INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-10 - FINANCIAL TRANSACTIONS  

Division 230 - Taxation of financial arrangements  

Subdivision 230-G - Balancing adjustment on ceasing to have a financial arrangement  

SECTION 230-445   Balancing adjustment  

Complete cessation or transfer

230-445(1)  
Use the following method statement to make the balancing adjustment if paragraph 230-435(1)(a), (b) or (d) applies: Method statement for balancing adjustment


Step 1.

Add up the following:

  • (a) the total of all the *financial benefits you have received under the *financial arrangement;
  • (b) the total of the amounts that have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement;
  • (c) the total of the other amounts that would have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement if all your losses from the arrangement were allowable as deductions;
  • (d) the total of the amounts that will be allowed to you as deductions after the transfer or cessation because of a balancing adjustment under subitems 104(12) to (18) of the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 to the extent to which those amounts are attributable to the arrangement;
  • (e) the total of the amounts that will be allowed to you as deductions after the transfer or cessation because of sections 230-160 and 230-165 to the extent to which those amounts are attributable to the arrangement.

  • Step 2.

    Add up the following:

  • (a) the total of all the *financial benefits you have provided under the *financial arrangement;
  • (b) the total of the amounts that have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement;
  • (c) the total of the other amounts that would have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement if all your gains from the arrangement were assessable;
  • (d) the total of the amounts that will be included in your assessable income after the transfer or cessation because of a balancing adjustment under subitems 104(12) to (18) of the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 to the extent to which those amounts are attributable to the arrangement;
  • (e) the total of the amounts that will be included in your assessable income after the transfer or cessation because of sections 230-160 and 230-165 to the extent to which those amounts are attributable to the arrangement.

  • Step 3.

    Compare the amount obtained under step 1 (the step 1 amount ) with the amount obtained under step 2 (the step 2 amount ). If the step 1 amount exceeds the step 2 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a gain you make from the *financial arrangement for the purposes of this Division. If the step 2 amount exceeds the step 1 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a loss that you make from the arrangement. If the step 1 amount and the step 2 amount are equal, no balancing adjustment is made.

    Proportionate transfer of all rights and/or obligations under financial arrangement

    230-445(2)  
    If subparagraph 230-435(1)(c)(i) applies, you make the balancing adjustment by applying the method statement in subsection (1) but reduce:


    (a) the amounts referred to in step 1; and


    (b) the amounts referred to in step 2;

    by applying the proportion referred to in subparagraph 230-435(1)(c)(i) to them.

    Transfer of specifically identified right or obligation under financial arrangement

    230-445(3)  
    If subparagraph 230-435(1)(c)(ii) applies, you make the balancing adjustment by applying the method statement in subsection (1) as if the references to:


    (a) the amounts referred to in step 1; and


    (b) the amounts referred to in step 2;

    were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph 230-435(1)(c)(ii).

    Proportionate transfer of specifically identified right or obligation under financial arrangement

    230-445(4)  
    If subparagraph 230-435(1)(c)(iii) applies, you make the balancing adjustment by applying the method statement:


    (a) as if the references to:


    (i) the amounts referred to in step 1; and

    (ii) the amounts referred to in step 2;
    were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph 230-435(1)(c)(iii); and


    (b) by reducing those amounts by applying the proportion referred to in subparagraph 230-435(1)(c)(iii) to them. Attribution must reflect appropriate and commercially accepted valuation principles

    230-445(5)  
    Any attribution made under subsection (3) or paragraph (4)(a) must reflect appropriate and commercially accepted valuation principles that properly take into account:


    (a) the nature of the rights and obligations under the *financial arrangement; and


    (b) the risks associated with each *financial benefit, right and obligation under the arrangement; and


    (c) the time value of money. Income year for which gain or loss is made

    230-445(6)  
    The gain or loss you are taken to make under subsection (1), (2), (3) or (4) is a gain or loss for the income year in which the event referred to in subsection 230-435(1) occurs. Treatment of bad debts in relation to financial arrangements

    230-445(7)  
    For the purposes of applying paragraph (b) of step 1 of the method statement in subsection (1) to a *financial arrangement, a bad debt deduction in relation to the arrangement to which subsection 230-25(3) applies is taken to be a deduction for a loss from the arrangement.


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