New Business Tax System (Integrity Measures) Act 2000 (90 of 2000)

Schedule 2   Deducting prepayment

Part 1   Expenditure on and after 11 November 1999

Income Tax Assessment Act 1936

7   After section 82KZMD

Insert:

82KZME Expenditure with eligible service period ending up to 13 months later under some agreements

(1) Section 82KZMF applies to set the amount and timing of deductions for expenditure that a taxpayer incurs in a year of income (the expenditure year ) if:

(a) apart from sections 82KZMB, 82KZMC and 82KZMF, the taxpayer could deduct the expenditure under section 8-1 of the Income Tax Assessment Act 1997 for the expenditure year; and

(b) the eligible service period for the expenditure ends not more than 13 months after the taxpayer incurs the expenditure; and

(c) the requirements of subsections (2) and (3) are met.

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

Note 2: There are some exceptions: see subsections (5), (6), (7), (8) and (9).

Note 3: If section 82KZMF applies to the expenditure, sections 82KZMB and 82KZMC do not: see subsection 82KZMF(3).

General requirements for expenditure

(2) The expenditure must be incurred:

(a) after 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999 under an agreement; and

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

Requirements for agreement

(3) There are these requirements for the agreement:

(a) the taxpayer's allowable deductions for the expenditure year that are attributable to the agreement must exceed the taxpayer's assessable income (if any) for the expenditure year that is attributable to the agreement; and

(b) the taxpayer does not have day to day control over the operation of the agreement (whether or not the taxpayer has the right to be consulted or give directions); and

(c) at least one of these must be satisfied:

(i) there is more than one participant in the agreement in the same capacity as the taxpayer;

(ii) the person who manages, arranges or promotes the agreement, or an associate of that person, manages, arranges or promotes similar agreements for other taxpayers.

Activities that relate to the agreement

(4) Without affecting the operation of any other section in this Subdivision, an agreement referred to in this section includes all activities that relate to the agreement, including those that give rise to deductions or assessable income.

Exception 1: certain negatively geared investments

(5) The expenditure must not be:

(a) a premium for building insurance, contents insurance or rent protection insurance; or

(b) interest on money borrowed to acquire:

(i) real property or an interest in real property; or

(ii) shares that are listed for quotation in the official list of an approved stock exchange; or

(iii) units in a trust that has at least 300 beneficiaries and is a widely held unit trust as defined in section 272-105 in Schedule 2F;

where:

(c) the taxpayer has obtained, or can reasonably be expected to obtain, rent, dividends or trust income from the agreement; and

(d) the taxpayer has not obtained and will not obtain any other kind of assessable income from the agreement (except a capital gain or an insurance receipt); and

(e) all aspects of the agreement have been conducted at arm's length.

Exception 2: infrastructure borrowings

(6) The expenditure must not be an allowable deduction because of section 159GZZZZF in respect of an infrastructure borrowing as defined in subsection 93D(1) of the Development Allowance Authority Act 1992.

Exception 3: expenditure is excluded expenditure

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

Exception 4: expenditure meets a pre-existing obligation

(8) The expenditure by the taxpayer must not meet a contractual obligation that:

(a) exists under an agreement at or before 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999; and

(b) requires the payment of an amount for the doing of a thing under the agreement; and

(c) requires the payment to be made before the doing of the thing; and

(d) cannot be escaped by unilateral action by the taxpayer.

Exception 5: agreement to which a product ruling applies

(9) The expenditure must not be under an agreement to which a product ruling applies, describing expenditure under the agreement as being allowable as a deduction.

(10) The product ruling must be made:

(a) on or before 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999; or

(b) in response to an application for a product ruling where:

(i) the application was received by the Commissioner on or before the time specified in paragraph (a); and

(ii) the Commissioner acknowledged receiving the application.

(11) In this section:

product ruling means a public ruling made under Part IVAAA of the Taxation Administration Act 1953 about a particular investment product.

82KZMF Proportional deduction

(1) If this section applies to expenditure incurred by a taxpayer in a year of income:

(a) the taxpayer cannot deduct all of the expenditure for the expenditure year; and

(b) instead, the taxpayer can deduct, for each year of income during which part of the eligible service period for the expenditure occurs, an amount worked out using this formula:

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

(2) This section has 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.

(3) If this section applies to expenditure incurred by a taxpayer, sections 82KZMB and 82KZMC do not apply to it.