INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-1 - ASSESSABLE INCOME  

Division 20 - Amounts included to reverse the effect of past deductions  

Subdivision 20-A - Insurance, indemnity or other recoupment for deductible expenses  

How much is included in your assessable income?

SECTION 20-40   If the expense is deductible over 2 or more income years  

20-40(1)  
This section includes an amount in your assessable income if:


(a) you receive in the * current year an * assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or


(b) you received in an earlier income year an * assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a * previous recoupment law).

(This section applies even if the recoupment was received before the first of those income years.)

Note:

Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50 .

20-40(2)  
Work out as follows how much is included in your assessable income for the * current year because of one or more * assessable recoupments of the loss or outgoing.

Note:

The method statement ensures that assessable recoupments are included:

  • · only so far as they have not already been included for an earlier income year; and
  • · only to the extent of your total deductions to date for the loss or outgoing.
  • Method statement

    Step 1.

    Add up all the * assessable recoupments of the loss or outgoing that you have received (in the * current year or earlier). The result is the total assessable recoupment .


    Step 2.

    Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a * previous recoupment law. The result is the recoupment already assessed . (If no amount was included, the recoupment already assessed is nil.)


    Step 3.

    Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment .


    Step 4.

    Add up each amount that you can deduct for the loss or outgoing for the * current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing .

    Note:

    The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45 .


    Step 5.

    Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions .


    Step 6.

    The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead.

    Example:

    At the start of the 2002-03 income year, a company incurs $100,000 to start to hold a depreciating asset. The company uses the prime cost method, and the effective life is 10 years. $10,000 is deductible for the 2002-03 income year and for each of the following 9 income years under section 40-25 .

    In the 2002-03 income year, the company receives $20,000 as recoupment. How much is assessable for the 2002-03 income year?

    Applying the method statement:

    After step 1: the total assessable recoupment is $20,000.

    After step 2: the recoupment already assessed is nil.

    After step 3: the unassessed recoupment is:

    total assessable recoupment minus recoupment already assessed, i.e. $20,000 minus 0 = $20,000.

    After step 4: the total deductions for the loss or outgoing are $10,000.

    After step 5: the outstanding deductions are:

    total deductions for the loss or outgoing minus recoupment already assessed, i.e. $10,000 minus 0 = $10,000.

    After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $10,000.

    Applying the method statement to the 2003-04 income year: a further $10,000 is included in the company's assessable income.


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