed in the Register of the National Estate (kept under the Australian Heritage Commission Act 1975).	The general rule is that you can deduct the average of the market values specified in the written valuations you get from approved valuers. Subdivision 30-C sets out: (a) how a person becomes an approved valuer; and (b) the exceptions to the general rule; and (c) the situations when the amount you can deduct is reduced. If the place is jointly owned, see section 30-225 to work out how much of the gift you can deduct.	(a) the place must be accepted by the recipient for the purpose of preserving it for the benefit of the public; and (b) the value of the gift must be $2 or more; and (c) you must satisfy the valuation requirements in section 30-200, unless section 30-205 (about the sale price being assessable) applies.

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 Gifts to a public fund established to benefit a rural school hostel building must satisfy certain requirements
Research
30-40 Research
Welfare and rights
30-45 Welfare and rights
Defence
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 guidance organisations must be approved
International affairs
30-80 International affairs
30-85 Declaration must be in force at the time you make the gift
Sports and recreation
30-90 Sports and recreation
Philanthropic trusts
30-95 Philanthropic trusts
Cultural organisations
30-100 Cultural organisations

Health

30-20Health

(1)
This table sets out general categories of health recipients.

Health—General
Item	Fund, authority or institution	Special conditions
1.1.1	a public hospital	none
1.1.2	a hospital carried on by a society or association otherwise than for the purposes of profit or gain to the individual members of the society or association	none
1.1.3	a public fund established before 23 October 1963 and maintained for the purpose of providing money for hospitals covered by item 1.1.1 or 1.1.2 or for the establishment of such hospitals	none
1.1.4	a public authority engaged in research into the causes, prevention or cure of disease in human beings, animals or plants	the gift must be made for such research
1.1.5	a public institution engaged solely in research into the causes, prevention or cure of disease in human beings, animals or plants

In determining whether section 387‑140 of the Income Tax Assessment Act 1997 prevents you from deducting expenditure on acquiring a water facility, treat the following amounts as if they had been deducted under Subdivision 387‑B of that Act:
(a)
an amount that was or can be deducted for any income year under section 75A or 75B of the Income Tax Assessment Act 1936 for earlier expenditure by any person on constructing or manufacturing the facility or on a previous acquisition of the facility;
(b)
an amount that could have been so deducted if the person who incurred the earlier expenditure had neither recouped it nor become entitled to recoup it.
[The next Subdivision is Subdivision 387‑D.]

Subdivision 387‑D—Establishing grapevines

Table of sections

387‑300 Application of Subdivision 387‑D of the Income Tax Assessment Act 1997
387‑315 Deduction for destruction of grapevine established before 1997-98 income year

387‑300Application of Subdivision 387‑D of the Income Tax Assessment Act 1997

(1)
Subdivision 387‑D of the Income Tax Assessment Act 1997 applies to assessments for the 1997-98 income year and later income years, in relation to expenditure incurred on or after 1 July 1993.
(2)
For the purpose of applying that Subdivision in relation to expenditure you incurred before the 1997-98 income year, you are taken to have incurred the amount of expenditure for which you could deduct an amount under section 75AA of the Income Tax Assessment Act 1936 for an income year before the 1997-98 income year.
Note: This means that you cannot get a deduction under that Subdivision for expenditure that you recouped before the 1997-98 income year.
[The next section is section 387‑315.]

387‑315Deduction for destruction of grapevine established before 1997-98 income year

Despite section 387‑300 of this Act, section 387‑315 of the Income Tax Assessment Act 1997 applies in relation to a grapevine established before the 1997-98 income year and destroyed in that income year or later, as if section 387‑305 of that Act had applied to assessments for income years before that income year.

Subdivision 387‑E—Mains electricity supply

Table of sections

387‑350 Application of Subdivision 387‑E of the Income Tax Assessment Act 1997
387‑375 Saving of deductions under section 70A of the Income Tax Assessment Act 1936

387‑350Application of Subdivision 387‑E of the Income Tax Assessment Act 1997

Subdivision 387‑E of the Income Tax Assessment Act 1997 applies to assessments for the 1997-98 income year and later income years, in relation to:
(a)
capital expenditure on connecting power to land or upgrading the connection, regardless of when it was incurred; and
(b)
contributions to the cost of connecting power to land or upgrading the connection, regardless of when they were made.
[The next section is section 387‑375.]

