FINANCIAL CORPORATIONS (TRANSFER OF ASSETS AND LIABILITIES) ACT 1993

PART 3 - INCOME TAX RELIEF FOR TRANSFERS  

Division 6 - Bad debts  

SECTION 22   DEDUCTIONS FOR BAD DEBTS  

22(1)   General.  

In relation to a transfer of a debt, these rules about deductions for bad debts have effect as shown in the table:

(a) section 25-35 of the Income Tax Assessment Act 1997 ;

(b) subsection 63(1A) of the Income Tax Assessment Act 1936 .

Effect of rules about deductions for bad debts
Case	If:	then those rules have effect as if:
1	the debt was included in the transferring corporation ' s assessable income of a year of income	the debt had been included in the receiving corporation ' s assessable income of that year of income
2	the debt is in respect of money lent by the transferring corporation in the ordinary course of its business of lending money	the debt were in respect of money lent by the receiving corporation in the ordinary course of a business of lending money
3	the transferring corporation bought the debt in the ordinary course of its business of lending money	the receiving corporation had bought the debt in the ordinary course of a business of lending money

22(2)   Modification of tests for receiving corporation to deduct bad debt.  

In relation to a transfer of a debt, Subdivisions 165-C , 166-C , 175-C , 709-D and 719-I of the Income Tax Assessment Act 1997 have effect as if the debt had been incurred at the time of the transfer.

Note:

Those Subdivisions are about companies deducting bad debts.

22(3)   Easing of restrictions on transferring corporation.  

If:

(a) this Act applies to one or more transfers of assets by the transferring corporation to the receiving corporation; and

(b) an entity incurs a debt to the transferring corporation in a year of income (the debt year ); and

(c) the debt year is the income year in which this section (as originally enacted) commenced or an earlier income year; and

(d) any one or more of Subdivisions 165-C , 175-C , 709-D and 719-I of the Income Tax Assessment Act 1997 prevent the transferring corporation from deducting an amount for the debt for an income year (the deduction year ); and

(e) the transferring corporation did not, at any time in the deduction year, derive income from:

(i) a business of a kind that it did not carry on; or

(ii) a transaction of a kind that it had not entered into in the course of its business operations;

before the transfer, or the earliest of the transfers, occurred;

none of those Subdivisions prevents the transferring corporation from deducting that amount.

Note:

Subdivision 165-C of the Income Tax Assessment Act 1997 is about the conditions that a company needs to satisfy before it can deduct a bad debt.

Subdivision 175-C of that Act is about the Commissioner preventing a company from getting certain tax benefits through its unused bad debts.

Subdivision 709-D of that Act is about the conditions that must be met for an entity to deduct a bad debt that has for a period been owed to a member of a consolidated group and has for another period been owed to an entity that was not a member of that group for the period.

Subdivision 719-I of that Act is about the conditions that must be met for an entity to deduct a bad debt that has for a period been owed to a member of a MEC group.

22(4)   Limit on deductions for partly written-off debt.  

If this Act applies to the transfer of a debt that has been partly written off, the maximum that the receiving corporation can deduct for the debt for one or more years of income under section 8-1 or 25-35 of the Income Tax Assessment Act 1997 is worked out using the formula:

Amount of the debt   −   Unrecouped deductions

where:

unrecouped deductions
means the total of the amounts that the transferring corporation has deducted or can deduct for any year of income under:

(a) section 8-1 or 25-35 of the Income Tax Assessment Act 1997 ; or

(b) section 63 or former section 51 of the Income Tax Assessment Act 1936 ;

reduced by the total of any amounts included in its assessable income in respect of the debt under:

(c) Subdivision 20-A of the Income Tax Assessment Act 1997 ; or

(d) former subsection 63(3) of the Income Tax Assessment Act 1936 .