INCOME TAX ASSESSMENT ACT 1936

PART III - LIABILITY TO TAXATION  

Division 3 - Deductions  

Subdivision A - General  

SECTION 65   PAYMENTS TO ASSOCIATED PERSONS AND RELATIVES  

65(1B)  


Where, by virtue of section 26-35 (Reduction of deduction for amounts paid to related entities) of the Income Tax Assessment Act 1997 , an amount is not allowable as a deduction in calculating in accordance with section 90 of this Act the net income, or a partnership loss, of a partnership in which a company, being a private company in relation to the year of income of the company to which the individual interest of the company in the net income of the partnership or in the partnership loss relates, is a partner:


(a) the company shall, for the purposes of this Act other than Division 11A , be deemed to have paid, on the last day of that year of income, a dividend of an amount ascertained in accordance with subsection (1C); and


(b) subsection 26-35(4) of the Income Tax Assessment Act 1997 does not apply in relation to so much of the amount that is not so allowable as a deduction as is equal to the amount of the dividend that the company is to be so deemed to have paid.

65(1C)  


For the purposes of subsection (1B), the amount of the dividend that the company is to be deemed to have paid is:


(a) where the effect of the disallowance of the deduction has been to increase the net income of the partnership - an amount equal to the difference between the amount of the individual interest of the company in the net income of the partnership and the amount that would have been the individual interest of the company in the net income of the partnership if the deduction had been allowed;


(b) where the effect of the disallowance of the deduction has been to reduce the partnership loss - an amount equal to the difference between the amount of the individual interest of the company in the partnership loss and the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed;


(c) where there is net income of the partnership and the amount of the deduction that was disallowed is equal to that net income - an amount equal to the individual interest of the company in the net income of the partnership;


(d) where there is net income of the partnership and, but for the disallowance of the deduction, there would have been a partnership loss - an amount equal to the sum of the amount of the individual interest of the company in the net income of the partnership and the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed; and


(e) where there is no net income of the partnership and, but for the disallowance of the deduction, there would have been a partnership loss - an amount equal to the amount that would have been the individual interest of the company in the partnership loss if the deduction had been allowed.



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