Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 165 - Income tax consequences of changing ownership or control of a company  

Subdivision 165-C - Deducting bad debts  

Operative provisions

SECTION 165-120   To deduct a bad debt  

165-120(1)    
A company cannot deduct a debt (or part of a debt) that it writes off as bad in the *current year unless:

(a) it meets the conditions in section 165-123 (which is about the company maintaining the same owners); or

Note:

See section 165-230 for a special alternative to the condition in this paragraph.

(b) the Commissioner thinks it would be unreasonable to require the company to meet the conditions in that section, having regard to the entities that beneficially owned the shares in the company when (in the Commissioner ' s opinion) the debt (or part) became bad; or

(c) the company meets the condition in section 165-126 (which is about the company satisfying the business continuity test).

Note 1:

In the case of a widely held or eligible Division 166 company, Subdivision 166-C modifies how this Subdivision applies, unless the company chooses otherwise.

Note 2:

Normally bad debts are deductible under section 8-1 or 25-35 .

Note 3:

Subdivisions 709-D and 719-I modify how this Subdivision operates in relation to a company that used to be a member of a consolidated group or MEC group and that writes off as bad a debt that used to be owed to a member of the group.

165-120(2)    
The conditions in section 165-123 or 165-126 apply to different periods, depending on whether the debt was incurred in the *current year or an earlier income year:

Meaning of first continuity period and second continuity period
In this case:	the first continuity period :	and the second continuity period :
the debt was incurred in an earlier income year	•	starts on the day when the debt was incurred; and	is the *current year
	•	ends at the end of that income year
.
the debt was incurred in the *current year (but not on the last day of it)	•	starts on the first day of the *current year; and	•	starts on the day after the debt was incurred; and
	•	ends on the day when the debt was incurred	•	ends on the last day of the *current year

165-120(3)    
A company cannot deduct a debt (or part of a debt) that it writes off as bad on the last day of the *current year if the debt was also incurred on that day.