Income Tax Assessment Act 1936
Subject to section 63F , if:
(a) apart from this section and section 63F , a deduction would be allowable to a taxpayer:
(i) 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; or
(ii) under section 63E of this Act in respect of a debt/equity swap in relation to a debt; and
(b) the debt was created or acquired in the ordinary course of a money-lending business of the taxpayer who carries on that business; and
(c) during any part or parts (the foreign country branch period ) of the period since the debt was so created or acquired (the debt holding period ), it is the case that, if income had been derived by the taxpayer in respect of the debt, the income would not, because of section 23AH of this Act, have been included in the assessable income of the taxpayer;
then only a proportion of the deduction is allowable, being the proportion calculated using the formula:
Debt holding period
Foreign country branch period
Eligible debt term
(a) where the debt was acquired from a person other than an associate, within the meaning of section 318 of this Act - the number of days in the debt holding period; or
(b) in any other case - the number of days in the period beginning on the day on which the debt was created (whether by the taxpayer or another person) and ending at the end of the day on which it was written off.
Where a debt that is written off, or in respect of which there is a debt/equity swap (within the meaning of section 63E ), was acquired from another person, the creation, and any previous acquisition, of the debt is to be disregarded for the purposes of applying subsection (1), other than paragraph (b) of the definition of eligible debt term in subsection (1).
Where a part of a debt is written off as bad, this section applies as if the part were an entire debt that is written off as bad.