New Business Tax System (Integrity and Other Measures) Act 1999 (Incorporating amendments up to Act No. 78 of 2001) (169 of 1999)

Schedule 7   Deducting prepayments

Part 1   New rules

Division 1   Expenditure on and after 21 September 1999

Income Tax Assessment Act 1936

5   After section 82KZM

Insert:

82KZMA Application of sections 82KZMB, 82KZMC and 82KZMD

Overview

(1) Sections 82KZMB, 82KZMC and 82KZMD set the amount and timing of deductions for expenditure that a taxpayer incurs in an income year (the expenditure year ), if:

(a) apart from those sections, the taxpayer could deduct the expenditure under section 8-1 of the Income Tax Assessment Act 1997 for the expenditure year; and

(b) the requirements in subsections (2), (3), (4) and (5) are met.

Note: Sections 82KZMB and 82KZMC deal with expenditure with an eligible service period ending up to 13 months after the expenditure was incurred. Section 82KZMD deals with expenditure with a longer eligible service period. Subsection 82KZL(1) explains what the eligible service period for expenditure is.

Requirements for taxpayer

(2) The taxpayer:

(a) must carry on a business; and

(b) must not be a small business taxpayer.

Requirements for expenditure

(3) The expenditure must be incurred:

(a) in carrying on the business; and

(b) under an agreement (see subsection 82KZL(1)); and

(c) in return for the doing of a thing under the agreement that is not to be wholly done within the expenditure year.

Requirement for expenditure not to be excluded expenditure

(4) The expenditure must not be excluded expenditure (see subsection 82KZL(1)).

Requirement for expenditure not to meet pre-RBT obligation

(5) The expenditure must not meet a pre-RBT obligation (see subsection 82KZL(1)).

Relationship with other provisions

(6) Sections 82KZMB, 82KZMC and 82KZMD have effect:

(a) despite section 8-1 of the Income Tax Assessment Act 1997; and

(b) subject to Division 245 of Schedule 2C to this Act.

82KZMB Expenditure with eligible service period ending up to 13 months later

Application

(1) This section and section 82KZMC apply to expenditure whose eligible service period ends not more than 13 months after the taxpayer incurs the expenditure.

Note: Subsection 82KZL(1) explains what the eligible service period for expenditure is.

Deduction for expenditure year

(2) The taxpayer may deduct for the expenditure year the sum of:

(a) the amount (if any) worked out using the formula in subsection (3); and

(b) the amount worked out using the table in subsection (5).

Formula for deduction for expenditure year

(3) The formula is:

Expenditure = (Number of days in eligible service period in the expenditure year / Total number of days in eligible service period)

Deduction for year of income after expenditure year

(4) The taxpayer may deduct for the year of income straight after the expenditure year the amount worked out using the table in subsection (5).

Table of deductions

(5) The table is:

What is the later year amount ?

(6) The taxpayer's later year amount for expenditure is the difference between:

(a) the expenditure; and

(b) the amount worked out using the formula in subsection (3).

This subsection is subject to section 82KZMC.

Nil later year amount if this section did not apply in initial year

(7) To avoid doubt, the later year amount for expenditure incurred in the year of income including 21 September 1999 is nil if this section does not allow the taxpayer a deduction for the expenditure for that year of income.

Note 1: This will be the case if the requirements of section 82KZMA are not met in relation to the expenditure in that year.

Note 2: In this case, the later year amount for expenditure incurred in later years of income will also be nil under section 82KZMC, so subsection 82KZMC(4) will set the amount of deductions for years of income after the expenditure year for that expenditure.

82KZMC Limiting the totals of later year amounts

Application

(1) This section applies if (apart from this section) the sum of the taxpayer's later year amounts for all expenditures incurred in a year of income (the subsequent year ) mentioned in item 2, 3 or 4 of the table in subsection 82KZMB(5) would be more than the sum of the later year amounts for all the taxpayer's expenditures in the year of income (the initial year ) mentioned in item 1 of that table.

Note: For the purposes of this section, ignore any expenditure with an eligible service period ending more than 13 months after the expenditure was incurred. See subsection 82KZMB(1).

What is the later year amount ?

(2) The taxpayer's later year amount for expenditure incurred in the subsequent year is an amount (which may be a nil amount) that:

(a) the taxpayer chooses under subsection (3); and

(b) is not more than the amount worked out for the expenditure under subsection 82KZMB(6).

Choice of later year amounts

(3) The taxpayer must choose later year amounts for expenditures incurred in the subsequent year so that the total of those amounts equals the sum of the later year amounts for all the taxpayer's expenditures in the initial year.

Note: This means that the taxpayer must choose nil amounts for all expenditures incurred in the subsequent year if the later year amount for expenditure incurred in the initial year is nil.

Other deduction for years of income after expenditure year

(4) If the amount worked out under subsection 82KZMB(6) for the expenditure exceeds the later year amount for the expenditure chosen under this section, the taxpayer may deduct for the expenditure the amount worked out using the formula in subsection (5), for each year of income that:

(a) contains all or part of the eligible service period for the expenditure; and

(b) occurs after the expenditure year.

Formula for other deductions

(5) The formula is:

Excess * (Number of days of eligible service period in the year of income / Total number of days of eligible service period)

where:

excess is the difference between:

(a) the amount worked out under subsection 82KZMB(6) for the expenditure; and

(b) the later year amount for the expenditure chosen under this section.

Deduction is additional to deduction under section 82KZMB

(6) A deduction under this section for the expenditure is in addition to any deduction for the expenditure under section 82KZMB.

82KZMD Expenditure with eligible service period ending more than 13 months later

(1) This section applies to expenditure whose eligible service period ends more than 13 months after the taxpayer incurs the expenditure.

Note: Subsection 82KZL(1) explains what the eligible service period for expenditure is.

(2) For each year of income containing all or part of the eligible service period for the expenditure, the taxpayer may deduct the amount worked out using the formula:

Expenditure = (Number of days of eligible service period in the year of income / Total number of days of eligible service income)