INCOME TAX ASSESSMENT ACT 1997 - SECT 709.215 Limit on deduction of bad debt
INCOME TAX ASSESSMENT ACT 1997 - SECT 709.215
Limit on deduction of bad debt(1) The claimant can deduct the debt, or part of the debt, if, and only if:
(a) section 8 - 1 or 25 - 35 permits the deduction (ignoring subsection 25 - 35(5) and the provisions mentioned in that subsection); and
(b) the condition in subsection (2) is met for each debt test period.
(2) The condition is that the entity that was owed the debt for the debt test period could have deducted the debt for an income year (the debt test income year ) starting and ending at the times identified in subsection (3) if:
(a) the entity had written off the debt as bad at the end of the period; and
(b) these provisions (the modified provisions ) had effect as described in this section:
(i) sections 165 - 123 and 165 - 126 (which are about conditions that must be met for a company to be able to deduct a bad debt);
(ii) sections 266 - 35, 266 - 85, 266 - 120, 266 - 160 and 267 - 25 in Schedule 2F to the Income Tax Assessment Act 1936 (which are about conditions that must be met for certain kinds of trusts to be able to deduct a bad debt);
(iii) other provisions of this Act so far as they relate to a section listed in subparagraph (i) or (ii); and
(c) these provisions did not apply:
(i) subsections 165 - 120(2) and (3);
(ii) section 63G of the Income Tax Assessment Act 1936 ;
(iii) section 267 - 65 in Schedule 2F to that Act.
Note 1: Some of the other provisions of this Act that relate to a section listed in subparagraph (2)(b)(i) are sections 165 - 120, 165 - 129 and 165 - 132 and Subdivision 166 - C.
Note 2: Some of the other provisions of this Act that relate to a section listed in subparagraph (2)(b)(ii) are sections 266 - 40, 266 - 45, 266 - 90, 266 - 125, 266 - 165, 267 - 30, 267 - 35, 267 - 40 and 267 - 45 in Schedule 2F to the Income Tax Assessment Act 1936 .
Debt test income year
(3) The table shows when the debt test income year starts and ends.
Start and end of debt test income year | |||
| If: | The start of the debt test income year is: | The end of the debt test income year is: |
1 | Both these conditions are met: (a) the entity that is owed the debt for the debt test period is the claimant; (b) the period ends at the time (the write - off time ) the claimant actually writes off the debt or part of the debt | The later of these times (or either of them if they are the same): (a) the start of the income year in which the write - off time occurs; (b) the start of the debt test period | The end of the income year in which the write - off time occurs |
2 | Either: (a) the entity that is owed the debt for the debt test period is not the claimant; or (b) that entity is the claimant but that period ends before the claimant actually writes off the debt or part of the debt | The later of these times (or either of them if they are the same): (a) 12 months before the end of the debt test period; (b) the start of the debt test period | The end of the debt test period |
Continuity periods, ownership test periods and test periods
(4) For the purposes of subsection (2), the modified provisions have effect as if:
(a) the * first continuity period started at the start time shown in the table and ended at the start of the debt test income year; and
(b) the * second continuity period were the debt test income year or, for the purposes of section 165 - 123 and Subdivision 166 - C defining periods by reference to the second continuity period, the period:
(i) starting at the start of the debt test income year; and
(ii) ending at the end time shown in the table; and
(c) each section listed in subparagraph (2)(b)(ii) specified that the test period identified in the section:
(i) started at the start time shown in the table; and
(ii) ended at the end time shown in the table.
Start time and end time | |||
| If: | The start time is: | The end time is: |
1 | All these conditions are met: (a) the entity that is owed the debt for the debt test period is the claimant; (b) the period ends at the time (the write - off time ) the claimant actually writes off the debt or part of the debt; (c) the claimant is the * head company of a * consolidated group at the write - off time | The start of the debt test period | The end of the income year in which the write - off time occurs |
2 | All these conditions are met: (a) the entity that is owed the debt for the debt test period is the claimant; (b) the period ends at the time (the write - off time ) the claimant actually writes off the debt or part of the debt; (c) the claimant is not the * head company of a * consolidated group at the write - off time | Just before the start of the debt test period | The end of the income year in which the write - off time occurs |
3 | The debt test period: (a) starts at a time other than a time when the entity that is owed the debt for the period ceases to be a * member of a * consolidated group; and (b) ends when the entity becomes a member of such a group; (whether or not the entity was the * head company of another such group during the period) | The start of the debt test period | Just after the end of the debt test period |
4 | Both these conditions are met: (a) the entity that is owed the debt for the debt test period is the * head company of a * consolidated group; (b) the period ends when: (i) a * subsidiary member of the group becomes a * member of another consolidated group; or (ii) the entity ceases to be the head company of the group without becoming a member of another consolidated group | The start of the debt test period | The end of the debt test period |
4A | Both these conditions are met: (a) the entity that is owed the debt for the debt test period is the * head company of a * consolidated group; (b) the period ends when a * subsidiary member of the group ceases to be a * member of the group without becoming a member of another consolidated group | The start of the debt test period | The end of the debt test period |
5 | The debt test period: (a) starts when the entity that is owed the debt for the period ceases to be a * member of a * consolidated group; and (b) ends later when the entity becomes a member of a consolidated group | Just before the start of the debt test period | Just after the end of the debt test period |
(5) For the purposes of subsection (2), the modified provisions have effect as if section 267 - 25 in Schedule 2F to the Income Tax Assessment Act 1936 applied in relation to debts whether they were incurred in the income year or an earlier income year.
Test time for business continuity test under section 165 - 126
(6) For the purposes of subsection (2), the modified provisions have effect as if subsection 165 - 126(2) specified that the test time were the later of these times (or either of them if they are the same):
(a) the first time at which it is not practicable to show that the company will meet the conditions in section 165 - 123 (as modified by this section);
(b) the time just after the start of the debt test period.
Business at and just after the end of the debt test period
(a) the debt test period ends when the entity that was owed the debt for the period becomes a * member of a * consolidated group; and
(b) under the modified provisions, the * business that the entity carried on at or just after the end of the period is relevant to the question whether the entity could have deducted the debt as described in subsection (2);
those provisions have effect for the purposes of that subsection as if the
entity carried on at those times the business it carried on just before the
end of the period.