ATO Interpretative Decision
ATO ID 2003/848
Income Tax
Division 16E: appropriate method to calculate 'accrual amounts'FOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can the Commissioner exercise a discretion to allow an alternative method to the one specified in Division 16E of the Income Tax Assessment Act 1936 (ITAA 1936) for calculating the 'accrual amount'?
Decision
No. Division 16E of the ITAA 1936 does not provide for the exercise of a Commissioner's discretion in relation to the use of a formula or method for calculating accrual amounts under Division 16E that differs from the formula specified in the legislation.
Facts
The taxpayer receives income under arrangements which fall within the application of Division 16E of the ITAA 1936. The taxpayer uses a commercially available software package to work out the principal and interest components of the payments received or to be received.
The taxpayer claims that the use of this financial model does not result in any material difference to the amounts that should be brought to account under the formula set out in subsection 159GQB(1) in Division 16E.
Reasons for Decision
Division 16E of the ITAA 1936 sets out the timing of taxation consequences for holders and issuers of certain securities. It contains a formula for working out the amount to be included in assessable income of the holder and the amount to be allowed as a deduction to the issuer.
Subsection 159GQ(1) of the ITAA 1936 requires the holder to work out the accrual amount for each accrual period as determined by the operation of sections 159GQB and 159GQA respectively. Subsection 159GQB(1) sets out a formula to be used in complying with section 159GQ.
There is no discretion available to the Commissioner to sanction the use of a different formula for calculating the 'accrual amount' required by section 159GQB of the ITAA 1936. Accordingly, approval to use the alternative method cannot be given.
Date of decision: 17 February 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
section 159GQ
section 159GQA
section 159GQB
Keywords
Securities
Securities valuation
Securities transactions
ISSN: 1445-2782