House of Representatives

Taxation Laws Amendment Bill (No. 8) 1999

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

That is, deductions for bad debts under section 51 or 63 of the ITAA 1936, section 8-1 or 25-35 of the ITAA 1997, or debt/equity swap deductions under section 63E of the ITAA 1936.

Under section 102-15 of the Income Tax (Transitional Provisions) Act 1997 net capital losses brought forward from the 1996-97 income year or earlier income year will be calculated under the rules contained in the ITAA 1936.

Section 63E of the ITAA 1936 (debt/equity swap deductions) was not redrafted under the TLIP rewrite. A consequential amendment (subsection 63E(5A)) ensures that the rules contained in Subdivisions 165-C, 166-C and 175-C apply to an allowable deduction under section 63E in the same manner as if it were a bad debt.

These tracing rules apply where shares in the company with the debt deduction are beneficially owned by another company.

See paragraph 9.34.

The term continuing shareholder for the purpose of sections 175-10, 175-45, and 175-85 does not require modification because the persons referred to tests contained in those provisions are those persons who, in the first place, can deduct the tax loss, net capital loss under the relevant provisions in Division 165.

The term distribution of income or capital has been defined broadly it includes an extended definition which is set out in Subdivision 272-B of Schedule 2F.

If the trustee makes the election for the 1996-97 income year the family control test must be satisfied at all times from the beginning of that year until the end of the 1997-98 income year. If the election is made for the 1997-98 income year the family control test must be satisfied at the end of that year.

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