Commonwealth Consolidated Acts

TAX LAW IMPROVEMENT ACT (NO. 1) 1998 - SCHEDULE 3

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997
1 After Subdivision 165-CB

Insert:

Subdivision 165-C—Deducting bad debts

Table of sections

165-135 Application of Subdivision 165-C of the Income Tax Assessment Act 1997

165-135 Application of Subdivision 165-C of the Income Tax Assessment Act 1997

Subdivision 165-C of the Income Tax Assessment Act 1997 (about companies deducting bad debts) applies to assessments for the 1998-1999 income year and later income years.

[The next Division is Division 166.]

Division 166—Income tax consequences of changing ownership or control of a listed public company

[The next Subdivision is Subdivision 166-C.]

Subdivision 166-C—Deducting bad debts

Table of sections

166-40 Application of Subdivision 166-C of the Income Tax Assessment Act 1997

166-40 Application of Subdivision 166-C of the Income Tax Assessment Act 1997

Subdivision 166-C of the Income Tax Assessment Act 1997 (about listed public companies deducting bad debts) applies to assessments for the 1998-1999 income year and later income years.

[The next Division is Division 175.]

2 After Subdivision 175-CB

Insert:

Subdivision 175-C—Tax benefits from unused bad debt deductions

Table of sections

175-40 Application of Subdivision 175-C of the Income Tax Assessment Act 1997

175-40 Application of Subdivision 175-C of the Income Tax Assessment Act 1997

Subdivision 175-C of the Income Tax Assessment Act 1997 (about companies obtaining tax benefits from unused bad debt deductions) applies to assessments for the 1998-1999 income year and later income years.

Part 2—Consequential amendment of the Income Tax Assessment Act 1997
4 Section 12-5 (table item headed "tax losses")

Omit "63CA", substitute "165-120".

5 Subsection 25-35(5) (table item 1)

Omit "sections 63A and 63C", substitute "Subdivisions 165-C and 166-C".

6 Subsection 25-35(5) (table item 2)

Omit "sections 63B and 63D", substitute "Subdivision 175-C and section 63D".

7 Section 165-1

Repeal the section, substitute:

165-1 What this Division is about

A change in the ownership or control of a company can affect:

whether it can deduct its tax losses of earlier income years; and
how it calculates its taxable income and tax loss for the income year of the change; and

* whether it can deduct debts owed to it that are written off as bad.

8 At the end of section 165-195

Add:

(3)

In applying a test for the purposes of Subdivision 165-C (about deducting bad debts), this section does not cover ^* shares allotted before the ^* first continuity period.

9 At the end of section 166-150

Add:

Note: Subdivisions 166-F and 166-G modify how this test is applied in certain cases.

10 At the end of section 166-155

Add:

Note: Subdivisions 166-F and 166-G modify how this test is applied in certain cases.

11 At the end of section 166-160

Add:

Note: Subdivisions 166-F and 166-G modify how this test is applied in certain cases.

12 Section 175-1

Omit ", or current year deductions", substitute ", current year deductions, or deductions for bad debts,".

Part 3—Consequential amendment of the Income Tax Assessment Act 1936
13 Before subsection 63A(1)

Insert:

(1A)

This section does not apply to the 1998-99 year of income or a later year of income.

Note: Subdivisions 165-C, 166-C and 175-C of the Income Tax Assessment Act 1997 deal with a company deducting bad debts for those income years.

14 Before subsection 63B(1A)

Insert:

(1AA)

This section does not apply to the 1998-99 year of income or a later year of income.

Note: Subdivisions 165-C, 166-C and 175-C of the Income Tax Assessment Act 1997 deal with a company deducting bad debts for those income years.

15 Before subsection 63C(1)

Insert:

(1A)

This section does not apply to the 1998-99 year of income or a later year of income.

Note: Subdivisions 165-C, 166-C and 175-C of the Income Tax Assessment Act 1997 deal with a company deducting bad debts for those income years.

16 Before subsection 63CA(1)

Insert:

(1A)

This section does not apply to the 1998-99 year of income or a later year of income.

Note: Section 165-120 of the Income Tax Assessment Act 1997 deals with a company deducting in those income years a tax loss resulting from a bad debt.

17 After subsection 63E(5)

Insert:

(5A)

Subdivisions 165-C, 166-C and 175-C of the Income Tax Assessment Act 1997 apply to an allowable deduction under this section in respect of the whole or part of a debt that is extinguished, in the same way as they apply to a debt (or part of a debt) that is written off as bad.

19 Paragraph 427(b)

Omit "63CA,".

20 Paragraph 427(b)

Omit "and Subdivisions 165-A, ", substitute ", Subdivision 165-A, section 165-120 and Subdivisions".

Part 4—Consequential amendment of other Acts

Commonwealth Bank Sale Act 1995

21 Subsection 18(1)

Omit "section 63A of the Income Tax Assessment Act 1936 to decide whether a deduction is allowable to a Bank body", substitute "Subdivision 165-C or 166-C of the Income Tax Assessment Act 1997 to decide whether a Bank body can deduct an amount for a bad debt".

Note: The heading to section 18 is altered by omitting "section 63A" and substituting "bad debt provisions".

Financial Corporations (Transfer of Assets and Liabilities) Act 1993

22 Subsections 22(2) and (3)

Repeal the subsections, substitute:

Modification of tests for receiving corporation to deduct bad debt

(2)

In relation to a transfer of a debt, Subdivisions 165-C, 166-C and 175-C of the Income Tax Assessment Act 1997 have effect as if the debt had been incurred at the time of the transfer.

Note: Those Subdivisions are about companies deducting bad debts.

Easing of restrictions on transferring corporation

(3)

If:

(a) this Act applies to one or more transfers of assets by the transferring corporation to the receiving corporation; and
(b) an entity incurs a debt to the transferring corporation in a year of income (the debt year ); and
(c) the debt year is the income year in which this section (as originally enacted) commenced or an earlier income year; and
(d) Subdivision 165-C or 175-C, or both, of the Income Tax Assessment Act 1997 prevent the transferring corporation from deducting an amount for the debt for an income year (the deduction year ); and
(e) the transferring corporation did not, at any time in the deduction year, derive income from:
(i) a business of a kind that it did not carry on; or
(ii) a transaction of a kind that it had not entered into in the course of its business operations;
before the transfer, or the earliest of the transfers, occurred;

neither Subdivision 165-C nor 175-C of that Act prevents the transferring corporation from deducting that amount.

Note: Subdivision 165-C of the Income Tax Assessment Act 1997 is about the conditions that a company needs to satisfy before it can deduct a bad debt.

Subdivision 175-C of that Act is about the Commissioner preventing a company from getting certain tax benefits through its unused bad debts.

23 Subsection 22(4)

Repeal the subsection, substitute:

Limit on deductions for partly written-off debt

(4)

If this Act applies to the transfer of a debt that has been partly written off, the maximum that the receiving corporation can deduct for the debt for one or more years of income under section 8-1 or 25-35 of the Income Tax Assessment Act 1997 is worked out using the formula:

where: