INCOME TAX ASSESSMENT ACT 1936

PART X - ATTRIBUTION OF INCOME IN RESPECT OF CONTROLLED FOREIGN COMPANIES  

Division 7 - Calculation of attributable income of CFC  

Subdivision B - General modifications of Australian tax law  

SECTION 399A   MODIFIED APPLICATION OF BAD DEBT ETC. PROVISIONS  

399A(1)   [Application of s 63 and 63D]  

For the purposes of applying this Act in calculating the attributable income of the eligible CFC for the eligible period:


(a) (Repealed by No 101 of 2006 )


(b) section 63D of this Act is to be disregarded; and


(c) subsection (2) of this section has effect.

399A(2)   [Notional allowable deduction]  

Where:


(a) apart from this subsection, an amount would be a notional allowable deduction to the eligible CFC under section 8-1 or 25-35 of the Income Tax Assessment Act 1997 in respect of the writing off of a debt as bad; and


(b) the debt was created or acquired in the ordinary course of a money-lending business of the eligible CFC that carries on that business; and


(c) assuming that income:


(i) that has been derived by the eligible CFC in respect of the debt; or

(ii) that would have been reasonably likely to have been derived by the eligible CFC in respect of the debt if it had not become bad;
were instead derived by the eligible CFC during periods to which it may reasonably be attributed, there would be a part or parts (which part or the total of which parts is in this subsection called the ``notional exempt income period'' ) of the period (in this subsection called the ``eligible debt holding period'' ) beginning when the debt was so created or acquired, and ending when it was written off, in respect of which some or all of that income would not be included in the notional assessable income of the eligible CFC for any statutory accounting period;

then only a proportion of the amount referred to in paragraph (a) is a notional allowable deduction, being the proportion calculated using the following formula:


Eligible debt holding period - Notional exempt income period
Eligible debt term

where:

`` Eligible debt holding period '' means the number of days in the eligible debt holding period;

`` Notional exempt income period '' means the number of days in the notional exempt income period;

`` Eligible debt term '' means:

  • (d) where the debt was acquired from a person other than an associate - the number of days in the eligible debt holding period; or
  • (e) in any other case - the number of days in the period beginning on the day on which the debt was created (whether by the eligible CFC or another person) and ending at the end of the day on which it was written off.
  • 399A(3)   [Assumptions re subsection (2) formula]  

    For the purposes of subsection (2):


    (a) where a debt that is written off was acquired from another person, the creation and any previous acquisition of the debt is to be disregarded, other than for the purposes of paragraph (2)(e); and


    (b) if, on the assumption in paragraph (2)(c), income would be derived by the eligible CFC during a period before the first statutory accounting period of the eligible CFC beginning on or after 1 July 1990, then, in spite of anything in that paragraph, that income is taken not to be included in the notional assessable income of the eligible CFC for any statutory accounting period; and


    (c) it is to be assumed that, for any statutory accounting period for which there is no requirement to calculate the attributable income of the eligible CFC in relation to the eligible taxpayer, there is such a requirement.

    399A(4)   [Partial bad debt write offs]  

    Where a part of a debt is written off as bad, the preceding provisions of this section apply as if the part were an entire debt that is written off as bad.

    399A(5)   [Deductions re debt/equity swaps]  

    This section has the same effect in relation to an allowable deduction under section 63E in respect of the whole or part of a debt that is extinguished as it has in relation to an allowable deduction under section 8-1 or 25-35 of the Income Tax Assessment Act 1997 in respect of the whole or part of a debt that is written off as bad.


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