387‑375Saving of deductions under section 70A of the Income Tax Assessment Act 1936

Subdivision 387‑E of the Income Tax Assessment Act 1997 does not affect a deduction, or an entitlement to a deduction, under section 70A of the Income Tax Assessment Act 1936 for the 1996‑97 income year or an earlier income year.

Subdivision 387‑F—Telephone lines

Table of sections

387‑400 Application of Subdivision 387‑F of the Income Tax Assessment Act 1997
387‑410 Disregarding deductions under section 70 of the Income Tax Assessment Act 1936
387‑415 Saving of deductions under section 70 of the Income Tax Assessment Act 1936

387‑400Application of Subdivision 387‑F of the Income Tax Assessment Act 1997

Subdivision 387‑F of the Income Tax Assessment Act 1997 applies to assessments for the 1997-98 income year and later income years, in relation to capital expenditure on a telephone line, regardless of when it was incurred.
[The next section is section 387‑410.]

387‑410Disregarding deductions under section 70 of the Income Tax Assessment Act 1936

(1)
In applying subsection 387‑410(1) of the Income Tax Assessment Act 1997 to work out whether you can deduct an amount under Subdivision 387‑F of that Act for your expenditure, disregard any amount that you have deducted, or can deduct, for that expenditure under section 70 of the Income Tax Assessment Act 1936.
Note: This ensures that you can deduct amounts under Subdivision 387‑F of the Income Tax Assessment Act 1997 for the 1997-98 income year and later income years, even if you did or can deduct amounts for your expenditure under section 70 of the Income Tax Assessment Act 1936 for one or more income years before the 1997-98 income year.
(2)
Disregard an amount deducted or deductible for any income year under section 70 of the Income Tax Assessment Act 1936 for capital expenditure on a part of a telephone line by an entity that worked on installing that part, when applying subsection 387‑410(2) of the Income Tax Assessment Act 1997 to work out whether you can deduct an amount under that Subdivision.
Note: This helps prevent deductions by different entities for capital expenditure on the same part of a telephone line.

387‑415Saving of deductions under section 70 of the Income Tax Assessment Act 1936

Subdivision 387‑F of the Income Tax Assessment Act 1997 does not affect a deduction, or an entitlement to a deduction, under section 70 of the Income Tax Assessment Act 1936 for the 1996-97 income year or an earlier income year.

Subdivision 387‑G—Forestry roads and timber mill buildings

Table of sections

387‑450 Application of Subdivision 387‑G of the Income Tax Assessment Act 1997
387‑470 Expenditure incurred before the 1997-98 income year
387‑472 Treatment of deductions for income years before 1997-98
387‑485 How the balancing adjustment is affected if there has only been old roll-over relief
387‑505 Application of Common rule 1 to disposal of road or building under new law
387‑507 Transitional provision for certain non-arm’s length transactions

387‑450Application of Subdivision 387‑G of the Income Tax Assessment Act 1997

Subdivision 387‑G of the Income Tax Assessment Act 1997 applies to assessments for the 1997-98 income year and later income years, in relation to expenditure, regardless of when it was incurred.
[The next section is section 387‑470.]

