Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-1 - ASSESSABLE INCOME  

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

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

How much is included in your assessable income?

SECTION 20-45   Effect of balancing charge  

20-45(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 Subdivision 40-D .

Effect on section 20-35

20-45(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

20-45(3)    
In applying the method statement in subsection 20-40(2) , reduce the total deductions for the loss or outgoing by the balancing charge.

Example:

Continuing the example in subsection 20-40(2) : at the start of the 2005-06 income year, the company:

• receives a further $10,000 as recoupment; and

• sells the depreciating asset for $75,000.

As a result of the sale, a balancing adjustment of $5,000 is included under section 40-285 in the company's assessable income for that income year.

How much of the recoupment amount received in the 2005-06 income year is assessable for that income year?

Applying the method statement in subsection 20-40(2) :

After step 1: the total assessable recoupment is $30,000 (received during 2002-03 and 2005-06).

After step 2: the recoupment already assessed is $20,000 (for 2002-03 and 2003-04).

After step 3: the unassessed recoupment is:

total assessable recoupment minus recoupment already assessed, i.e. $30,000 minus $20,000 = $10,000.

After step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 2002-03, 2004-04 and 2004-05), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), i.e. $25,000.

After step 5: the outstanding deductions are:

total deductions for the loss or outgoing minus recoupment already assessed, i.e. $25,000 minus $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, i.e. $5,000.