Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

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

Operative provisions  

SECTION 26-35   Reducing deductions for amounts paid to related entities  

You can only deduct reasonable amounts paid to related entities

26-35(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

26-35(2)    
A related entity is any of the following:

(a) your ^* relative; or

(b) a partnership in which your relative is a partner.

26-35(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

26-35(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.

26-35(5)    
(Repealed by No 75 of 2010 )