387‑470Expenditure incurred before the 1997-98 income year

(1)
The purpose of this section is to ensure that the amount of capital expenditure you must take into account for the purposes of working out the amount of a deduction under Subdivision 387‑G of the Income Tax Assessment Act 1997 is the same as the amount of your capital expenditure taken into account as a basis for working out a deduction under section 124F or 124JA of the Income Tax Assessment Act 1936.
(2)
This section applies if, before the 1997-98 income year, you incurred capital expenditure (the original expenditure) on an access road or a timber mill building for which you did or can deduct an amount for an income year before the 1997-98 income year under section 124F or 124JA of the Income Tax Assessment Act 1936.
(3)
For the purposes of Subdivision 387‑G of the Income Tax Assessment Act 1997:
(a)
you are taken to have incurred an amount (the base amount) of capital expenditure on the road or building equal to:
(i)
what was your residual capital expenditure for the road or building for the purposes of section 124F or 124JA of the Income Tax Assessment Act 1936 immediately after you incurred the original expenditure; or
(ii)
if you incurred the original expenditure before the first income year for which you could deduct an amount for it—what was your residual capital expenditure for the road or building for the purposes of section 124F or 124JA of that Act at the start of that first income year; and
(b)
you are taken to have incurred the base amount:
(i)
when you incurred the original expenditure; or
(ii)
if you incurred the original expenditure before the first income year for which you could deduct an amount for it—at the start of that first income year.
Note: Your residual capital expenditure mentioned in subparagraph (3)(a)(i) will equal your capital expenditure (as affected by section 124H or 124JC of the Income Tax Assessment Act 1936) if you incurred the original expenditure on construction of an access road after the 1955‑56 income year, or on construction of a timber mill building after the 1962-63 income year.
(4)
Despite subsection (3), if before the 1997-98 income year:
(a)
you incurred capital expenditure on constructing or acquiring an access road for which you did or can deduct an amount under section 124F of the Income Tax Assessment Act 1936; and
(b)
you stopped using the road for the purpose for which it was primarily and principally constructed; and
(c)
you started using the road again for that purpose;
you are taken to have incurred an amount of capital expenditure on the road equal to the amount described in subsection 124F(4) of that Act in the income year in which you started using the road again.

387‑472Treatment of deductions for income years before 1997-98

(1)
If you deducted, or can deduct, an amount for an income year (the old law year) before the 1997-98 income year under section 124F or 124JA of the Income Tax Assessment Act 1936 for your expenditure on an access road or a timber mill building:
(a)
you are taken to have deducted that amount for the old law year under Subdivision 387‑G of the Income Tax Assessment Act 1997 (which allows deductions for the 1997-98 income year and later income years for expenditure on forestry roads and timber mill buildings), as if that Subdivision had applied to assessments for the old law year; and
(b)
the amount is taken not to have been deducted or be deductible under section 124F or 124JA of the Income Tax Assessment Act 1936.
(2)
This section applies only for the purposes of Subdivision 387‑G of the Income Tax Assessment Act 1997. It does not affect a deduction, or an entitlement to a deduction, under section 124F or 124JA of the Income Tax Assessment Act 1936 for an income year before the 1997-98 income year for the purposes of that Act.
[The next section is section 387‑485.]

387‑485How the balancing adjustment is affected if there has only been old roll-over relief

(1)
If:
(a)
before the 1997-98 income year, roll‑over relief was available under section 124GA or section 124JD of the Income Tax Assessment Act 1936 in relation to the disposal of an access road or a timber mill building by a taxpayer (the transferor) to another taxpayer (the transferee); and
(b)
in the 1997‑98 income year or a later income year:
(i)
the road or building is destroyed; or
(ii)
the transferee disposes of it in circumstances where Subdivision 41‑A of the Income Tax Assessment Act 1997 (which sets out Common rule 1 dealing with roll‑over relief for related entities) does not apply to the disposal; or
(iii)
for some other reason, the transferee stops using it for the purpose for which it was primarily and principally constructed or acquired; and
(c)
there has been no earlier disposal of the road or building where roll‑over relief was available under Common rule 1;
the balancing adjustment is affected in 2 ways.
(2)
First:
(a)
the total amounts deductible by the transferor under
section 124F or 124JA of the Income Tax Assessment Act 1936 in relation to the road or building; or
(b)
if there have been 2 or more prior applications of
section 124GA or 124JA of that Act in relation to the road or building—the total amounts deductible by the prior transferors under section 124F or 124JA of that Act in relation to the road or building;
are taken to have been deductible by the transferee under Subdivision 387‑G of the Income Tax Assessment Act 1997 in relation to the road or building.
(3)
Second:
(a)
the transferor’s total capital expenditure (of a kind that qualified for a deduction under section 124F or 124JA of the Income Tax Assessment Act 1936) relating to the road or building; or
(b)
if there have been 2 or more prior applications of
section 124GA or 124JD of that Act—the prior transferors’ total capital expenditure (of a kind that qualified for a deduction under section 124F or 124JA of that Act) relating to the road or building;
is taken to have been the transferee’s total capital expenditure (of a kind that qualified for a deduction under Subdivision 387‑G of the Income Tax Assessment Act 1997) relating to the road or building.
[The next section is section 387‑505.]

