Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 709 - Other rules applying when entities become subsidiary members etc.  

Subdivision 709-D - Deducting bad debts  

Application and object

SECTION 709-205   Application of this Subdivision  

709-205(1)    
This Subdivision affects whether an entity (the claimant ) that is or has been a ^* member of a ^* consolidated group and writes off a debt, or part of a debt, as bad may deduct the debt or part if the conditions in subsection (2) exist.

Note:

This Subdivision affects similarly whether an entity that is or has been a member of a consolidated group and extinguishes a debt as part of a debt/equity swap may deduct a loss resulting from the swap. See section 709-220 .

709-205(2)    
The conditions are that, in the time starting when the debt was incurred (whether to the claimant or another entity) and ending when the claimant wrote off the debt or part:

(a) the debt was owed to an entity (whether the claimant or another entity) for a period (a debt test period ) when the entity was a ^* member of a ^* consolidated group; and

(b) the debt was owed to an entity (whether the claimant or another entity) for a period (also a debt test period ) when the entity was not a member of that group.

Note 1:

The debt must have been owed to the claimant for at least one of the debt test periods for the claimant to have been able to write it off.

Note 2:

One effect of section 701-1 (Single entity rule) is that a debt is taken to be owed to the head company of a consolidated group while the debt is owed to a subsidiary member of the group.

709-205(3)    
Ignore section 701-5 (Entry history rule) and section 701-40 (Exit history rule) in identifying a debt test period.

Note:

Subsection (3) does not affect sections 701-5 and 701-40 so far as they operate to treat the debt, or part of the debt, as having been included in the claimant ' s assessable income. That inclusion is generally a condition under section 25-35 for the claimant to be able to deduct the debt.

709-205(4)    
This Subdivision does not apply in relation to a debt merely because it is assigned:

(a) from an entity that is a ^* member of a ^* consolidated group to an entity that is not a member of that group; or

(b) from an entity that is not a member of a consolidated group to an entity that is a member of a consolidated group; or

(c) from an entity that is a member of a consolidated group to an entity that is a member of another consolidated group.

This subsection has effect despite subsections (1) and (2).

Note:

There is not an assignment of a debt from one entity to another merely because section 701-1 (Single entity rule) starts or ceases to apply in relation to the entities so that the debt ceases to be a debt owed to one entity and becomes a debt owed to the other entity.