INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 3 - Deductions  

Subdivision A - General  

SECTION 63A   BAD DEBTS ETC. OF COMPANY NOT ALLOWABLE DEDUCTIONS UNLESS THERE IS SUBSTANTIAL CONTINUITY OF BENEFICIAL OWNERSHIP OF SHARES IN COMPANY  

63A(1A)   [No application from 1998/99 year onwards]  

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.

63A(1)   [Continuing effect of section]  

This section has effect despite sections 8-1 and 25-35 of the Income Tax Assessment Act 1997 .

63A(2)   [Beneficial ownership of shares test]  

Subject to the following provisions of this section and to sections 63AA , 63B , 63C and 63CB , a debt owed to a taxpayer that is a company, being a debt that was incurred during a year before the year of income, is not an allowable deduction in the assessment of the company in respect of income of the year of income unless the debt is written off as a bad debt during the year of income and:

(a) the company satisfies the Commissioner; or

(b) in the case of a company that is not a private company in relation to the year of income, the Commissioner considers that it is reasonable to assume;

that, at all times during the year of income, shares in the company carrying between them:

(c) the right to exercise more than one-half of the voting power in the company;

(d) the right to receive more than one-half of any dividends that may be paid by the company; and

(e) the right to receive more than one-half of any distribution of the capital of the company;

were beneficially owned by persons who, at all times during the year in which the debt was incurred, beneficially owned shares in the company carrying between them rights of those kinds.

63A(3)   [Circumstances for tracing interests]  

Where:

(a) subsection (2) would, but for this subsection, apply for the purpose of determining whether a debt owed to a company is an allowable deduction in the assessment of the company in respect of income of the year of income;

(b) during the whole or any part of the year in which the debt was incurred, or during the whole or any part of the year of income, another company or other companies beneficially owned all or any of the shares in the first-mentioned company or an interest or interests in all or any of those shares; and

(c) the first-mentioned company requests the Commissioner at the time when it furnishes to him a return (or, if more than one return is furnished, the first return) of its income of the year of income, or within such further period as the Commissioner allows, that subsection (4) should apply for the purpose referred to in paragraph (a) or the Commissioner considers it reasonable that that subsection should apply for that purpose;

then subsection (4) applies for that purpose in lieu of subsection (2).

63A(4)   [Tracing of interests]  

Where, by virtue of subsection (3), this subsection applies for the purpose of determining whether a debt owed to a company (in this subsection referred to as the ``relevant company'' ) is an allowable deduction in the assessment of the company in respect of income of the year of income, then, subject to the following provisions of this section and to sections 63AA , 63B , 63C and 63CB , that debt is not an allowable deduction in that assessment unless the debt is written off as a bad debt during the year of income and the Commissioner is satisfied, or considers that it is reasonable to assume, that:

(a) at all times during the year of income the voting power in the relevant company was, either directly or through one or more interposed companies, trustees or partnerships, controlled, or capable of being controlled, by a person not being a company, or by 2 or more persons not being companies, who, either directly or through one or more interposed companies, trustees or partnerships, controlled, or was or were capable of controlling, the voting power in the relevant company at all times during the year in which the debt was incurred;

(b) a person not being a company who had, or 2 or more persons not being companies who had between them, at all times during the year of income a right to receive, directly or indirectly, for his or their own benefit more than one-half of any dividends that might be paid by the relevant company would, if the relevant company had paid a dividend at any time during the year in which the debt was incurred, have had, or have had between them, as the case may be, a right to receive, directly or indirectly, for his or their own benefit more than one-half of that dividend; and

(c) a person not being a company who had, or 2 or more persons not being companies who had between them, at all times during the year of income a right to receive, directly or indirectly, for his or their own benefit more than one-half of any distribution of capital of the relevant company would, if the relevant company had made a distribution of capital at any time during the year in which the debt was incurred, have had, or have had between them, as the case may be, a right to receive, directly or indirectly, for his or their own benefit more than one-half of that distribution of capital.