387‑505Application of Common rule 1 to disposal of road or building under new law

If:
(a)
you deducted or can deduct amounts for capital expenditure relating to an access road or a timber mill building under Division 10A of Part III of the Income Tax Assessment Act 1936 (except section 124J of that Act) for the 1996‑97 income year or an earlier income year; and
(b)
in the 1997‑98 income year or a later income year you dispose of the road or building;
Subdivision 41‑A of the Income Tax Assessment Act 1997 (which sets out Common rule 1 dealing with roll‑over relief for related entities) applies as if:
(c)
a reference in that Common rule to the rules for the capital allowance included a reference to that Division (except section 124J); and
(d)
that Common rule had applied to any disposal of the road or building during or before the 1996‑97 income year for which roll‑over relief was available under section 124GA or 124JD of the Income Tax Assessment Act 1936.

387‑507Transitional provision for certain non-arm’s length transactions

(1)
If:
(a)
an entity incurred capital expenditure on an access road or a timber mill building for which the entity has deducted, or can deduct, an amount for a year of income before the
1997-98 income year under Division 10A of Part III of the Income Tax Assessment Act 1936 (except section 124J); and
(b)
the entity disposes of the road or building during the 1997-98 income year or a later income year in a transaction in which the parties do not deal at arm’s length; and
(c)
under the transaction the entity receives an amount less than the market value of what the amount is for; and
(d)
subsection 41‑65(2) of the Income Tax Assessment Act 1997 does not apply;
the entity is taken to have received that market value for the disposal.
(2)
In determining whether the parties to the transaction dealt at arm’s length, consider any connection between them, as well as any other relevant circumstance.

Part 2Consequential amendment of the Income Tax Assessment Act 1997

Section 10-5 (table item headed “timber”)

Omit:

access road, balancing adjustment on the disposal of.........

124G

substitute:

forestry road, balancing adjustment on the disposal of.......

387‑485

Section 10-5 (table item headed “timber”)

Omit “124JB”, substitute “387-485”.
4
Section 12-5 (table item headed “electricity connections”)
Omit “70A”, substitute “Subdivision 387‑E”.
5
Section 12-5 (table item headed “primary production”)
Omit:

grape vines, expenditure incurred in establishing.................

75AA

substitute:

grapevines, expenditure incurred in establishing..................

Subdivision 387‑D

6
Section 12-5 (table item headed “primary production”)
Omit:

land degradation, expenses incurred in preventing..............

75D

substitute:

landcare operations, expenditure on.......................................

Subdivision 387‑A

7
Section 12-5 (table item headed “primary production”)
Omit “70”, substitute “Subdivision 387‑F”.
8
Section 12-5 (table item headed “primary production”)
Omit “75B”, substitute “Subdivision 387‑B”.

Section 12-5 (table item headed “timber”)

Omit:

access roads for timber operations, expenditure on.............

124F

Section 12-5 (table item headed “timber”)

After:

felling trees, deduction of price of land attributable to trees felled or of price of right to fell trees...............................

70‑120

insert:

forestry roads, expenditure on.................................................

Subdivision 387‑G

Section 12-5 (table item headed “timber”)

