INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-10 - FINANCIAL TRANSACTIONS  

Division 250 - Assets put to tax preferred use  

Subdivision 250-E - Taxation of deemed loan  

The accruals method

SECTION 250-255   When to re-estimate  

When re-estimation necessary

250-255(1)  
You re-estimate a gain or loss from the *financial arrangement under subsection (4) if circumstances arise that materially affect:


(a) the amount or value; or


(b) the timing;

of *financial benefits that were taken into account in working out the amount of the gain or loss. You must re-estimate the gain or loss as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph (b).

250-255(2)  
Without limiting subsection (1), the following are circumstances of the kind referred to in paragraph (1)(b):


(a) a material change in market conditions that are relevant to the amount or value of the *financial benefits to be received or provided under the *financial arrangement;


(b) cash flows that were previously estimated becoming known and the difference between the cash flows that become known and the cash flows that were previously estimated is not insignificant;


(c) a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt.

250-255(3)  
You do not re-estimate a gain or loss from a *financial arrangement under subsection (4) merely because of any one or more of the following:


(a) a change in the credit rating, or the creditworthiness, of a party or parties to the financial arrangement;


(b) the impairment (within the meaning of the *accounting standards) of the arrangement or a debt that forms part of the arrangement. Nature of re-estimation

250-255(4)  
Making a re-estimation in relation to a gain or loss under this subsection involves:


(a) a fresh determination of the amount of the gain or loss; and


(b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of the redetermined gain or loss that has not already been allocated to intervals ending before the re-estimation is made to intervals ending after the re-estimation is made. Basis for re-estimation

250-255(5)  
You may make the fresh allocation of the gain or loss under subsection (4) on either of the following bases:


(a) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return;


(b) adjusting the rate of return and maintaining the amount to which you apply the rate of return.

The object to be achieved by both bases is allow you to bring the remainder of the gain or loss based on the new estimates properly to account over the remainder of the period over which you spread the gain or loss.

250-255(6)  
If you adopt a particular basis under subsection (5) for a gain or loss from the *financial arrangement, you must use the same basis for all the re-estimations you make under this section in relation to your gains and losses from all your financial arrangements. Balancing adjustment if rate of return maintained

250-255(7)  
If you make a fresh allocation of the gain or loss on the basis referred to in paragraph (5)(a), you must make the following balancing adjustment:


(a) if you re-estimate a gain and the amount to which you apply the rate of return increases - you make a gain from the *financial arrangement, for the income year in which you make the re-estimation, equal to the amount of the increase;


(b) if you re-estimate a gain and the amount to which you apply the rate of return decreases - you make a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the decrease;


(c) if you re-estimate a loss and the amount to which you apply the rate of return increases - you make a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the increase;


(d) if you re-estimate a loss and the amount to which you apply the rate of return decreases - you make a gain from the arrangement, the income year in which you make the re-estimation, equal to the amount of the decrease.


View surrounding sectionsView surrounding sectionsBack to top


This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.