63A(5)   [Change in beneficial ownership in year debt incurred]  

Where a debt owed to a taxpayer being a company was incurred during a year before the year of income and that debt is not, by virtue of subsection (2) or subsection (4), as the case may be, an allowable deduction but the company satisfies the Commissioner that that subsection would not have prevented the debt from being an allowable deduction if, in relation to the year in which the debt was incurred, regard were had, for the purposes of that subsection, only to the part of that year that commenced on the day on which the debt was incurred, that subsection does not prevent the debt from being an allowable deduction.

63A(6)   [Debt written off in year incurred]  

Subject to the following provisions of this section and to sections 63AB , 63B , 63C and 63CB , a debt owed to a taxpayer that is a company, being a debt that was incurred during the year of income but not being a debt that was incurred on the last day of the year of income, is not an allowable deduction in the assessment of the company in respect of income of the year of income unless the debt is written off as a bad debt during the year of income and:

(a) the company satisfies the Commissioner; or

(b) in the case of a company that is not a private company in relation to the year of income, the Commissioner considers that it is reasonable to assume,

that, at all times during the part of the year of income that followed the day on which the debt was incurred, shares in the company carrying between them rights of the kinds referred to in subsection (2) were beneficially owned by persons who, at all times during the part of the year of income that commenced on the first day of the year of income and ended on the day on which the debt was incurred, beneficially owned shares in the company carrying between them rights of those kinds.

63A(6A)   [Family trust owns company share]  

For the purposes of subsection (2) or (4), if a family trust (within the meaning of section 272-75 of Schedule 2F ) owns a share in a company, the trustee is taken to own the share beneficially.

63A(7)   [Circumstances for tracing through corporate shareholders]  

Where:

(a) subsection (6) would, but for this subsection, apply for the purpose of determining whether a debt owed to a company is an allowable deduction in the assessment of the company in respect of income of the year of income;

(b) at any time during the year of income another company or other companies beneficially owned all or any of the shares in the first-mentioned company or an interest or interests in all or any of those shares; and

(c) the first-mentioned company requests the Commissioner at the time when it furnishes to him a return (or, if more than one return is furnished, the first return) of its income of the year of income, or within such further period as the Commissioner allows, that subsection (8) should apply for the purpose referred to in paragraph (a) or the Commissioner considers is reasonable that that subsection should apply for that purpose,

then subsection (8) applies for that purpose in lieu of subsection (6).

63A(8)   [Tests where tracing of interests]  

Where, by virtue of subsection (7), this subsection applies for the purpose of determining whether a debt owed to a company (in this subsection referred to as the ``relevant company'' ) is an allowable deduction in the assessment of the company in respect of income of the year of income, then, subject to the following provisions of this section and to sections 63AB , 63B , 63C and 63CB , that debt is not an allowable deduction in that assessment unless the debt is written off as a bad debt during the year of income and the Commissioner is satisfied, or considers that it is reasonable to assume, that:

(a) at all times during the part of the year of income that followed the day on which the debt was incurred, the voting power in the relevant company was, either directly or through one or more interposed companies, trustees or partnerships, controlled, or capable of being controlled, by a person not being a company, or by 2 or more persons not being companies, who, either directly or through one or more interposed companies, trustees or partnerships, controlled, or was or were capable of controlling, the voting power in the relevant company at all times during the part of the year of income that commenced on the first day of the year of income and ended on the day on which the debt was incurred;

(b) a person not being a company who had, or 2 or more persons not being companies who had between them, at all times during the part of the year of income that followed the day on which the debt was incurred a right to receive, directly or indirectly, for his or their own benefit more than one-half of any dividends that might be paid by the relevant company would, if the relevant company had paid a dividend at any time during the part of the year of income that commenced on the first day of the year of income and ended on the day on which the debt was incurred, have had, or have had between them, as the case may be, a right to receive, directly or indirectly, for his or their own benefit more than one-half of that dividend; and

(c) a person not being a company who had, or 2 or more persons not being companies who had between them, at all times during the part of the year of income that followed the day on which the debt was incurred, a right to receive, directly or indirectly, for his or their own benefit more than one-half of any distribution of capital of the relevant company would, if the relevant company had made a distribution of capital at any time during the part of the year of income that commenced on the first day of the year of income and ended on the day on which the debt was incurred, have had, or have had between them, as the case may be, a right to receive, directly or indirectly, for his or their own benefit more than one-half of that distribution of capital.