Omit “124JA to 124JD”, substitute “Subdivision 387‑G”.
12
Section 40-30 (table item dealing with electricity connections, column headed “What expenditure qualifies?”)
Omit “mains electricity facilities on land used or intended for use in producing assessable income”, substitute “supply of mains electricity for use in a business for producing assessable income on land in Australia”.
13
Section 40-30 (table item dealing with electricity connections, column headed “For more detail, see ...”)
Omit “Section 70A”, substitute “Subdivision 387‑E”.
14
Section 40-30 (table item dealing with grapevines, column headed “For more detail, see ...”)
Omit “Section 75AA”, substitute “Subdivision 387‑D”.
15
Section 40-30 (table item dealing with land degradation)
Omit “Land degradation”, substitute “Landcare operations”.
16
Section 40-30 (table item dealing with land degradation, column headed “What expenditure qualifies?”)
Omit “activities to prevent degradation of land”, substitute “landcare operations”.
17
Section 40-30 (table item dealing with land degradation, column headed “For more detail, see ...”)
Omit “Section 75D”, substitute “Subdivision 387‑A”.
18
Section 40-30 (table item dealing with telephone lines, column headed “For more detail, see ...”)
Omit “Section 70”, substitute “Subdivision 387‑F”.
19
Section 40-30 (table item dealing with timber mill buildings, column headed “For more detail, see ...”)
Omit “Subdivision B of Division 10A of Part III”, substitute “Subdivision 387‑G”.
20
Section 40-30 (table item dealing with timber operations)
Omit “operations: access”, substitute “operations: forestry”.
21
Section 40-30 (table item dealing with timber operations, column headed “What expenditure qualifies?”)
Omit “on access”, substitute “on forestry”.
22
Section 40-30 (table item dealing with timber operations, column headed “For more detail, see ...”)
Omit “Subdivision A of Division 10A of Part III”, substitute “Subdivision 387‑G”.
23
Section 40-30 (table item dealing with water conservation, column headed “For more detail, see ...”)
Omit “Section 75B”, substitute “Subdivision 387‑B”.
24
Section 41-5 (after the table item dealing with depreciation)
Insert:

Electricity connections	Does not apply	Does not apply	Does not apply
Grapevines	Does not apply	Does not apply	Does not apply
Landcare operations	Does not apply	Applies as modified by subsection 387‑65(2)	Does not apply

Section 41-5 (at the end of the table)

Add:

Telephone lines	Does not apply	Does not apply	Does not apply
Timber mill buildings	Applies without modification	Applies without modification	Applies without modification
Timber operations: forestry roads	Applies without modification	Applies without modification	Applies without modification
Water conservation	Does not apply	Applies as modified by section 387‑145	Does not apply

Paragraph 43-70(2)(f)

Repeal the paragraph, substitute:
(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)
Division 330 of this Act or Division 10, 10AAA or 10AA of Part III of the Income Tax Assessment Act 1936 (all of which deal with mining and/or quarrying); or
(ii)
section 73A of the Income Tax Assessment Act 1936 (Expenditure on scientific research); or
(iii)
Subdivision 387‑A of this Act or section 75D of the Income Tax Assessment Act 1936 (both of which allow deductions for capital expenditure to prevent land degradation); or
(iv)
Subdivision 387‑B of this Act or section 75B of the Income Tax Assessment Act 1936 (both of which allow deductions for capital expenditure on facilities to conserve or convey water); or
(v)
Subdivision 387‑G of this Act or section 124F or 124JA of the Income Tax Assessment Act 1936 (all of which allow deductions for capital expenditure on forestry roads and/or timber mill buildings); or

Subsection 995-1(1)

Insert:
approved management plan for land has the meaning given by section 387‑80.

Subsection 995-1(1)

Insert:
connecting power to land or upgrading the connection has the meaning given by subsections 387‑360(1) and (2).

Subsection 995-1(1)

Insert:
forestry road has the meaning given by subsection 387‑465(1).

Subsection 995-1(1)

Insert:
landcare operation has the meaning given by section 387‑60.

Subsection 995-1(1)

Insert:
metering point on land has the meaning given by subsection 387‑360(3).

32
Subsection 995-1(1) (at the end of the table in the definition of termination value)
Add:

4	Timber mill building	section 387-490
5	Timber operation: forestry road	section 387-490

Subsection 995-1(1)

Insert:
timber mill building has the meaning given by
subsection 387‑465(3).

Subsection 995-1(1)

Insert:
timber operation has the meaning given by subsection 387‑465(2).

Subsection 995-1(1)

Insert:
water facility has the meaning given by section 387‑130.
36
Subsection 995-1(1) (at the end of the table in the definition of written down value)
Add:

4	Timber mill building	section 387-495
5	Timber operation: forestry road	section 387-495

Part 3Consequential amendment of the Income Tax Assessment Act 1936

Subsection 51AAA(2) (at the end of the table)

Add:

9	Subdivision 387‑A	Landcare operations
10	Subdivision 387‑B	Facilities to conserve or convey water
11	Subdivision 387‑D	Establishing grapevines
12	Subdivision 387‑E	Mains electricity supply
13	Subdivision 387‑F	Telephone lines

Before subsection 70(1)

Insert:
(1AA)
A deduction is not allowable under this section for the 1997-98 year of income or a later year of income.
Note: Subdivision 387‑F of the Income Tax Assessment Act 1997 provides for deductions for the cost of a telephone line for the 1997-98 year of income and later years of income (even if the cost was incurred before the 1997-98 year of income—see Subdivision 387‑F of the Income Tax (Transitional Provisions) Act 1997).

