INCOME TAX ASSESSMENT ACT 1936

SCHEDULE 2D - TAX EXEMPT ENTITIES THAT BECOME TAXABLE  

Division 57 - Tax exempt entities that become taxable  

Subdivision 57-G - Denial of certain deductions  

SECTION 57-65   TREATMENT OF BAD DEBTS  

57-65(1)  
This section applies to a deduction otherwise allowable to the transition taxpayer for a year of income under this Act for the writing off as bad of the whole or part of a debt owing to the transition taxpayer.

57-65(2)   Deduction allowable only if sum of all deductions exceeds doubtful debt provision limit.  

The deduction is not allowable if the sum of all deductions of the transition taxpayer to which this section applies for the year of income is less than or equal to the doubtful debt provision limit (see subsection (4)) for the year of income.

57-65(3)   Amount of deduction not allowable.  

If the sum is greater than that limit, so much of the deduction as is worked out using the following formula is not allowable:


Amount of deduction × Doubtful debt provision limit for the year of income
Sum of all deductions of the transition taxpayer to which this section applies for the year of income

57-65(4)   Meaning of doubtful debt provision limit.  

The doubtful debt provision limit for a year of income is:


(a) if the year of income is the transition year - the pre-transition doubtful debt limit (see subsection (5)); or


(b) in any other case - that limit as reduced by the total amount of deductions to which this section applies that, because of subsection (2) or (3), have not been allowable to the transition taxpayer for all previous years of income.

57-65(5)   Meaning of pre-transition doubtful debt limit.  

The pre-transition doubtful debt limit is the total of the amounts that, under generally accepted accounting principles, would be the appropriate doubtful debt provisions in relation to all debts owed to the transition taxpayer as at the transition time.

57-65(6)   Reduction of limit for excess recovery.  

If:


(a) at the transition time, a debt is owed to the transition taxpayer; and


(b) the sum of:


(i) the amount (if any) that, under generally accepted accounting principles, would be the appropriate doubtful debt provision in relation to the debt as at the transition time; and

(ii) any amounts later recovered in respect of the debt;
exceeds the amount of the debt;

the pre-transition doubtful debt limit is reduced by the amount of the excess.

57-65(7)   Reduction of limit if debt later disposed of.  

If:


(a) at the transition time, a debt is owed to the transition taxpayer; and


(b) there is an amount (the debt provision amount ) greater than nil that, under generally accepted accounting principles, would be the appropriate doubtful debt provision in relation to the debt as at the transition time; and


(c) after the transition time, the transition taxpayer disposes of the debt to another person;

the pre-transition doubtful debt limit is reduced by:


(d) if, after the transition time, the transition taxpayer wrote off part of the debt as bad - the excess (if any) of the debt provision amount over the amount or amounts so written off; or


(e) in any other case - the debt provision amount.


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