INCOME TAX ASSESSMENT ACT 1936

PART III - LIABILITY TO TAXATION  

Division 3 - Deductions  

Subdivision A - General  

SECTION 63F   LIMIT ON DEDUCTIONS WHERE DEBT WRITE OFFS AND DEBT/EQUITY SWAPS OCCUR  

Situations where limit is to be applied

63F(1)  
If:


(a) apart from this section, a deduction ( the current 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 the whole or part of a debt as bad; or

(ii) under section 63E of this Act in respect of a debt/equity swap relating to the whole or part of a debt; and


(b) a deduction ( a previous deduction ) was allowed or allowable to the taxpayer under any of those sections, under former section 51 of this Act or under section 63 of this Act in respect of any number of occurrences of either or both of the following:


(i) a previous writing off as bad of the whole or part of a debt ( a previous debt ) that was the same as, or included, the debt mentioned in subparagraph (a)(i) or (ii);

(ii) a previous debt/equity swap relating to a part of a debt ( a previous debt ) that was the same as, or included, the debt mentioned in subparagraph (a)(i) or (ii); and


(c) the current deduction or at least one previous deduction is a deduction allowable under section 63E of this Act in respect of a debt/equity swap;

then the current deduction is only allowable to the extent that it does not exceed the limit worked out under subsection (2).

Calculation of limit

63F(2)  
The limit is worked out as follows:


Step 1: Take the amount of the previous debt in respect of the earliest or only writing off or debt/equity swap to which paragraph (1)(b) applies.
Step 2: Reduce the amount by the previous deduction in respect of that writing off or debt/equity swap.
Step 3: If one or more of the following events occur after the writing off or debt/equity swap, progressively reduce the balance of the amount in the way set out below and in the order in which the events occur:


Event How balance reduced
A writing off or debt/equity swap in respect of which there is a previous deduction. Reduce the balance by the amount of that previous deduction. If the reduced balance is higher than the level of the debt owing after the event, further reduce the balance to that lower level.
Any other event (e.g. a repayment) that reduces the amount of debt owing, being an event that occurs before the writing off or debt/equity swap in respect of the current deduction. If the balance at the time of the event is higher than the level of the debt owing after the event occurs, reduce the balance to that lower level.

The limit is the resulting balance.


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