63A(9)   [Tracing through interposed companies etc]  

For the purposes of this section, a person shall be deemed to be a person who had, or would have had, a right to receive indirectly for his own benefit the whole or a particular fraction of a dividend that might be, or might have been, paid by a company or of a distribution of capital of a company, or 2 or more persons shall be deemed to be persons who had, or would have had, between them a right to receive indirectly for their own benefit the whole or a particular fraction of such a dividend or distribution of capital, if, in the event of a payment of a dividend by the company, or of a distribution of capital of the company, the person or persons would, otherwise than as a shareholder or shareholders of the company or as a trustee or trustees, receive or have received the whole or that fraction, as the case may be, of that dividend, or of that distribution of capital, if there had been successive distributions of the relative parts of that dividend, or of that distribution of capital, to and by each of any companies or trustees interposed between the company paying the dividend, or making the distribution of capital, and that person or those persons.

63A(9A)   [Exception]  

For the purposes of applying subsection (9) to the whole or a fraction of a dividend or of a distribution of capital that a person who is the trustee of a family trust (within the meaning of section 272-75 of Schedule 2F ) would receive or would have received in the event of a payment as mentioned in that subsection, the requirement in that subsection that the person would do so or have done so otherwise than as a trustee is to be disregarded.

63A(9B)   [Deemed right of trustee]  

For the purpose of paragraph (4)(b) or (c) or (8)(b) or (c), if the trustee of a family trust (within the meaning of section 272-75 of Schedule 2F ) has a right to receive, directly or (as a result of applying subsection (9) in accordance with subsection (9A)) indirectly, the whole or part of a dividend or of a distribution of capital, the trustee is taken:

(a) to have that right for his or her own benefit; and

(b) if the trustee is a company - not to be a company.

63A(10)   [Section 80B tests applicable]  

Section 80B applies for the purposes of the application of the preceding provisions of this section in determining whether a debt owed to a company and written off as a bad debt during the year of income is an allowable deduction in the assessment of the company in respect of income of the year of income in like manner as that section applies for the purposes of the application of section 80A in determining whether a loss incurred by a company is to be taken into account in the 1996-97 year of income for the purposes of section 79E , 79F, 80, 80AAA or 80AA but, for the purposes of section 80B as so applying:

(a) a reference in that section to the year in which the loss was incurred shall be read as a reference:

(i) in the case of the application of that section in relation to subsections (2) and (4) - to the year in which the debt was incurred;

(ii) in the case of the application of that section in relation to subsection (5) - to the part of the year in which the debt was incurred that commenced on the day on which the debt was incurred and ended at the expiration of that year; and

(iii) in the case of the application of that section in relation to subsections (6) and (8) - to the part of the year of income that commenced on the first day of the year of income and ended on the day on which the debt was incurred;

(b) a reference in that section to the year of income shall, in the case of the application of that section in relation to subsections (6) and (8), be read as a reference to the part of the year of income that followed the day on which the debt was incurred; and

(c) the reference in paragraph 80B(5)(c) to the purpose of enabling the company to take into account for the purposes of section 79E , 79F , 80 , 80AAA or 80AA a loss that the company had incurred, or might incur, shall be read as a reference to the purpose of securing that a deduction would be allowable in respect of a debt that the company had written off, or might write off, as a bad debt.

63A(11)   [Debt incurred and written off on last day of income year]  

A debt owed to a taxpayer that is a company, being a debt that was incurred, and is written off as a bad debt, on the last day of the year of income, is not an allowable deduction.

63A(12)   [Commissioner's discretion]  

This section does not apply in relation to a debt if the Commissioner considers that, having regard to the persons who were the beneficial owners of the shares in the company at the time when in his opinion the debt became a bad debt, it would be unreasonable for this section to apply in relation to that debt.

63A(13)   [Part debt write offs]  

Where a part of a debt is an allowable deduction in an assessment, the preceding provisions of this section apply as if the part were an entire debt that is an allowable deduction in the assessment.

63A(14)   [Losses re debt-equity swaps]  

This section has the same effect in relation to an allowable deduction under section 63E in respect of the whole or part of a debt that is extinguished as it has in relation to an allowable deduction under section 8-1 or 25-35 of the Income Tax Assessment Act 1997 in respect of the whole or part of a debt that is written off as bad.