Before subsection 70A(1A)

Insert:
(1AA)
A deduction is not allowable under this section for the 1997-98 year of income or a later year of income.
Note: Subdivision 387‑E of the Income Tax Assessment Act 1997 provides for deductions for the 1997-98 year of income and later years of income for capital expenditure on the connection of mains electricity facilities (including expenditure incurred before the 1997-98 year of income—see Subdivision 387‑E of the Income Tax (Transitional Provisions) Act 1997).

Before subsection 75AA(1A)

Insert:
(1AA)
A deduction is not allowable under this section for the 1997-98 year of income or a later year of income.
Note: Subdivision 387‑D of the Income Tax Assessment Act 1997 provides for deductions for the 1997-98 year of income and later years of income for expenditure in respect of the establishment of a grape vine (including expenditure incurred before the 1997-98 year of income—see Subdivision 387‑D of the Income Tax (Transitional Provisions) Act 1997).

Before subsection 75B(1)

Insert:
(1AA)
A deduction is not allowable under this section for the 1997-98 year of income or a later year of income.
Note: Subdivision 387‑B of the Income Tax Assessment Act 1997 provides for deductions for the 1997-98 year of income and later years of income for expenditure on plant or a structural installation for conserving or conveying water (including expenditure incurred before the 1997-98 year of income—see Subdivision 387‑B of the Income Tax (Transitional Provisions) Act 1997).

Before subsection 75D(1)

Insert:
(1AA)
A deduction is not allowable under this section for the 1997-98 year of income or a later year of income.
Note: Subdivision 387‑A of the Income Tax Assessment Act 1997 provides for deductions for the 1997-98 year of income and later years of income for capital expenditure on operations of the kind described in subsection (1B).

Subsection 82AM(2)

Omit “section 70A, 73B, 75B or 75D of this Act or section 330-15”, substitute “section 73B of this Act or section 330‑15 or Subdivision 387‑A, 387‑B or 387‑E”.
44
Before Subdivision A of Division 10A of Part III
Insert:

Subdivision AA—Application of this Division

124EAAThis Division does not apply after 1996-97 year of income

An amount is not deductible under this Division for an income year after the 1996-97 year of income.
Note 1: Subdivision 387‑G of the Income Tax Assessment Act 1997 allows deductions for the 1997-98 year of income and later years of income for capital expenditure on forestry roads for timber operations and for capital expenditure on timber mill buildings (including capital expenditure incurred before the 1997-98 year of income: see Subdivision 387‑G of the Income Tax (Transitional Provisions) Act 1997).
Note 2: Paragraphs 70‑120(2)(a) and (b) and subsection 70‑120(3) of the Income Tax Assessment Act 1997 allow deductions for the 1997-98 year of income and later years of income for the price paid (at any time) for land carrying trees or for a right to fell trees.
45
Subsection 159GE(1) (definition of capital expenditure deduction)
Omit “or 330‑H”, substitute “, 330‑H or 387‑G”.
46
Subsection 159GE(1) (paragraph (c) of the definition of Division 10, 10AA or 10A property)
After “124JA(1)”, insert “of this Act or section 387‑460 of the Income Tax Assessment Act 1997”.

After paragraph 159GF(3)(f)

Insert:
(g)
the difference between capital expenditure and previous deductions as defined in subsection 387‑470(1) of the Income Tax Assessment Act 1997;

Paragraph 159GJ(2)(a)

After “330‑C”, insert “or 387‑G”.

Paragraph 159GJ(2)(c)

After “330‑C”, insert “or 387‑G”.
50
Section 317 (definition of depreciation provision)
Omit “and 330-H”, substitute “, 330‑H and 387‑G”.
51
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on a telephone line, column 2)
Repeal the cell, substitute:

Subdivision 387‑F of the Income Tax Assessment Act 1997

52
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure in connecting or upgrading mains electricity facilities, column 2)
Repeal the cell, substitute:

Subdivision 387‑E of the Income Tax Assessment Act 1997

53
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on establishing a grape vine,
column 2)
Repeal the cell, substitute:

Subdivision 387‑D of the Income Tax Assessment Act 1997

54
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on plant or structural improvements for conserving or conveying water, column 2)
Repeal the cell, substitute:

Subdivision 387‑B of the Income Tax Assessment Act 1997

55
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on access roads to an area of timber operations, column 1)
Omit “access roads”, substitute “forestry roads”.
56
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on access roads to an area of timber operations, column 2)
Repeal the cell, substitute:

Subdivision 387‑G of the Income Tax Assessment Act 1997

57
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on buildings used for timber milling business, column 2)
Repeal the cell, substitute:

Subdivision 387‑G of the Income Tax Assessment Act 1997

Schedule 12MiscellaneousPart 1Amendment of the Income Tax Assessment Act 1997

At the end of section 2‑30

Add “Each of these notes is a link note.”.
2
Section 11-15 (before the table item headed “defence”)
Insert:

credit unions
interest..........................................................................................	23G

Section 13-1 (table item headed “trusts”)

Omit “98A(2)”, substitute “98A(2)(a)”.

At the end of section 36-15

Add:
Note: Your tax losses under this Division may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E of Schedule 2C to the Income Tax Assessment Act 1936.

Paragraph 36-40(1)(b)

Omit “referred to in”, substitute “covered by”.

Paragraph 36-40(2)(c)

Omit “referred to in”, substitute “covered by”.

At the end of section 43-50

Add:
(7)
Your deductions under this Division may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E of Schedule 2C to the Income Tax Assessment Act 1936.

At the end of section 165-165

Add:
[The next section is section 165-175.]

Subsection 170-5(2)

Omit “*wholly-owned group”, substitute “wholly-owned group”.

Subsection 330-15(1) (note)

Repeal the note, substitute:
Note 1: The amount you can deduct for an income year is subject to the excess deduction rules: see Subdivision 330-F.
Note 2: Your deductions under this Subdivision may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E of Schedule 2C to the Income Tax Assessment Act 1936.

Section 330-80 (after note 1)

Insert:
Note 1A: Your deductions under this Subdivision may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E of Schedule 2C to the Income Tax Assessment Act 1936.

Section 330-370 (note)

Repeal the note, substitute:
Note 1: Your deductions under this Subdivision may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E of Schedule 2C to the Income Tax Assessment Act 1936.
Note 2: Section 330-60 of the Income Tax (Transitional Provisions) Act 1997 converts amounts of undeducted capital expenditure at the end of the 1996-97 income year into transport capital expenditure incurred by you in the 1997-98 income year. It also tells you how to deduct that expenditure.

Subsection 995-1(1) (definition of car)

Omit “or fewer”, substitute “and fewer”.

Subsection 995‑1(1)

Insert:
link note has the meaning given by section 2‑30.

Part 2Amendment of the Income Tax Assessment Act 1936

Subsection 124ZZJ(5)

Repeal the subsection, substitute:
(5)
Expenditure is taken not to be establishment expenditure in respect of the establishment of a horticultural plant to the extent to which the expenditure:
(a)
is qualifying expenditure within the meaning of Division 10D of this Act; or
(b)
is part of a pool of construction expenditure within the meaning of Division 43 of the Income Tax Assessment Act 1997.
Note: Those Divisions deal with buildings, structural improvements and other capital works.
16
Section 245-110 of Schedule 2C (definition of table of deductible revenue losses)
Repeal the table, substitute:

Table of deductible revenue losses
Item	Column 1 General description of losses	Column 2 Provision under which loss is deductible
1	Tax losses	Section 36-15 of the Income Tax Assessment Act 1997
2	Foreign losses of pre-1990 years of income	Subsection 160AFD(1)
3	Foreign losses of post-1989 years of income	Subsection 160AFD(2)

17
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure incurred in relation to mining or quarrying operations)
Repeal the item, substitute:

Expenditure incurred in relation to mining or quarrying operations

Subdivision 330-C of the Income Tax Assessment Act 1997

18
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure incurred on exploration or prospecting for minerals obtainable by prescribed mining operations)
Repeal the item, substitute:

