Income tax: over what period are two or more prepayments under the same agreement apportioned in terms of section 82KZM of the Income Tax Assessment Act 1936 ?
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FOI status:may be releasedFOI number: I 1215028
|This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).|
1. A prepayment is not apportioned but is allowed in full as a deduction under subsection 51(1) in the year in which it is incurred if all the services in respect of the prepayment are to be provided within 13 months after the day on which the expenditure is incurred.
2. Under section 82KZM, if a prepayment is made under an agreement entered into after 25 May 1988 for the doing of a thing that is not to be wholly done within 13 months after the day on which the expenditure is incurred, then the prepayment is apportioned over the period to which it relates, unless it is excluded expenditure as defined in subsection 82KZL(1).
4. If two or more prepayments of less than $1,000 each are made for the purpose of preventing the application of the apportionment rules of section 82KZM, then the general anti-avoidance provisions of Part IVA may be invoked to deny the intended tax advantage.
Taxpayer A enters into an agreement to commence on 1 July 1992 with an eligible service period as defined in subsection 82KZL(1) of 18 months (549 days). The payments under the agreement are $100 per month.The Taxpayer makes prepayments as follows:
- Year ended 30/6/93 $1197 ( $1,800 x 365/549)
- Year ended 30/6/94 $ 603 ( $1,800 x 184/549)
Taxpayer B enters into an agreement on the 30 June 1992 which is for a period of 25 months commencing on 1 July 1992. The payments are $1000 per month.She makes a prepayment of 13 months ($13,000) on the 30 June 1992 and a further prepayment for the balance of the agreement ($12,000) on the 1 July 1992.The $13,000 prepayment is allowable in full in the year in which it is incurred as all the services in respect of the prepayment will be provided within 13 months after the day on which the expenditure is incurred.The $12,000 prepayment relates to the period 1 August 1993 to 31 July 1994 (365 days). As all the services to which the $12,000 prepayment relate will not be wholly done within 13 months after the day on which this expenditure is incurred, then this prepayment is apportioned over the period to which it relates, as set out below.The deduction allowable to Taxpayer B in each year of income is as follows:
Commissioner of Taxation