Expenditure incurred on exploration or prospecting for minerals or quarry materials

Subdivision 330-A of the Income Tax Assessment Act 1997

19
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure incurred in transporting minerals or quarry materials)
Omit “Subsections 123B(1) and 123BE(1)”, substitute “Subdivision 330-H of the Income Tax Assessment Act 1997”.
20
Subsection 245‑140(1) of Schedule 2C (table item dealing with expenditure on prospecting and mining for petroleum)
Repeal the item.
21
Subsection 245‑140(1) of Schedule 2C (table item dealing with construction costs of building for short term traveller accommodation)
Repeal the item, substitute:

Expenditure on assessable income producing buildings and other capital works

Section 43-10 of the Income Tax Assessment Act 1997

22
Subsection 245‑140(1) of Schedule 2C (table item dealing with construction costs of buildings, structural improvements etc.)
Repeal the item.

After subsection 245-140(1) of Schedule 2C

Insert:
(1A)
If the forgiveness year of income is the 1997-98 year of income, paragraph (a) of the definition of deductible expenditure in subsection (1) applies to expenditure that is taken by Division 330 of the Income Tax (Transitional Provisions) Act 1997 to be incurred in that year of income as if it had been incurred before the forgiveness year of income.
Note: Division 330 of the Income Tax (Transitional Provisions) Act 1997 deals with mining and quarrying expenditure.

Part 3Amendment of the Income Tax (Consequential Amendments) Act 1997

Item 20 of Schedule 1

Repeal the item.
Note: This item commences immediately before 1 July 1997.

Items 35 and 36 of Schedule 1

Repeal the items.
Note: This item commences immediately before 1 July 1997.

Items 37 and 38 of Schedule 1

Repeal the items.
Note: This item commences immediately before 1 July 1997.

Item 39 of Schedule 1 (heading)

Omit “51(4), (6), (7), (8) and (9)”, substitute “51(8) and (9)”.
Note: This item commences immediately before 1 July 1997.
28
Items 40, 41, 42, 47, 53, 55, 56, 57, 66, 67 and 196 of Schedule 1
Repeal the items.
Note: This item commences immediately before 1 July 1997.

Items 253 and 254 of Schedule 1

Repeal the items.
Note: This item commences immediately before 1 July 1997.
30
Items 117, 118, 121, 122, 135 and 136 of Schedule 3
Repeal the items.
Note: This item commences immediately before 1 July 1997.

Part 4Consequential amendments of other Acts

Airports (Transitional) Act 1996

After section 54

Insert:

54AAirport-lessee company to be capital works owner for the purposes of Division 43 of the Income Tax Assessment Act 1997

(1)
For the purposes of Division 43 of the Income Tax Assessment Act 1997, if:
(a)
capital works are situated on land leased under an airport lease; and
(b)
there is a pool of construction expenditure for the capital works; and
(c)
immediately before the land was transferred from the FAC to the Commonwealth under Part 2 of this Act, the FAC was the owner of the capital works for the purposes of Division 43 of the Income Tax Assessment Act 1997;
then, so long as the airport-lessee company concerned continues to hold the airport lease, the airport-lessee company is taken to be the owner of the capital works.
(2)
In this section:
pool of construction expenditure has the meaning given by section 43-85 of the Income Tax Assessment Act 1997.

Legislative Instruments Act 1997

32
Schedule 2 (after the table item dealing with the Income Tax Assessment Act 1936)
Insert:

Income Tax Assessment Act 1997

the whole Act other than:

• subsection 900-35(2).

Social Security Act 1991

Paragraph 1075(1)(a)

Omit “of the Income Tax Assessment Act”, substitute “of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997, as appropriate”.

Student and Youth Assistance Act 1973

Paragraph 177(1)(a)

Omit “of the Income Tax Assessment Act”, substitute “of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997, as appropriate”.

Veterans’ Entitlements Act 1986

Paragraph 46C(1)(a)

Omit “of the Income Tax Assessment Act”, substitute “of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997, as appropriate”.

[Minister’s second reading speech made in—

House of Representatives on 11 December 1996

Senate on 26 March 1997]