SECTION 15-22   Payments made to members of a copyright collecting society  

15-22(1)    
This section, instead of Division 6 of Part III of the Income Tax Assessment Act 1936 , applies to a payment that a ^* copyright collecting society, to which section 51-43 applies, makes to you as a ^* member of the society.

15-22(2)    

Your assessable income includes the amount of the payment, except to the extent that the payment represents an amount on which the directors of the society are or have been assessed, and are liable to pay ^* tax, under section 98 , 99 or 99A of the Income Tax Assessment Act 1936 .

Note:

Section 410-5 of this Act requires a copyright collecting society to give you a notice at the time of payment.

SECTION 15-23   Payments of resale royalties by resale royalty collecting society  

15-23(1)    
This section, instead of Division 6 of Part III of the Income Tax Assessment Act 1936 , applies to a payment that the *resale royalty collecting society makes to you under section 26 of the Resale Royalty Right for Visual Artists Act 2009 .

15-23(2)    
Your assessable income includes the amount of the payment, except to the extent that the payment represents an amount on which the directors of the society are or have been assessed, and are liable to pay *tax, under section 98 , 99 or 99A of the Income Tax Assessment Act 1936 .

Note:

Section 410-50 of this Act requires the resale royalty collecting society to give you a notice at the time of payment.

SECTION 15-25  

15-25   Amount received for lease obligation to repair  

Your assessable income includes an amount you receive from an entity if:

(a) you receive it as a lessor or former lessor of premises; and

(b) the entity pays you the amount for failing to comply with a lease obligation to make repairs to the premises; and

(c) the entity uses or has used the premises for the ^* purpose of producing assessable income; and

(d) the amount is not assessable as ^* ordinary income under section 6-5 .

Note:

The entity can deduct the amount: see section 25-15 .

SECTION 15-30  

15-30   Insurance or indemnity for loss of assessable income  

Your assessable income includes an amount you receive by way of insurance or indemnity for the loss of an amount (the lost amount ) if:

(a) the lost amount would have been included in your assessable income; and

(b) the amount you receive is not assessable as ^* ordinary income under section 6-5 .

SECTION 15-35  

15-35   Interest on overpayments and early payments of tax  

Your assessable income includes interest payable to you under the Taxation (Interest on Overpayments and Early Payments) Act 1983 . The interest becomes assessable when it is paid to you or applied to discharge a liability you have to the Commonwealth.

SECTION 15-40   Providing mining, quarrying or prospecting information or geothermal exploration information  

15-40(1)    
Your assessable income includes an amount you receive for providing ^* mining, quarrying or prospecting information to another entity if:

(a) you continue to ^* hold the information; and

(b) the amount you receive is not assessable as ^* ordinary income under section 6-5 .

15-40(2)    

Your assessable income includes an amount you receive for providing *geothermal exploration information you have to another entity if:

(a) you continue to have the information; and

(b) the information is, and continues to be, relevant to:

(i) *geothermal energy extraction that you carry on or propose to carry on; or

(ii) a *business that you carry on that includes *exploration or prospecting for *geothermal energy resources from which energy can be extracted by geothermal energy extraction; and

(c) the amount you receive is not assessable as *ordinary income under section 6-5 .

It does not matter whether the information is generally available or not.

15-40(3)    

Geothermal exploration information
is geological, geophysical or technical information that:

(a) relates to the presence, absence or extent of *geothermal energy resources in an area; or

(b) is likely to help in determining the presence, absence or extent of such resources in an area.

15-40(4)    

Geothermal energy extraction
means operations that are for:

(a) the extraction of energy from *geothermal energy resources; and

(b) the *purpose of producing assessable income.

SECTION 15-45   Amounts paid under forestry agreements  

15-45(1)    
Your assessable income includes an amount you receive under an agreement for the planting and tending of trees for felling if:

(a) you are the manager of the agreement as mentioned in section 82KZMG of the Income Tax Assessment Act 1936 ; and

(b) the amount satisfies, for the entity that paid it, the requirements of that section.

The amount is included for the income year in which the entity can claim a deduction for the amount.

15-45(2)    
No part of an amount included under subsection (1) is included in your assessable income for a later income year.

SECTION 15-46   Amounts paid under forestry managed investment schemes  

15-46(1)    
Your assessable income includes an amount you receive under a *forestry managed investment scheme if:

(a) you are the *forestry manager of the scheme, or an *associate of the forestry manager; and

(b) the entity that paid the amount can deduct or has deducted the amount under section 394-10 in relation to the scheme (disregarding subsection 394-10(5) ).

The amount is included for the income year for which the entity that paid the amount can or has claimed a deduction for it (disregarding subsection 394-10(5) ).

15-46(2)    
No part of an amount included under subsection (1) is included in your assessable income for a later income year.

SECTION 15-50  

15-50   Work in progress amounts  
Your assessable income includes a ^* work in progress amount that you receive.

Note:

To find out whether the amount is deductible to the payer, see section 25-95 .

SECTION 15-55   Certain amounts paid under funeral policy  

15-55(1)    
Your assessable income includes the amount of a benefit provided to you by a ^* life insurance company under a ^* funeral policy issued after 31 December 2002 to pay for the funeral of the insured person, reduced by:

(a) the amount of the premium or premiums of the policy that is reasonably related to the benefit; and

(b) the amount of the fees and charges included in the company ' s assessable income for any income year under paragraph 320-15(1)(k) that is reasonably related to the benefit.

15-55(2)    
This section does not apply if the benefit is included in your assessable income as:

(a) ^* ordinary income under section 6-5 ; or

(b) ^* statutory income under a section of this Act other than this section.

SECTION 15-60   Certain amounts paid under scholarship plan  

15-60(1)    
Your assessable income includes the amount of a benefit provided to you, or on your behalf, by a ^* life insurance company under a ^* scholarship plan covered by subsection (2) or (3), reduced by the amount worked out under subsection (4), if:

(a) the benefit is provided on or after 1 January 2003; and

(b) you are nominated in the plan as a beneficiary whose education is to be helped by the benefit.

15-60(2)    
This subsection covers a ^* scholarship plan issued by the ^* life insurance company after 31 December 2002.

15-60(3)    
This subsection covers a ^* scholarship plan if:

(a) the plan was issued by the ^* life insurance company before 1 January 2003; and

(b) no amount received by the company on or after 1 January 2003 and attributable to the plan is ^* non-assessable non-exempt income of the company under paragraph 320-37(1)(d) .

15-60(4)    
The amount of the reduction is the sum of:

(a) the amount of the premium or premiums of the plan that is reasonably related to the benefit; and

(b) the amount of the fees and charges included in the company ' s assessable income for any income year under paragraph 320-15(1)(k) that is reasonably related to the benefit.

15-65   (Repealed) SECTION 15-65 Sugar industry exit grants  
(Repealed by No 109 of 2014)

SECTION 15-70  

15-70   Reimbursed car expenses  

Your assessable income includes a reimbursement mentioned in section 22 of the Fringe Benefits Tax Assessment Act 1986 (about exempt car expense payment benefits) that, but for that section, would be a *fringe benefit *provided to you.

SECTION 15-75  

15-75   Bonuses  

Your assessable income includes any amount you receive as or by way of bonus on a *life insurance policy, other than a reversionary bonus.

Note:

Reversionary bonuses are covered by section 6-5 of this Act if they are ordinary income and, if not, by section 26AH of the Income Tax Assessment Act 1936 .

SECTION 15-80   Franked distributions entitled to a foreign income tax deduction - Additional Tier 1 capital exception  

15-80(1)    
If section 207-158 would, apart from subsection 207-158(2) , apply to a *franked distribution, then an amount equal to the *foreign income tax deduction referred to in subsection (1) of that section is included in the assessable income of the entity that made the distribution for the income year mentioned in subsection (2) of this section.

15-80(2)    
The income year is:

(a) if the *foreign tax period in which the *foreign income tax deduction arises falls wholly within an income year of the entity - that income year; or

(b) if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity - the later of those income years.

15-85   (Repealed) SECTION 15-85 Refunded excess rehabilitation tax offset  
(Repealed by No 96 of 2014)

Division 17 - Effect of GST etc. on assessable income  

SECTION 17-1   What this Division is about  

SECTION 17-5  

17-5   GST and increasing adjustments  

An amount is not assessable income, and is not ^* exempt income, to the extent that it includes an amount relating to:

(a) ^* GST payable on a ^* taxable supply; or

(b) an ^* increasing adjustment that relates to a ^* supply; or

(c) an ^* increasing adjustment that:

(i) relates to an ^* acquisition; and

(ii) arises in circumstances that also give rise to a ^* recoupment that is included in assessable income.

SECTION 17-10   Certain decreasing adjustments  

17-10(1)    
An amount of a ^* decreasing adjustment that arises under Division 129 or 132 of the ^* GST Act is assessable income , unless the entity that has the adjustment is an ^* exempt entity.

17-10(2)    

However, the amount is not assessable income to the extent that, because it becomes a component of a ^* net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits).

SECTION 17-15  

17-15   Elements in calculation of amounts  

In calculating an amount that may be included in assessable income:

(a) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any ^* GST payable on a ^* taxable supply related to the amount received or receivable, or any ^* increasing adjustment related to that amount; and

(b) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any ^* input tax credit for an ^* acquisition related to the amount paid or payable, or any ^* decreasing adjustment related to that amount.

SECTION 17-20   GST groups and GST joint ventures  

17-20(1)    
A ^* member of a ^* GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the ^* GST Act (other than paragraph 48-40(2)(a) and subsection 48-40(3) ) did not apply to that member.

17-20(2)    
A ^* participant in a ^* GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the ^* GST Act (other than subsections 51-30(2) and (3)) did not apply to that participant.

SECTION 17-30  

17-30   Special credits because of indirect tax transition  

A special credit under section 19A of the A New Tax System (Goods and Services Tax Transition) Act 1999 is assessable income at the time it is attributed to a *tax period (for a credit under section 19A ).

SECTION 17-35  

17-35   Certain sections not to apply to certain assets or expenditure  

Sections 17-5 , 17-10 and 17-15 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or Division 328 .

Note:

See instead Subdivision 27-B .

Division 20 - Amounts included to reverse the effect of past deductions  

Guide to Division 20  

SECTION 20-1   What this Division is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

20-5	Other provisions that reverse the effect of deductions

SECTION 20-5  

20-5   Other provisions that reverse the effect of deductions  

The table lists other provisions that reverse the effect of certain kinds of deductions.

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold , are provisions of the Income Tax Assessment Act 1936 .

Provisions that adjust your tax position in respect of deductions
Item	In this situation:	See:
1	A balancing adjustment for a depreciating asset is included in your assessable income.	40-285(1) and 40-445(2)
.
2	An amount you receive by way of insurance or indemnity for a loss of trading stock is included in your assessable income.	70-115
.
2A	Limited recourse debt that was used to finance expenditure deductible under a capital allowance (or on property for which you have deducted or can deduct amounts under a capital allowance) terminates: an amount is included in your assessable income.	243-40
.
3	Because of:	40-750(3)
		• petroleum resource rent tax; or
		• an instalment of petroleum resource rent tax;
	that you have deducted or can deduct, an amount is refunded, credited, paid or applied: the amount is included in your assessable income.
.
3A	(Repealed by No 77 of 2001)
.
4	You receive a fringe benefit by way of reimbursement or payment of a loss or outgoing you incurred: your deduction for the loss or outgoing is reduced.	51AH
.
5	(Repealed by No 93 of 2011)
.
6	(Repealed by No 93 of 2011)
.
7	You receive an amount as recoupment for your local governing body election expenses: an amount is included in your assessable income.	74A(4)
.
8	You receive superannuation benefits as a result of someone ' s deductible contributions: the benefits are included in your assessable income.	290-100
.
9	An R & D entity receives or becomes entitled to receive an amount:	355-410
		• for, or relating to, the results of R & D activities; or
		• attributable to it incurring expenditure on R & D activities or to its use of a depreciating asset for the purpose of conducting R & D activities;
	and the entity is entitled under Division 355 to a tax offset relating to those R & D activities. The amount is included in its assessable income.
.
10	An R & D entity:	Subdivision 355-G
	•	receives, or becomes entitled to receive, a recoupment from government relating to R & D activities; or
	•	can deduct, under Division 355 , expenditure on goods, materials or energy used during R & D activities to produce marketable products or products applied to the R & D entity ' s own use;
	and the entity is entitled under Division 355 to a tax offset relating to those R & D activities. An amount is included in its assessable income.

Subdivision 20-A - Insurance, indemnity or other recoupment for deductible expenses  

SECTION 20-10   What this Subdivision is about  

SECTION 20-15   How to use this Subdivision  

If you incurred the deductible loss or outgoing

20-15(1)    
First, read sections 20-20 to 20-30 to work out whether you have received an assessable recoupment. If not, you do not need to read the rest of the Subdivision.

20-15(2)    
If you have received one or more assessable recoupments, sections 20-35 to 20-55 tell you how much is included in your assessable income for an income year.

If another entity incurred a loss or outgoing you can deduct

20-15(3)    
Sections 20-60 and 20-65 tell you how to apply this Subdivision.

What is an assessable recoupment ?

SECTION 20-20   Assessable recoupments  

Exclusion

20-20(1)    
An amount is not an assessable recoupment to the extent that it is ^* ordinary income, or it is ^* statutory income because of a provision outside this Subdivision.

Insurance or indemnity

20-20(2)    

An amount you have received as ^* recoupment of a loss or outgoing is an assessable recoupment if:

(a) you received the amount by way of insurance or indemnity; and

(b) you can deduct an amount for the loss or outgoing for the ^* current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act.

Other recoupment

20-20(3)    

An amount you have received as ^* recoupment of a loss or outgoing ( except by way of insurance or indemnity) is an assessable recoupment if:

(a) you can deduct an amount for the loss or outgoing for the ^* current year; or

(b) you have deducted or can deduct an amount for the loss or outgoing for an earlier income year;

under a provision listed in section 20-30 .

SECTION 20-25   What is recoupment ?  

General

20-25(1)    
Recoupment of a loss or outgoing includes:

(a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and

(b) a grant in respect of the loss or outgoing.

Amount paid for you

20-25(2)    
If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing.

Remission of general interest charge or shortfall interest charge

20-25(2A)    

If:

(a) you have incurred expenditure that consists of ^* general interest charge or ^* shortfall interest charge; and

(b) the Commissioner remits any of that charge;

then you are taken to receive the remitted amount as recoupment of that expenditure.

Amount for disposing of right to recoupment

20-25(3)    
If you dispose of your right to receive an amount as ^* recoupment of a loss or outgoing you are taken to receive as recoupment of the loss or outgoing any amount you receive for disposing of that right. (The disposal need not be to another entity.)

Amount received that is recoupment to an unspecified extent

20-25(4)    
If you receive an amount that is, to an unspecified extent, ^* recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable.

Balancing adjustments not covered

20-25(5)    
If a balancing adjustment is required for property on which you incurred a loss or outgoing, no part of the ^* termination value of the property is an amount you receive as recoupment of the loss or outgoing.

Note:

The termination value is usually the amount you receive because of disposal, loss or destruction of the property.

SECTION 20-30   Tables of deductions for which recoupments are assessable  

20-30(1)    

This table shows the deductions under the Income Tax Assessment Act 1997 for which recoupments are assessable.

Note:

References are to section numbers except where otherwise indicated.

Provisions of the Income Tax Assessment Act 1997
Item	Provision	Description of expense
1.1	8-1 (so far as it allows you to deduct a bad debt, or part of a debt that is bad)	bad debts
.
1.2	8-1 (so far as it allows you to deduct rates or taxes)	rates or taxes
.
1.3	25-5	tax-related expenses
.
1.4	25-35	bad debts
.
1.5	25-45	embezzlement or larceny by an employee
.
1.5A	25-47	misappropriation by an employee or agent
.
1.6	25-60	election expenses, Commonwealth and State elections
1.6A	25-65	election expenses, local governing body
.
1.7	25-75	rates and land taxes on premises used to produce mutual receipts
.
1.8	The former 25-80	upgrading assets to meet GST obligations etc.
.
1.8A	25-95	work in progress amount
.
1.8B	item 7 of the table in section 30-15	contributions relating to fund-raising events
.
1.8C	item 8 of the table in section 30-15	contributions relating to fund-raising auctions
.
1.9	Division 40	capital allowances
.
1.10	The former Division 42 (as it applied to *software because of the former Subdivision 46-B)	expenditure on software
.
1.11	The former Subdivision 46-C	expenditure on software
.
1.12	The former Subdivision 46-D	expenditure on software, pooled
.
1.13	The former Division 42 (as it applied to *IRUs because of Division 44)	expenditure on IRUs
.
1.14	The former 330-15	exploration or prospecting expenditure
.
1.15	The former 330-80	allowable capital expenditure relating to mining or quarrying
.
1.16	The former 330-350	petroleum resource rent tax
.
1.17	The former 330-370	transport capital expenditure relating to mining or quarrying
.
1.18	The former 330-435	rehabilitation expenditure relating to mining or quarrying
.
1.19	The former 330-485	balancing adjustment deduction for expenditure relating to mining or quarrying
.
1.19A	Division 355	R & D
.
1.20	The former Subdivisions 380-A and 380-C	capital expenditure incurred in obtaining a spectrum licence
.
1.21	The former Subdivision 387-A	landcare operations expenditure
.
1.22	The former Subdivision 387-B	expenditure on facilities to conserve or convey water
.
1.23	The former Subdivision 387-D	grapevine establishment expenditure
.
1.24	The former Subdivision 387-C	horticultural plant establishment expenditure
.
1.25	The former Subdivision 387-E	mains electricity connection expenditure
.
1.26	The former Subdivision 400-A	expenditure on environmental impact assessment
.
1.27	The former Subdivision 400-B	expenditure on environmental protection activities
.
1.27A	420-15	registered emissions unit
.
1.28	775-30	forex realisation loss

20-30(2)    

This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable.

Note:

References are to section numbers except where otherwise indicated.

Provisions of the Income Tax Assessment Act 1936
Item	Provision	Description of expense
2.1	Former 51(1) (so far as it allowed you to deduct a bad debt, or part of a debt that is bad)	bad debts
.
2.2	Former 51(1) (so far as it allowed you to deduct rates or taxes)	rates or taxes
.
2.3	63	bad debts
.
2.4	Former 69	tax-related expenses
.
2.5	Former 70A(3)	mains electricity connection expenditure
.
2.6	Former 71	embezzlement or larceny by an employee
.
2.7	Former 72	rates and land tax
.
2.7A	Former 72A	a payment of petroleum resource rent tax, or an instalment of petroleum resource rent tax, or a credit under paragraph 99(d) of the Petroleum Resource Rent Tax Assessment Act 1987 in respect of a payment of such an instalment
.
2.8	Former 73B, 73BA or 73BH	research and development activity expenditure
.
2.9	Former 74	election expenses, Commonwealth and State elections
.
2.9A	Former 74A	election expenses, local governing body
.
2.10	Former 75AA(1) or (6)	grape vine establishment expenditure
.
2.11	Former 75B(2) or (3A)	water conservation or conveyance expenditure
.
2.12	Former 75D(2)	land degradation prevention expenditure
.
2.13	Former 82AB	development allowance expenditure
.
2.14	Former 82BB	environmental impact study expenditure
.
2.15	Former 82BK	environmental protection expenditure
.
2.16	(Repealed by No 133 of 2003)
.
2.17	Former Division 10 of Part III	mining and quarrying expenditure
.
2.18	Former Division 10AAA of Part III	expenditure on transport of minerals and quarry materials
.
2.19	Former Division 10AA of Part III	expenditure on prospecting and mining for petroleum
.
2.20	Former 124BA	expenditure on rehabilitating mining, quarrying andpetroleum sites
.
2.21	Former 124ZZF	horticultural plant establishment expenditure (effective life of the plant less than 3 years)
.
2.22	Former 124ZZG	horticultural plant establishment expenditure (effective life of the plant more than 3 years)
.
2.23	Former 628	drought mitigation property expenditure by a primary producer
.
2.24	Former 636	drought mitigation property expenditure by a leasing company

How much is included in your assessable income?

SECTION 20-35   If the expense is deductible in a single income year  

20-35(1)    
Your assessable income includes an ^* assessable recoupment of a loss or outgoing if:

(a) you can deduct the whole of the loss or outgoing for the ^* current year; or

(b) you have deducted or can deduct the whole of the loss or outgoing for an earlier income year.

Note 1:

The operation of this section may be affected if a balancing charge has been included in your assessable income because of a deduction for the loss or outgoing: see section 20-45 .

Note 2:

Recoupment of a loss or outgoing for which you can deduct amounts over more than one income year is covered by section 20-40 .

Note 3:

Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50 .

Total assessed not to exceed the loss or outgoing

20-35(2)    
The total of all amounts that subsection (1) includes in your assessable income for one or more income years in respect of a loss or outgoing cannot exceed the amount of the loss or outgoing.

Recoupment received before income year of the deduction

20-35(3)    
If:

(a) you can deduct the whole of a loss or outgoing for the ^* current year; and

(b) before the current year you received an ^* assessable recoupment of the loss or outgoing;

your assessable income for the current year includes so much of the recoupment as subsection (1) would have included if you had instead received the recoupment at the start of the current year.

SECTION 20-40   If the expense is deductible over 2 or more income years  

20-40(1)    
This section includes an amount in your assessable income if:

(a) you receive in the ^* current year an ^* assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or

(b) you received in an earlier income year an ^* assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a ^* previous recoupment law).

(This section applies even if the recoupment was received before the first of those income years.)

Note:

Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50 .

20-40(2)    
Work out as follows how much is included in your assessable income for the ^* current year because of one or more ^* assessable recoupments of the loss or outgoing.

Note:

The method statement ensures that assessable recoupments are included:

• only so far as they have not already been included for an earlier income year; and

• only to the extent of your total deductions to date for the loss or outgoing.

Method statement

Example:

At the start of the 2002-03 income year, a company incurs $100,000 to start to hold a depreciating asset. The company uses the prime cost method, and the effective life is 10 years. $10,000 is deductible for the 2002-03 income year and for each of the following 9 income years under section 40-25 .

In the 2002-03 income year, the company receives $20,000 as recoupment. How much is assessable for the 2002-03 income year?

Applying the method statement:

After step 1: the total assessable recoupment is $20,000.

After step 2: the recoupment already assessed is nil.

After step 3: the unassessed recoupment is:

total assessable recoupment minus recoupment already assessed, i.e. $20,000 minus 0 = $20,000.

After step 4: the total deductions for the loss or outgoing are $10,000.

After step 5: the outstanding deductions are:

total deductions for the loss or outgoing minus recoupment already assessed, i.e. $10,000 minus 0 = $10,000.

After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $10,000.

Applying the method statement to the 2003-04 income year: a further $10,000 is included in the company's assessable income.

SECTION 20-45   Effect of balancing charge  

20-45(1)    
This section may affect the operation of section 20-35 or 20-40 (as appropriate) if:

(a) a balancing adjustment is required for the ^* current year (or for an earlier income year) because you have deducted or can deduct an amount for an income year for the loss or outgoing; and

(b) an amount (the balancing charge ) is included in your assessable income for the ^* current year (or for the earlier income year) because of the balancing adjustment.

To find out about balancing adjustments, see Subdivision 40-D .

Effect on section 20-35

20-45(2)    
In applying section 20-35 , treat each of the following as reduced by the balancing charge:

(a) the amount of the loss or outgoing;

(b) the total of what you can deduct for the loss or outgoing for the ^* current year, or have deducted or can deduct for an earlier income year.

Effect on section 20-40

20-45(3)    
In applying the method statement in subsection 20-40(2) , reduce the total deductions for the loss or outgoing by the balancing charge.

Example:

Continuing the example in subsection 20-40(2) : at the start of the 2005-06 income year, the company:

• receives a further $10,000 as recoupment; and

• sells the depreciating asset for $75,000.

As a result of the sale, a balancing adjustment of $5,000 is included under section 40-285 in the company's assessable income for that income year.

How much of the recoupment amount received in the 2005-06 income year is assessable for that income year?

Applying the method statement in subsection 20-40(2) :

After step 1: the total assessable recoupment is $30,000 (received during 2002-03 and 2005-06).

After step 2: the recoupment already assessed is $20,000 (for 2002-03 and 2003-04).

After step 3: the unassessed recoupment is:

total assessable recoupment minus recoupment already assessed, i.e. $30,000 minus $20,000 = $10,000.

After step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 2002-03, 2004-04 and 2004-05), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), i.e. $25,000.

After step 5: the outstanding deductions are:

total deductions for the loss or outgoing minus recoupment already assessed, i.e. $25,000 minus $20,000 = $5,000.

After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $5,000.

SECTION 20-50   If the expense is only partially deductible  

20-50(1)    
This section extends the operation of section 20-35 or 20-40 (as appropriate) to a case where the total of what you can deduct under a provision (the deduction provision ) for a loss or outgoing is limited to a proportion of the loss or outgoing.

20-50(2)    
If you receive an ^* assessable recoupment of the loss or outgoing, section 20-35 or 20-40 applies as if:

(a) you had incurred only that proportion of the loss or outgoing, but could deduct the whole of that proportion under the deduction provision; and

(b) you had received only that proportion of the recoupment.

Example:

You incur expenditure of $500. A provision listed in section 20-30 entitles you to deduct 10% of the expenditure ($50) over 5 years. This means you can deduct $10 in each of the 5 years.

You recoup $300 of the expenditure. This section treats you as receiving only 10% of the recoupment. Therefore, $30 is dealt with by section 20-40 .

SECTION 20-55   Meaning of previous recoupment law  

20-55(1)    

Previous recoupment law means a provision of the Income Tax Assessment Act 1936 listed in this table.

Previous recoupment law
Item	Provision	What kind of expense the provision relates to:
1	Former 26(j) (so far as it relates to an amount received for or in respect of a loss or outgoing that is a deduction)	a loss or outgoing that is a deduction
.
2	Former26(k)	embezzlement or larceny by an employee
.
3	Former 63(3)	bad debts
.
4	Former 69(8)	tax-related expenses
.
5	Former 70A(5)	mains electricity connection expenditure
.
6	Former 72(2) (so far as it relates to a refund of an amount you have deducted or can deduct)	rates or taxes
.
6A	Former 72A(4)(a) and (aa)	petroleum resource rent tax
.
7	Former 74(2)	election expenses, Commonwealth and State elections

20-55(2)    

Former section 330-350 of this Act is also a previous recoupment law .

What if you can deduct a loss or outgoing incurred by another entity?

SECTION 20-60  

20-60   If you are the only entity that can deduct an amount for the loss or outgoing  
This Subdivision applies in a different way if:

(a) an entity (other than you) incurs a loss or outgoing; and

(b) you can deduct the whole of the loss or outgoing for an income year, or you can deduct amounts for the loss or outgoing over 2 or more income years; and

(c) no other entity can deduct an amount for the loss or outgoing; and

(d) the entity that incurred the loss or outgoing receives one or more amounts as ^* recoupment of the loss or outgoing.

This Subdivision (except this section and section 20-65 ) applies as if you had incurred the loss or outgoing and had also received the ^* recoupment.

SECTION 20-65   If 2 or more entities can deduct amounts for the loss or outgoing  

20-65(1)    
Special rules apply if:

(a) an entity (the first entity ) incurs a loss or outgoing; and

(b) 2 or more entities (the deducting entities , which may include the first entity) have deducted or can deduct amounts for the loss or outgoing (whether for the same income year or for different income years); and

(c) the first entity receives one or more amounts as ^* recoupment of the loss or outgoing.

20-65(2)    
This Subdivision (except this section and section 20-60 ) applies as if the first entity and the deducting entities together constituted a single entity (the notional entity ) that had:

(a) incurred the loss or outgoing; and

(b) received the amount or amounts as ^* recoupment; and

(c) included in its assessable income any amount included in the assessable income of any of the deducting entities under a ^* previous recoupment law or this Subdivision (except this section).

20-65(3)    
If because of subsection (2) the notional entity's assessable income for an income year (the assessment year ) would include an amount under this Subdivision (the assessable amount ), the amount reverses in the assessment year the deductions for the loss or outgoing, in accordance with the rules in subsection (5).

20-65(4)    
The assessable income of each deducting entity for the assessment year includes the total amounts (if any) by which that entity's actual deductions for the loss or outgoing are reversed in that income year.

20-65(5)    
Deductions for the loss or outgoing are reversed in the assessment year as follows:

(a) the amounts by which deductions are reversed total the assessable amount (unless all the deductions have been reversed);

(b) a deduction for an income year is not reversed until all deductions for earlier income years have been reversed;

(c) a deduction is not reversed in the assessment year to the extent that it has already been reversed in an earlier year;

(d) if each of 2 or more entities can deduct an amount for the loss or outgoing for the same income year, those deductions are reversed in the assessment year by amounts proportionate to the amounts of the deductions.

Subdivision 20-B - Disposal of a car for which lease payments have been deducted  

SECTION 20-100   What this Subdivision is about  

SECTION 20-105   Map of this Subdivision  

20_105 Map of this Subdivision
        

The usual case

SECTION 20-110   Disposal of a leased car for profit  

20-110(1)    
Your assessable income includes the ^* profit you make on disposing of a ^* car if:

(a) the car was designed mainly for carrying passengers; and

(b) the car was leased to you and has been leased to no-one else; and

(c) you or another entity can deduct for the income year any of the lease payments paid or payable by you, or have deducted or can deduct any of them for an earlier income year, under this Act; and

(d) you acquired the car from the lessor.

Note 1:

Even if subsection (1) does not apply, an amount may still be included in your assessable income:

• under section 20-125 (which deals with more complicated cases that may involve your associate); or

• if you disposed of an interest in a car (rather than the car itself): see section 20-160 .

Note 2:

In some cases you do not include an amount in your assessable income:

• if there has been an earlier disposal of the car for market value: see section 20-135 ; or

• if you inherited the car: see section 20-145 ; or

• if the car was let on hire in the circumstances set out in section 20-155 .

20-110(2)    
However, the amount included cannot exceed the smaller of these limits:

(a) the total lease payments for the lease that you or another entity have deducted or can deduct under this Act for an income year;

(b) the amount of ^* notional depreciation for the lease period.

Note 1:

If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130 .

Note 2:

In some cases you reduce the amount to be included:

• if there has been an earlier disposal of the car, or of an interest in it: see section 20-140 ; or

• if another provision requires you to include an amount because of the disposal: see section 20-150 .

20-110(3)    
You increase those limits if you have previously leased the ^* car from the same lessor, or from an ^* associate of that lessor.

You increase the first limit by the total lease payments for each previous lease of that kind that you or another entity have deducted or can deduct under this Act for an income year.

You increase the second limit by the amount of ^* notional depreciation for the period of each previous lease of that kind.

SECTION 20-115   Working out the profit on the disposal  

20-115(1)    
The profit on the disposal is the amount by which the ^* consideration receivable for the disposal exceeds:

• the amount it cost you to acquire the ^* car;

plus:

• any capital expenditure you incurred on the car after acquiring it.

20-115(2)    

The consideration receivable is worked out using this table:

Consideration receivable for the disposal of the car
Item	In this situation:	the consideration receivable is:
1	you sell the *car for an amount specific to it	the proceeds of the sale, less the expenses of the sale
.
2	you sell the *car with other property without a specific amount being allocated to it	the part of the total proceeds of the sale that is reasonably attributable to the car less the part of the reasonably attributable expenses of the sale
.
3	you trade the *car in and buy another car	the value of the trade-in, plus any other consideration you receive
.
4	you sell the *car and another entity buys another car	the amount by which the cost of the other car is reduced by the sale, plus any other consideration you receive
.
5	you dispose of the *car to an insurer because it is lost or destroyed	the amount or value received or receivable under the insurance policy

20-115(3)    

However, if the disposal of the ^* car is a ^* taxable supply, the consideration receivable does not include an amount equal to the ^* GST payable on the supply.

SECTION 20-120  

20-120   Meaning of notional depreciation  

This is how to work out the notional depreciation for a lease period: Method statement

Note 1:

The notional depreciation for the lease period represents:

• the amount you could have deducted for the car ' s decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income for that period;

adjusted by:

• the balancing adjustment you would have made if you had disposed of the car at the end of that period.

Note 2:

The car ' s cost to the lessor is worked out differently if the lessor acquired it in the 1996-97 income year or an earlier income year: see section 20-105 of the Income Tax (Transitional Provisions) Act 1997 .

Note 3:

The car ' s termination value is worked out differently if the lessor disposed of it in the 1996-97 income year or an earlier income year: see section 20-110 of the Income Tax (Transitional Provisions) Act 1997 .

The associate case

SECTION 20-125   Disposal of a leased car for profit  

20-125(1)    
Your assessable income includes the ^* profit you make on disposing of a ^* car if:

(a) section 20-110 does not include an amount in your assessable income because of the disposal; and

(b) the car was designed mainly for carrying passengers; and

(c) the car was leased to you or your ^* associate; and

(d) you, your associate or another entity can deduct for the income year any of the lease payments paid or payable by the lessee, or have deducted or can deduct any of them for an earlier income year, under this Act; and

(e) either:

(i) you, your associate, or entities including you or your associate, acquired the car from the lessor; or

(ii) another entity acquired the car from the lessor under an ^* arrangement that enabled you or your associate to acquire the car.

Note 1:

Even if subsection (1) does not apply, an amount may be included in your assessable income if you disposed of an interest in a car (rather than the car itself): see section 20-160 .

Note 2:

In some cases you do not include an amount in your assessable income:

• if there has been an earlier disposal of the car for market value: see section 20-135 ; or

• if you inherited the car: see section 20-145 ; or

• if the car was let on hire in the circumstances set out in section 20-155 .

20-125(2)    
However, the amount included cannot exceed the smallest of these limits:

(a) the total lease payments for the lease that you, your ^* associate or another entity have deducted or can deduct under this Act for an income year;

(b) the amount of ^* notional depreciation for the lease period;

(c) if an entity other than you, or if entities including you, acquired the ^* car from the lessor - the amount by which the ^* consideration receivable for the disposal of the car by you exceeds the total of:

(i) the car ' s cost to that entity, or those entities; and

(ii) any capital expenditure that entity, or any of those entities, incurred on the car after that acquisition and before you acquired it.

Note 1:

If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130 .

Note 2:

In some cases you reduce the amount to be included:

• if there has been an earlier disposal of the car, or of an interest in it: see section 20-140 ; or

• if another provision requires you to include an amount because of the disposal: see section 20-150 .

Example:

Your associate leases a car for 5 years and then acquires it from the lessor for $4,000. Your associate sells it to you for $3,000. You sell it for $10,000.

Your profit is $10,000 (the consideration receivable) less $3,000 (the car ' s cost to you) = $7,000.

The first 2 limits on the amount to be included in your assessable income are $9,000 (total deductible lease payments for the lease) and $8,000 (notional depreciation for the lease period).

Since your associate acquired the car from the lessor, the third limit is $10,000 (the consideration receivable by you) less $4,000 (the car ' s cost to the associate) = $6,000.

The amount you include in your assessable income cannot exceed the smallest of the limits. So, you do not include your profit of $7,000. Instead, you include $6,000 (the smallest of the limits).

20-125(3)    
You increase the first 2 limits if you, or your associate, have previously leased the ^* car from the same lessor, or from an associate of that lessor.

You increase the first limit by the total lease payments for each previous lease of that kind that you, your ^* associate or another entity have deducted or can deduct under this Act for an income year.

You increase the second limit by the amount of ^* notional depreciation for the period of each previous lease of that kind.

Successive leases

SECTION 20-130  

20-130   Successive leases  

If, because of 2 or more leases of the ^* car, there are different amounts that could be included in your assessable income because of the disposal, only the largest of those amounts is included.

Previous disposals of the car

SECTION 20-135  

20-135   No amount included if earlier disposal for market value  
You do not include an amount in your assessable income because of the disposal if, after the lessor disposed of the ^* car and before you disposed of it, an entity other than you disposed of the car and:

(a) the ^* consideration receivable for that disposal was at least the ^* market value of the car at the time of that disposal; or

(b) because of that disposal, that market value was included, or an amount worked out using that market value was included, in the entity's assessable income under this Act.

SECTION 20-140  

20-140   Reducing the amount to be included if there has been an earlier disposal  

Each limit on the amount to be included in your assessable income because of your disposal of the ^* car is reduced if, after the lease period began and before your disposal, the car, or an interest in it, was disposed of in one of these situations:

Reducing each limit on the amount to be included
Item	In this situation:	reduce each limit by:
1	Section 20-110 or 20-125 included an amount in your assessable income in respect of such an earlier disposal by you	that amount
.
2	Section 20-110 or 20-125 included an amount in another entity's assessable income in respect of such an earlier disposal by the other entity	that amount
.
3	Section 20-110 or 20-125 would have included an amount in your assessable income in respect of such an earlier disposal by you but for the operation of section 20-145	that amount
.
4	Section 20-110 or 20-125 would have included an amount in another entity's assessable income in respect of such an earlier disposal by the other entity but for the operation of section 20-145	that amount
.
5	Section 20-150 reduced the amount to be included in your assessable income in respect of such an earlier disposal by you	the amount of the reduction
.
6	Section 20-150 reduced the amount to be included in another entity's assessable income in respect of such an earlier disposal by the other entity	the amount of the reduction

Examples:

Your associate leases a car for 5 years and then acquires it. Your associate disposes of it to you and section 20-110 includes $500 in your associate's assessable income.

You later dispose of the car.

In working out the amount to include in your assessable income for your disposal, you can reduce each limit in subsection 20-125(2) by $500 because the disposal by your associate occurred after the lease period began.

Contrast this case:

You lease a car for 5 years and then acquire it. You dispose of it to another entity and section 20-110 includes $1,000 in your assessable income.

You lease the car from that entity for 2 years and then acquire it. You later dispose of it.

In working out the amount to include in your assessable income in respect of the second lease, you cannot reduce each limit in subsection 20-110(2) by $1,000 because the first disposal did not occur after the start of that lease.

Note:

If the earlier disposal occurred in the 1996-97 income year or an earlier income year, each limit may be able to be reduced by a further amount: see section 20-115 of the Income Tax (Transitional Provisions) Act 1997 .

Miscellaneous rules

SECTION 20-145  

20-145   No amount included if you inherited the car  

You do not include an amount in your assessable income because of the disposal if you inherited the ^* car.

SECTION 20-150  

20-150   Reducing the amount to be included if another provision requires you to include an amount for the disposal  

The amount to be included in your assessable income because of the disposal is reduced by any amount that another provision of this Act (except sections 40-285 and 40-370 ) requires you to include in your assessable income because of the disposal.

Note:

Sections 40-285 and 40-370 are about including an amount after making a balancing adjustment on the disposal of a car.

SECTION 20-155  

20-155   Exception for particular cars taken on hire  

This Subdivision does not apply to these kinds of leases:

(a) letting a ^* car on hire under a ^* hire purchase agreement; or

(b) letting a ^* car on hire under an agreement of a kind ordinarily entered into by people who take cars on hire intermittently on an hourly, daily, weekly or monthly basis.

SECTION 20-157  

20-157   Exception for small business entities  

This Subdivision does not apply to you if, at any time in the income year in which you disposed of the ^* car, it was allocated to a pool of yours under Division 328 .

Disposals of interests in a car: special rules apply

SECTION 20-160   Disposal of an interest in a car  

20-160(1)    
This Subdivision applies to the disposal of an interest in a ^* car in almost the same way as it does to the disposal of the car itself. The differences are set out below.

20-160(2)    
Your assessable income includes so much of your ^* profit on the disposal as is reasonable. The limits in subsections 20-110(2) and 20-125(2) do not apply.

20-160(3)    
The cost of the interest to you is taken to be a reasonable amount.

20-160(4)    
Sections 20-135 and 20-140 do not apply to the disposal.

Note 1:

Section 20-135 says that you do not include an amount if there has been an earlier disposal of the car for market value.

Note 2:

Section 20-140 allows you to reduce the amount to be included if there has been an earlier disposal of the car.

20-160(5)    
Section 20-145 applies to the disposal if you inherited either the interest or the ^* car itself.

Note:

Section 20-145 says that you do not include an amount if you inherited the car.

(Repealed) Division 22 - Amounts you must repay are not assessable income  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

Division 25 - Some amounts you can deduct  

SECTION 25-1   What this Division is about  

Operative provisions  

SECTION 25-5   Tax-related expenses  

25-5(1)    

You can deduct expenditure you incur to the extent that it is for:

(a)    managing your * tax affairs; or

(b)    complying with an obligation imposed on you by a * Commonwealth law, insofar as that obligation relates to the * tax affairs of an entity; or

(c) (Repealed by No 29 of 2025)

(ca)    

a penalty under Subdivision 162-D of the * GST Act; or

(cb)    

levy under the Major Bank Levy Act 2017 ; or

(d)    

obtaining a valuation in accordance with section 30-212 or 31-15 ; or

(e)    

managing your * Australian GloBE tax affairs; or

(f)    

complying with an obligation imposed on you by a * Commonwealth law, insofar as that obligation relates to the Australian GloBE tax affairs of an entity.

Note 1:

To find out whether a trustee of a deceased estate can deduct expenditure under this section, see subsection 69(7) of the Income Tax Assessment Act 1936 .

Note 2:

If you receive an amount as recoupment of the expenditure, the amount may be included in your assessable income: see Subdivision 20-A .

No deduction for certain expenditure

25-5(2)    
You cannot deduct under subsection (1) :

(a)    * tax; or

(b)    

an amount withheld or payable under Part 2-5 or Part 2-10 in Schedule 1 to the Taxation Administration Act 1953 ; or

(c)    expenditure for * borrowing money (including payments of interest) to pay an amount covered by paragraph (a) or (b) ; or

(d)    expenditure for a matter relating to the commission (or possible commission) of an offence against an * Australian law or a * foreign law; or

(e)    a fee or commission for advice about the operation of a * Commonwealth law relating to taxation, unless that advice is provided by a * recognised tax adviser.

No deduction for expenditure excluded from general deductions

25-5(3)    
You cannot deduct expenditure under subsection (1) to the extent that a provision of this Act (except section 8-1 ) expressly prevents or limits your deducting it under section 8-1 (about general deductions). It does not matter whether the provision specifically refers to section 8-1 .

No deduction for capital expenditure

25-5(4)    

You cannot deduct capital expenditure under subsection (1) . However, for this purpose, expenditure is not capital expenditure merely because the * tax affairs or * Australian GloBE tax affairs concerned relate to matters of a capital nature.

Example:

Under this section, you can deduct expenditure you incur in applying for a private ruling on whether you can depreciate an item of property.

Use of property taken to be for income producing purpose

25-5(5)    
Under some provisions of this Act it is important to decide whether you used property for the * purpose of producing assessable income. For provisions of that kind, your use of property is taken to be for that purpose insofar as you use the property for:

(a)    managing your * tax affairs; or

(b)    complying with an obligation imposed on you by a * Commonwealth law, insofar as that obligation relates to the * tax affairs of another entity.

Example:

You buy a computer to prepare your tax returns. The expenditure you incur in buying the computer is capital expenditure and cannot be deducted under this section.

However, to the extent that you use the computer in preparing your income tax return, you will be able to deduct the decline in value of your computer under Division 40 . That is because, under this subsection, the computer is property that you are taken to use for the purpose of producing assessable income.

25-5(6)    
If another provision of this Act expressly provides that a particular use of property is not taken to be for the * purpose of producing assessable income, that provision overrides subsection (5) .

25-5(7)    
(Repealed by No 29 of 2025)

Expenditure by trustee of deceased estate

25-5(8)    

If:

(a)    after you die, the trustee of your deceased estate incurs expenditure; and

(b)    had you incurred the expenditure before you died, you could have deducted it under subsection (1) ;

for the purposes of assessing the trustee for the income year in which you died, the expenditure is a deduction under that subsection.

25-7   (Repealed) SECTION 25-7 Advice about family tax benefit  
(Repealed by No 56 of 2010)

SECTION 25-10   Repairs  

25-10(1)    

You can deduct expenditure you incur for repairs to premises (or part of premises) or a ^* depreciating asset that you held or used solely for the ^* purpose of producing assessable income.

Property held or used partly for that purpose

25-10(2)    
If you held or used the property only partly for that purpose, you can deduct so much of the expenditure as is reasonable in the circumstances.

No deduction for capital expenditure

25-10(3)    
You cannot deduct capital expenditure under this section.

SECTION 25-15  

25-15   Amount paid for lease obligation to repair  

You can deduct an amount that you pay for failing to comply with a lease obligation to make repairs to premises if you use or have used the premises for the ^* purpose of producing assessable income.

Note:

The amount is assessable income of the entity to which you pay it: either as ordinary income under section 6-5 or because it is included by section 15-25 .

SECTION 25-20   Lease document expenses  

25-20(1)    
You can deduct expenditure you incur for preparing, registering or stamping:

(a) a lease of property; or

(b) an assignment or surrender of a lease of property;

if you have used or will use the property solely for the ^* purpose of producing assessable income.

Property used partly for that purpose

25-20(2)    
If you have used, or will use, the leased property only partly for that purpose, you can deduct the expenditure to the extent that you have used, or will use, the leased property for that purpose.

SECTION 25-25   Borrowing expenses  

25-25(1)    
You can deduct expenditure you incur for ^* borrowing money, to the extent that you use the money for the ^* purpose of producing assessable income. In most cases the deduction is spread over the ^* period of the loan.

For the cases where the deduction is not spread, see subsection (6).

Note:

Your deductions under this section may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245-E .

Income year when money used solely for the purpose of producing assessable income

25-25(2)    
You can deduct for an income year the maximum amount worked out under subsection (4) if you use the ^* borrowed money during that income year solely for the ^* purpose of producing assessable income.

Example:

In 1997-98 you borrow $100,000 and incur expenditure of $1,500 for the borrowing. You use the money to buy a house. Throughout 1998-99 you rent the house to a tenant. You can deduct for the expenditure for 1998-99 the maximum amount worked out under subsection (4).

Income year when borrowed money used partly for that purpose

25-25(3)    
If you use the money only partly for that purpose during that income year, you can deduct the proportion of that maximum amount that is appropriate having regard to the extent that you used the *borrowed money for that purpose.

Note:

You cannot deduct anything for that income year if you do not use the money for that purpose at all during that income year.

Maximum deduction for an income year

25-25(4)    

You work out as follows the maximum amount that you can deduct for the expenditure for an income year: Method statement

Example:

To continue the example in subsection (2): suppose the original period of the loan is 4 years starting on 1 September 1997. What is the maximum amount you can deduct for the expenditure for 1997-98?

Applying the method statement:

After Step 1: the remaining expenditure is $1,500 (the amount of the expenditure).

After Step 2: the remaining loan period is 4 years from 1 September 1997 (1,461 days).

After Step 3: the result is $1,500 divided by 1,461 = $1.03.

After Step 4: the result is $1.03 multiplied by 302 days = $310.06.

Suppose you repay the loan early, on 31 December 1998. What is the maximum amount you can deduct for the expenditure for 1998-99?

Applying the method statement:

After Step 1: the remaining expenditure is $1,500 (the amount of the expenditure) reduced by $310.06 (the maximum amount you can deduct for 1997-98) = $1,189.94.

After Step 2: the remaining loan period is the period from 1 July 1998 to 31 December 1998 (183 days).

After Step 3: the result is $1,189.94 divided by 183 days = $6.50.

After Step 4: the result is $6.50 multiplied by 183 days = $1,189.94.

Meaning of period of the loan

25-25(5)    
The period of the loan is the shortest of these periods:

(a) the period of the loan as specified in the original loan contract;

(b) the period starting on the first day on which the money was borrowed and ending on the day the loan is repaid;

(c) 5 years starting on the first day on which the money was borrowed.

When deduction not spread

25-25(6)    
If the total of the following is $100 or less:

(a) each amount of expenditure you incur in an income year for ^* borrowing money you use during that income year solely for the ^* purpose of producing assessable income;

(b) for each amount of expenditure you incur in that income year for borrowing money you use during that income year only partly for that purpose - the proportion of that amount that is appropriate having regard to the extent that you use the money during that income year for that purpose;

you can deduct for the income year:

(c) each amount covered by paragraph (a); and

(d) each proportion covered by paragraph (b).

SECTION 25-30   Expenses of discharging a mortgage  

Mortgage for borrowed money

25-30(1)    

You can deduct expenditure you incur to discharge a mortgage that you gave as security for the repayment of money that you ^* borrowed if you used the money solely for the ^* purpose of producing assessable income.

Mortgage for property bought

25-30(2)    
You can deduct expenditure you incur to discharge a mortgage that you gave as security for the payment of the whole or part of the purchase price of property that you bought if you used the property solely for the ^* purpose of producing assessable income.

Money or property used partly for that purpose

25-30(3)    
If you used the money you ^* borrowed, or the property you bought, only partly for the ^* purpose of producing assessable income, you can deduct the expenditure to the extent that you used the money or property for that purpose.

No deduction for payments of principal or interest

25-30(4)    
You cannot deduct payments of principal or interest under this section.

SECTION 25-35   Bad debts  

25-35(1)    
You can deduct a debt (or part of a debt) that you write off as bad in the income year if:

(a) it was included in your assessable income for the income year or for an earlier income year; or

(b) it is in respect of money that you lent in the ordinary course of your ^* business of lending money.

Note:

If a bad debt is in respect of a payment that is required to be made under a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936 ): see subsection 63(1A) of that Act.

Writing off a debt you have bought

25-35(2)    
You can deduct a debt that you write off as bad in the income year if you bought the debt in the ordinary course of your ^* business of lending money. However, you cannot deduct more than the expenditure you incurred in buying the debt.

Writing off part of a debt you have bought

25-35(3)    
You can deduct a part of a debt if:

(a) you write off that part as bad in the income year; and

(b) you bought the debt in the ordinary course of your ^* business of lending money.

25-35(4)    
However, the maximum that you can deduct under subsection (3) for one or more income years is the amount (if any) by which:

• the expenditure you incurred in buying the debt;

exceeds:

• so much of the debt as has not yet been written off as bad.

Limit on deductions for bad debts under leases of luxury cars

25-35(4A)    

There is a limit to how much you can deduct under this section for debts you write off that relate to *luxury car lease payments that have become or will become liable to be made under a lease of a ^* car to which Division 242 (about luxury car leases) applies.

25-35(4B)    

The most you can deduct for an income year is:

• the interest for the notional loan you are taken to have made to the lessee;

reduced by:

• each amount that you have deducted, or can deduct, for an earlier income year under this section (or section 63 of the Income Tax Assessment Act 1936 ) for debts relating to *luxury car lease payments that have become or will become liable to be made under the lease.

25-35(4C)    
(Repealed by No 79 of 2010 )

Special rules affecting deductions under this section

25-35(5)    

The rules described in the table may affect your entitlement to deductions under this section, or may result in a deduction being reversed.

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold , are provisions of the Income Tax Assessment Act 1936 .

Rules affecting deductions for bad debts
Item	For the rules about this situation:	See:
1	A company cannot deduct a bad debt if there has been a change in ownership or control of the company and the company has not satisfied the business continuity test.	Subdivisions 165-C and 166-C
.
2	A company cannot deduct a bad debt in various other cases that may involve trafficking in bad debts.	Subdivision 175-C and section 63D
.
3	A deduction under this section is reduced if the debt is forgiven and the debtor and creditor are companies under common ownership and agree for the creditor to forgo the deduction to a specified extent.	section 245-90
.
4	If you receive an amount as recoupment of a bad debt that you can deduct under this section, the amount may be included in your assessable income.	Subdivision 20-A
.
5	Certain trusts cannot deduct a bad debt if there has been a change in ownership or control or an abnormal trading in their units	Divisions 266 and 267 in Schedule 2F
.
6	An entity that used to be a member of a consolidated group or MEC group can deduct a bad debt that used to be owed to a member of the group only if certain conditions are met	Subdivisions 709-D and 719-I

Note:

Subsections 230-180(3) , (5) and (6) and 230-195(3) , (5) and (6) provide that in certain circumstances a deduction for a loss in relation to a financial arrangement is to be treated, for the purposes of this Act, as a deduction of a bad debt. The rules referred to in this subsection apply to that deduction.

SECTION 25-40   Loss from profit-making undertaking or plan  

25-40(1)    
You can deduct a loss arising from the carrying on or carrying out of a profit-making undertaking or plan if any profit from that plan would have been included in your assessable income by section 15-15 (which is about profit-making undertakings and plans).

When section does not apply

25-40(2)    
You cannot deduct a loss under subsection (1) if the loss arises in respect of the sale of property acquired on or after 20 September 1985.

Note:

If you sell property you acquired before 20 September 1985 for profit-making by sale, you may be able to deduct a loss on the sale: see section 52 of the Income Tax Assessment Act 1936 .

Notice to Commissioner

25-40(3)    
You can deduct a loss under subsection (1), insofar as it arises in respect of property, only if:

(a) you notified the Commissioner that you acquired the property for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or plan (however described); or

(b) the Commissioner is satisfied that you acquired the property for either of those purposes.

When notice must have been given

25-40(4)    
The notice must have been given at or before the time you lodged your ^* income tax return:

(a) for the income year in which you acquired the property; or

(b) if you were not required to lodge an income tax return for that income year - for the first income year after that income year for which you were required to lodge one.

SECTION 25-45  

25-45   Loss by theft etc.  

You can deduct a loss in respect of money if:

(a) you discover the loss in the income year; and

(b) the loss was caused by theft, stealing, embezzlement, larceny, defalcation or misappropriation by your employee or ^* agent (other than an individual you employ solely for private purposes); and

(c) the money was included in your assessable income for the income year, or for an earlier income year.

Note:

If you receive an amount as recoupment of the loss, the amount may be included in your assessable income: see Subdivision 20-A .

SECTION 25-47   Misappropriation where a balancing adjustment event occurs  

25-47(1)    
You can deduct an amount if:

(a) a *balancing adjustment event occurs for a *depreciating asset you *held; and

(b) your employee or *agent misappropriates (whether by theft, embezzlement, larceny or otherwise) all or part of the amount applicable to you under:

(i) item 8 of the table in subsection 40-300(2) ; or

(ii) item 1, 3, 4 or 6 of the table in subsection 40-305(1) ;

in relation to the balancing adjustment event.

Note 1:

The amount applicable to you under subsection 40-300(2) or 40-305(1) may be the market value of an asset or of a non-cash benefit.

Note 2:

If you receive an amount as recoupment of the amount misappropriated, the amount may be included in your assessable income: see Subdivision 20-A .

25-47(2)    
The amount you can deduct is so much of the amount misappropriated as represents an amount applicable to you under item 8 of the table in subsection 40-300(2) or item 1, 3, 4 or 6 of the table in subsection 40-305(1) in relation to the *balancing adjustment event.

25-47(3)    
You can deduct the amount for the income year in which the misappropriation happens.

25-47(4)    
You must reduce the amount you can deduct under this section if your deductions for the asset have been reduced under section 40-25 because of use for a purpose other than a *taxable purpose. The reduction is by the same proportion you reduce the balancing adjustment amount for the asset under section 40-290 .

25-47(4A)    

You must further reduce the amount you can deduct under this section if your deductions for the asset have been reduced under section 40-27 (about second-hand assets in residential property). The reduction is by the same proportion you reduce the balancing adjustment amount for the asset under section 40-291 .

25-47(5)    
Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purposes of giving effect to this section for an income year if:

(a) you discover the misappropriation after you lodged your *income tax return for the income year; and

(b) the amendment is made at any time during the period of 4 years starting immediately after you discover the misappropriation.

SECTION 25-50   Payments of pensions, gratuities or retiring allowances  

25-50(1)    
You can deduct a payment of a pension, gratuity or retiring allowance that you make to:

(a) an employee; or

(b) a former employee; or

(c) a dependant of an employee or a former employee.

25-50(2)    
However, you can deduct it only to the extent that it is made in good faith in consideration of the past services of the employee, or former employee, in any ^* business that you carried on for the purpose of gaining or producing assessable income.

25-50(3)    
You cannot deduct a payment under this section if you can deduct it under any other provision of this Act.

SECTION 25-55   Payments to associations  

25-55(1)    
You can deduct a payment you make for membership of a trade, business or professional association.

Note:

Alternatively, you can deduct the expense under section 8-1 (which is about general deductions) if you satisfy the requirements of that section.

Maximum amount - $42

25-55(2)    
However, $42 is the maximum amount you can deduct under this section for the payments that you make in the income year to any one association.

If you deduct under section 8-1

25-55(3)    
If you deduct a payment under section 8-1 (which is about general deductions) instead of this section:

(a) the payment does not count towards the $42 limit; and

(b) the amount that you can deduct for the payment is not limited to $42.

SECTION 25-60   Parliament election expenses  

25-60(1)    
You can deduct expenditure you incur in contesting an election for membership of:

(a) the Parliament of the Commonwealth; or

(b) the Parliament of a State; or

(c) the Legislative Assembly for the Australian Capital Territory; or

(d) the Legislative Assembly of the Northern Territory of Australia.

Note 1:

Entertainment expenses are excluded: see section 25-70 .

Note 2:

If you receive an amount as recoupment of the expenditure, the amount may be included in your assessable income: see Subdivision 20-A .

25-60(2)    
(Repealed by No 47 of 1998)

SECTION 25-65   Local government election expenses  

25-65(1)    
You can deduct expenditure you incur in contesting an election for membership of a *local governing body, but you cannot deduct more than $1,000 per election. You deduct the expenditure for the income year in which you incur it.

25-65(2)    
However, you can deduct more than the $1,000 limit if:

(a) you have received an amount as *recoupment of the expenditure; and

(b) some or all of that amount is included in your assessable income for an income year; and

(c) the total of your deductions for the election would be less than the $1,000 limit if you disregarded so much (the assessed recoupment ) of the expenditure as equals the amount so included in your assessable income.

In that case:

(d) the assessed recoupment is disregarded in applying the $1,000 limit; and

(e) the further amount that you can deduct because of paragraph (d) is deducted for the income year referred to in paragraph (b).

Example:

Chris is elected to the Bunyip Shire Council. In the 2007-08 income year he incurs expenditure of $1,200 in contesting the election, of which he deducts $1,000 (the limit under subsection (1)).

In 2008-09, Chris receives $360 as an assessable recoupment of the expenditure. $300 of that is included in his assessable income by section 20-35 (as extended by section 20-50 ).

Because of the assessable recoupment, $300 of the expenditure is disregarded under paragraph (2)(d) in applying the $1,000 limit. As a result, Chris's deductions are treated as being only $700, which is less than the limit. This does not affect his original deduction for 2007-2008, but it means he can deduct the previously undeducted $200, for 2008-09 (see paragraph (2)(e)).

This triggers a further application of section 20-35 (as extended by section 20-50 ) to include the remaining $60 of the assessable recoupment in Chris's assessable income for 2008-09. His total deductions (net of recoupment included in assessable income) come to $840, which is the same as his original expenditure (net of recoupment).

Note:

An amount you receive as recoupment of expenditure may be included in your assessable income as an assessable recoupment under Subdivision 20-A , as ordinary income under section 6-5 or as statutory income under some other provision.

SECTION 25-70   Deduction for election expenses does not extend to entertainment  

25-70(1)    

To the extent that you incur expenditure in respect of providing ^* entertainment, you cannot deduct it under section 25-60 or 25-65 .

25-70(2)    
However, subsection (1) does not stop you deducting expenditure to the extent that you incur it in respect of:

(a) providing ^* entertainment that is available to the public generally; or

(b) providing food or drink to yourself, unless it would be concluded that you have a purpose of enabling or facilitating ^* entertainment to be provided to someone else.

SECTION 25-75   Rates and land taxes on premises used to produce mutual receipts  

25-75(1)    
An entity can deduct these amounts it pays for premises:

(a) rates which are annually assessed;

(b) land tax imposed under a ^* State law or ^* Territory law.

But only if it uses the premises:

(c) for the purpose of producing mutual receipts; or

(d) in carrying on a ^* business for the purpose of producing mutual receipts; or

(e) for the purpose of producing amounts to which section 59-35 applies (amounts that would be mutual receipts but for prohibition on distributions to members or issue of MCIs); or

(f) in carrying on a ^* business for the purpose of producing amounts to which section 59-35 applies.

Note:

If the entity receives an amount as recoupment of the rates or land tax, the amount may be included in its assessable income: see Subdivision 20-A

When premises used only for deductible purposes

25-75(2)    
The entity can deduct the whole of the rates or land tax if it uses the premises only in one or more of these ways:

(a) for the purpose of producing mutual receipts;

(b) in carrying on a ^* business for the purpose of producing mutual receipts;

(c) for the ^* purpose of producing assessable income.

When premises used partly for deductible purposes

25-75(3)    
If the entity uses the premises partly in one or more of the ways referred to in subsection (2) and partly in some other way, it can deduct the rates or land tax to the extent that it uses the premises in one or more of the ways referred to in that subsection.

No deduction under section 8-1

25-75(4)    
The entity cannot deduct the rates or land tax under section 8-1 (which is about general deductions).

SECTION 25-85   Certain returns in respect of debt interests  

25-85(1)    
This section deals with a *return that an entity pays or provides on a *debt interest.

25-85(2)    
The *return is not prevented from being a *general deduction for an income year under section 8-1 merely because:

(a) the return is *contingent on aspects of the economic performance (whether past, current or future) of:

(i) the entity or a part of the entity's activities; or

(ii) a ^* connected entity of the entity or a part of the activities of a connected entity of the entity; or

(b) the return secures a permanent or enduring benefit for the entity or a connected entity of the entity.

25-85(3)    
If the *return is a *dividend, the entity can deduct the return to the extent to which it would have been a *general deduction under section 8-1 if:

(a) the payment of the return were the incurring by the entity of a liability to pay the same amount as interest; and

(b) that interest were incurred in respect of the finance raised by the entity and in respect of which the return was paid or provided; and

(c) the *debt interest retained its character as a debt interest for the purposes of subsection (2).

25-85(4)    
Subsections (2) and (3) do not apply to a *return to the extent to which it would be a ^* general deduction under section 8-1 apart from this section.

25-85(4A)    

Subsections (2) and (3) do not apply to a *return on a *debt interest that is a *Division 230 financial arrangement.

25-85(5)    
Subject to regulations made for the purposes of subsection (6), subsections (2) and (3) do not apply to the return to the extent to which the annually compounded internal rate of return exceeds the *benchmark rate of return for the interest increased by 150 basis points.

25-85(6)    
The regulations may provide that subsection (5) applies in the circumstances specified in the regulations as if the reference to 150 basis points were a reference to a greater or lesser number of basis points.

SECTION 25-90  

25-90   Deduction relating to foreign non-assessable non-exempt income  

An ^* Australian entity can deduct an amount of loss or outgoing from its assessable income for an income year if:

(a) the amount is incurred by the entity in deriving income from a foreign source; and

(b) the income is *non-assessable non-exempt income under section 768-5 , or section 23AI or 23AK of the Income Tax Assessment Act 1936 ; and

(c) the amount is a cost in relation to a ^* debt interest issued by the entity that is covered by paragraph (1)(a) of the definition of debt deduction .

Note:

This section does not apply to a Division 230 financial arrangement.

SECTION 25-95   Deduction for work in progress amounts  

25-95(1)    
You can deduct a ^* work in progress amount that you pay for the income year in which you pay it to the extent that, as at the end of that income year:

(a) a recoverable debt has arisen in respect of the completion or partial completion of the work to which the amount related; or

(b) you reasonably expect a recoverable debt to arise in respect of the completion or partial completion of that work within the period of 12 months after the amount was paid.

25-95(2)    
You can deduct the remainder (if any) of the ^* work in progress amount for the following income year.

25-95(3)    
An amount is a work in progress amount to the extent that:

(a) an entity agrees to pay the amount to another entity (the recipient ); and

(b) the amount can be identified as being in respect of work (but not goods) that has been partially performed by the recipient for a third entity but not yet completed to the stage where a recoverable debt has arisen in respect of the completion or partial completion of the work.

25-95(4)    
An amount does not stop being a work in progress amount merely because it is paid after a recoverable debt has arisen in respect of the completion or partial completion of the work to which the amount related.

SECTION 25-100   Travel between workplaces  

When a deduction is allowed

25-100(1)    
If you are an individual, you can deduct a ^* transport expense to the extent that it is incurred in your ^* travel between workplaces.

Travel between workplaces

25-100(2)    
Your travel between workplaces is travel directly between 2 places, to the extent that:

(a) while you were at the first place, you were:

(i) engaged in activities to gain or produce your assessable income; or

(ii) engaged in activities in the course of carrying on a ^* business for the purpose of gaining or producing your assessable income; and

(b) the purpose of your travel to the second place was to:

(i) engage in activities to gain or produce your assessable income; or

(ii) engage in activities in the course of carrying on a business for the purpose of gaining or producing your assessable income;

and you engaged in those activities while you were at the second place.

25-100(3)    
Travel between 2 places is not travel between workplaces if one of the places you are travelling between is a place at which you reside.

25-100(4)    
Travel between 2 places is not travel between workplaces if, at the time of your travel to the second place:

(a) the arrangement under which you gained or produced assessable income at the first place has ceased; or

(b) the ^* business in respect of which you engaged in activities at the first place has ceased.

No deduction for capital expenditure

25-100(5)    
You cannot deduct expenditure under subsection (1) to the extent that the expenditure is capital, or of a capital nature.

25-105   (Repealed) SECTION 25-105 Deductions for United Medical Protection Limited support payments  
(Repealed by No 105 of 2019)

SECTION 25-110   Capital expenditure to terminate lease etc.  

25-110(1)    
You can deduct an amount for capital expenditure you incur to terminate a lease or licence (including an authority, permit or quota) that results in the termination of the lease or licence if the expenditure is incurred:

(a) in the course of carrying on a ^* business; or

(b) in connection with ceasing to carry on a business.

25-110(2)    
The amount you can deduct is 20% of the expenditure:

(a) for the income year in which the lease or licence is terminated; and

(b) for each of the next 4 income years.

Exceptions

25-110(3)    
You cannot deduct any amount for expenditure you incur to terminate a lease that, in accordance with ^* accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, is classified as a finance lease.

25-110(4)    
If you incurred the expenditure under an ^* arrangement and:

(a) there is at least one other party to the arrangement with whom you did not deal at ^* arm ' s length; and

(b) apart from this subsection, the amount of the expenditure would be more than the ^* market value of what it was for (assuming the termination did not occur and was never proposed to occur);

the amount of expenditure you take into account is that market value.

25-110(5)    
You cannot deduct any amount for expenditure you incur to terminate a lease or licence if:

(a) after the termination, you or an ^* associate of yours enters into another lease or licence with the same party or an associate of that party; and

(b) the other lease or licence is of the same kind as the original one.

25-110(6)    
You cannot deduct any amount for expenditure you incur to terminate a lease or licence to the extent that the expenditure is for the granting or receipt of another lease or licence in relation to the asset that was the subject of the original lease or licence.

SECTION 25-115   Deduction for payment of rent from land investment by operating entity to asset entity in relation to approved economic infrastructure facility  

25-115(1)    
An entity that is an *operating entity in relation to a *cross staple arrangement can deduct an amount, for an income year, of *rent from land investment if:

(a) another entity derives or receives the amount from the operating entity:

(i) in the income year; and

(ii) on or after 27 March 2018; and

(b) the cross staple arrangement was entered into in relation to:

(i) a facility that is covered by section 12-439 in Schedule 1 to the Taxation Administration Act 1953 at a time in the income year; or

(ii) an improvement to a facility that is covered by that section at a time in the income year; and

(c) the other entity is an *asset entity in relation to the cross staple arrangement; and

(d) apart from this subsection, the operating entity could otherwise deduct the amount under this Act; and

(e) the amount is *excepted MIT CSA income of the asset entity for the income year; and

(f) each entity that is a *stapled entity in relation to the cross staple arrangement has made a choice in accordance with subsection (3).

25-115(2)    
If the *asset entity is not a *managed investment trust in relation to the income year, for the purposes of paragraph (1)(e), treat it as a managed investment trust in relation to the income year.

25-115(3)    
An entity makes a choice in accordance with this subsection if:

(a) the entity makes the choice in the *approved form; and

(b) the entity makes the choice before:

(i) the start of the income year in which the asset is first put to use; or

(ii) a later time allowed by the Commissioner; and

(c) the entity gives the choice to the Commissioner within 60 days after the entity makes the choice.

25-115(4)    
The choice cannot be revoked.

SECTION 25-120   Transitional - deduction for payment of rent from land investment by operating entity to asset entity  

25-120(1)    
This section applies if the requirements in subsection 12-440(1) or (2) in Schedule 1 to the Taxation Administration Act 1953 are satisfied in relation to a *cross staple arrangement.

25-120(2)    
An entity that is an *operating entity in relation to the *cross staple arrangement can deduct, for an income year, an amount of *rent from land investment if:

(a) another entity derives or receives the amount from the operating entity at a time that:

(i) is in the income year; and

(ii) is on or after 27 March 2018; and

(iii) meets the requirements in subsection 12-440(4) of Schedule 1 to the Taxation Administration Act 1953 ; and

(b) the other entity is an *asset entity in relation to the cross staple arrangement; and

(c) apart from this subsection, the operating entity could otherwise deduct the amount under this Act; and

(d) the amount is *excepted MIT CSA income of the asset entity for the income year.

25-120(3)    
If the *asset entity is not a *managed investment trust in relation to the income year, for the purposes of paragraph (2)(d), treat it as a managed investment trust in relation to the income year.

SECTION 25-125   COVID-19 tests  

25-125(1)    
You can deduct a loss or outgoing to the extent it is incurred in gaining or producing your assessable income if:

(a)    you are an individual; and

(b)    the loss or outgoing is incurred in respect of testing you for the novel coronavirus SARS-CoV-2 that causes COVID-19 using a test covered by subsection (3) ; and

(c)    the purpose of testing you is to determine whether you may attend or remain at a place where you:

(i) engage in activities to gain or produce your assessable income; or

(ii) engage in activities in the course of carrying on a *business for the purpose of gaining or producing your assessable income.

25-125(2)    
However, you cannot deduct a loss or outgoing under this section to the extent that it is a loss or outgoing of capital, or of a capital nature.

25-125(3)    
This subsection covers a test that:

(a)    is a polymerase chain reaction test; or

(b)    is a therapeutic good (within the meaning of the Therapeutic Goods Act 1989 ) that:

(i) is included in the Australian Register of Therapeutic Goods maintained under section 9A of that Act; and

(ii) has an intended purpose, accepted in relation to that inclusion, that relates to the detection of the novel coronavirus SARS-CoV-2 that causes COVID-19.

Division 26 - Some amounts you cannot deduct, or cannot deduct in full  

Guide to Division 26  

SECTION 26-1   What this Division is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
26-5	Penalties
26-10	Leave payments
26-15	Franchise fees windfall tax
26-17	Commonwealth places windfall tax
26-18	(Repealed by No 83 of 2014)
26-19	Rebatable benefits
26-20	Assistance to students
26-22	Political contributions and gifts
26-25	Interest or royalty
26-25A	Payments to employees - labour mobility programs
26-26	Non-share distributions and dividends
26-30	Relative ' s travel expenses
26-31	Travel related to use of residential premises as residential accommodation
26-35	Reducing deductions for amounts paid to related entities
26-40	Maintaining your family
26-45	Recreational club expenses
26-47	Non-business boating activities
26-50	Expenses for a leisure facility
26-52	Bribes to foreign public officials
26-53	Bribes to public officials
26-54	Expenditure relating to illegal activities
26-55	Limit on deductions
26-60	Superannuation contributions surcharge
26-65	(Repealed by No 23 of 2018)
26-68	Loss from disposal of eligible venture capital investments
26-70	Loss from disposal of venture capital equity
26-74	(Repealed by No 45 of 2021)
26-75	Excess non-concessional contributions tax cannot be deducted
26-80	Financing costs on loans to pay superannuation contribution
26-85	Borrowing costs on loans to pay life insurance premiums
26-90	Superannuation supervisory levy
26-95	Superannuation guarantee charge
26-96	Laminaria and Corallina decommissioning levy cannot be deducted
26-97	National Disability Insurance Scheme expenditure
26-98	Division 293 tax cannot be deducted
26-99	Excess transfer balance tax cannot be deducted
26-99B	Build to rent development misuse tax cannot be deducted
26-99C	Australian IIR/UTPR tax and Australian DMT tax cannot be deducted
26-100	Expenditure attributable to water infrastructure improvement payments
26-102	Expenses associated with holding vacant land
26-105	Non-compliant payments for work and services

Operative provisions  

SECTION 26-5   Penalties  

26-5(1)    
You cannot deduct under this Act:

(a)an amount (however described) payable, by way of penalty, under an ^* Australian law or a ^* foreign law; or

(b) an amount ordered by a court to be paid on the conviction of an entity for an offence against an ^* Australian law or a ^* foreign law.

26-5(1A)    

Without limiting paragraph (1)(a) , you cannot deduct under this Act the * general interest charge or the * shortfall interest charge.

26-5(2)    

This section does not apply to an amount payable, by way of penalty, under Subdivision 162-D of the ^* GST Act.

Note:

See paragraph 25-5(1)(ca) for the deductibility of penalties that arise under Subdivision 162-D of the GST Act.

SECTION 26-10   Leave payments  

26-10(1)    
You cannot deduct under this Act a loss or outgoing for long service leave, annual leave, sick leave or other leave except:

(a) an amount paid in the income year to the individual to whom the leave relates (or, if that individual has died, to that individual's dependant or ^* legal personal representative); or

(b) an ^* accrued leave transfer payment that is made in the income year.

26-10(2)    
An accrued leave transfer payment is a payment that an entity makes:

(a) in respect of an individual's leave (some or all of which accrued while the entity was required to make payments in respect of the individual's leave, or leave the individual might take); and

(b) when the entity is no longer required (or is about to stop being required) to make payments in respect of such leave; and

(c) to another entity when the other entity has begun (or is about to begin) to be required to make payments in respect of such leave; and

(d) under (or for the purposes of facilitating the provisions of) an ^* Australian law, or an award, order, determination or industrial agreement under an ^* Australian law.

It does not matter whether the leave accrues to the individual as an employee or for some other reason.

Example:

Your employee goes to a new employer. You pay the new employer $2,000 for the employee's unused long service leave because an industrial agreement requires you to make that payment.

Note:

An accrued leave transfer payment is included in the assessable income of the entity to which it is made: see section 15-5 .

SECTION 26-15  

26-15   Franchise fees windfall tax  

You cannot deduct under this Act any tax that is imposed by the Franchise Fees Windfall Tax (Imposition) Act 1997 .

SECTION 26-17  

26-17   Commonwealth places windfall tax  

You cannot deduct under this Act any tax that is imposed by the Commonwealth Places Windfall Tax (Imposition) Act 1998 .

26-18   (Repealed) SECTION 26-18 Unit shortfall charge - clean energy  
(Repealed by No 83 of 2014)

SECTION 26-19   Rebatable benefits  

26-19(1)    
You cannot deduct under this Act a loss or outgoing to the extent that the loss or outgoing is incurred in gaining or producing a rebatable benefit (within the meaning of section 160AAA of the Income Tax Assessment Act 1936 ).

26-19(2)    
To the extent that you use property in gaining or producing a rebatable benefit, your use of the property is taken not to be for the * purpose of producing assessable income if subsection (1) would stop you deducting a loss or outgoing if you incurred it in the income year in gaining or producing the rebatable benefit.

Note:

Under some provisions of this Act, in order to deduct an amount for your property, you must have used the property for the purpose of producing assessable income.

SECTION 26-20   Assistance to students  

26-20(1)    
You cannot deduct under this Act:

(a) - (c) (Repealed by No 56 of 2010)

(ca)    

a student contribution amount within the meaning of the Higher Education Support Act 2003 paid to a higher education provider (within the meaning of that Act); or

(cb)    

a payment made to reduce a debt to the Commonwealth under Chapter 4 of that Act; or

(cba)    

a payment made to reduce a debt to the Commonwealth under Part 3A of the VET Student Loans Act 2016 ; or

(cc)    

a payment made to reduce a debt to the Commonwealth under Chapter 2AA of the Social Security Act 1991 or Part 2 of the Student Assistance Act 1973 ; or

(cd)    

a payment made to reduce a debt to the Commonwealth under Chapter 3 of the Australian Apprenticeship Support Loans Act 2014 ; or

(ce)    

a payment made to reduce a liability to overseas debtors repayment levy under the Student Loans (Overseas Debtors Repayment Levy) Act 2015 ; or

(d)    a payment made to reduce a debt to the Commonwealth, or to a participating corporation, under Chapter 2B of the Social Security Act 1991 or Part 4A of the Student Assistance Act 1973 .

Exception when you provide a fringe benefit

26-20(2)    
Subsection (1) does not stop you deducting expenditure you incur in ^* providing a ^* fringe benefit.

SECTION 26-22   Political contributions and gifts  

You cannot deduct political contributions or gifts

26-22(1)    
You cannot deduct under this Act (other than Subdivision 30-DA ):

(a) a contribution (including a membership fee) or gift to a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation; or

(b) a contribution or gift to an individual when the individual is a candidate in an election for members of:

(i) an *Australian legislature; or

(ii) a *local governing body; or

(c) a contribution or gift to an individual who is a member of:

(i) an Australian legislature; or

(ii) a local governing body.

Exception for employees and office holders

26-22(2)    
However, subsection (1) does not apply to a loss or outgoing incurred in gaining or producing assessable income from which an amount is required to be withheld under section 12-35 or 12-45 in Schedule 1 to the Taxation Administration Act 1953 .

Note:

These provisions of the Taxation Administration Act 1953 require amounts to be withheld from income of employees and office holders.

Starting and stopping being a candidate

26-22(3)    
For the purposes of this section, an individual:

(a) starts being a candidate when the individual ' sintention to be or to attempt to be a candidate for the election is publicly available; and

(b) stops being a candidate at the earlier of:

(i) the time when the result of the election is declared or otherwise publicly announced by an entity (an electoral official ) authorised under the relevant electoral legislation; and

(ii) the time (if any) when the individual ' s intention to no longer be a candidate for the election is publicly available.

Starting being a member

26-22(4)    
An individual who becomes a member as a result of an election (including an election that is later declared void) is taken to start being a member when the individual ' s election as a member is declared or otherwise publicly announced by an electoral official.

SECTION 26-25   Interest or royalty  

26-25(1)    

You cannot deduct under this Act interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936 ) or a ^* royalty if:

(a) Subdivision 12-F in Schedule 1 to the Taxation Administration Act 1953 requires you to withhold an amount from the interest or royalty; and

(b) either:

(i) you fail to withhold the amount; or

(ii) after withholding the amount, you fail to comply with section 16-70 in that Schedule in relation to that amount.

26-25(2)    

You cannot deduct under this Act interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936 ), or a ^* royalty, that is in the form of a ^* non-cash benefit if:

(a) section 14-5 or 14-10 in Schedule 1 to the Taxation Administration Act 1953 requires you to pay an amount to the Commissioner before providing the benefit, because of Subdivision 12-F in that Schedule; and

(b) you fail to pay the amount as required by that section.

26-25(3)    
If:

(a) apart from subsection (1) or (2), you can deduct interest (within the meaning of Division 11A of Part III of the Income Tax Assessment Act 1936 ) or a ^* royalty for an income year; and

(b) the ^* withholding tax payable for the interest or the royalty is paid;

you can deduct the interest or royalty for that income year.

SECTION 26-25A   Payments to employees - labour mobility programs  

No deduction to extent amount not withheld

26-25A(1)    

You cannot deduct under this Act salary, wages, commission, bonuses or allowances from which Subdivision 12-FC in Schedule 1 to the Taxation Administration Act 1953 (about labour mobility programs) requires you to withhold an amount, to the extent that:

(a)    you fail to withhold the amount; or

(b)    after withholding the amount, you fail to comply with section 16-70 in that Schedule in relation to that amount.

Note:

Section 16-70 in that Schedule requires you to pay the amount to the Commissioner.

Deduction to extent amount not withheld but withholding tax paid

26-25A(2)    
You can deduct, for an income year, salary, wages, commission, bonuses or allowances to the extent that:

(a)    you cannot deduct the salary, wages, commission, bonuses or allowances for that income year only because of subsection (1) of this section; and

(b)    

the *labour mobility program withholding tax payable for the salary, wages, commission, bonuses or allowance is paid.

SECTION 26-26   Non-share distributions and dividends  

26-26(1)    
A company cannot deduct under this Act:

(a) a ^* non-share distribution; or

(b) a return that has accrued on a ^* non-share equity interest.

26-26(2)    
A company cannot deduct a ^* dividend paid on an ^* equity interest in the company as a ^* general deduction under this Act.

SECTION 26-30   Relative ' s travel expenses  

26-30(1)    
You cannot deduct under this Act a loss or outgoing you incur, insofar as it is attributable to your ^* relative ' s travel, if:

(a) you travelled in the course of performing your duties as an employee, or in the course of carrying on a ^* business for the purpose of gaining or producing your assessable income; and

(b) your relative accompanied you while you travelled.

Exception to subsection (1)

26-30(2)    
Subsection (1) does not stop you deducting a loss or outgoing if:

(a) your ^* relative, while accompanying you, performed substantial duties as your employer ' s employee, or as your employee; and

(b) it is reasonable to conclude that your relative would still have accompanied you even if he or she had not had a personal relationship with you.

Exception when you provide a fringe benefit

26-30(3)    
Subsection (1) does not stop you deducting expenditure you incur in ^* providing a ^* fringe benefit.

This section also applies to individuals who are not employees

26-30(4)    

If an individual is not an employee, but receives, or is entitled to receive, ^* withholding payments covered by subsection (6), this section applies to the individual as if:

(a) he or she were an employee; and

(b) the entity, who pays (or is liable to pay) ^* withholding payments covered by subsection (6) that result in the individual being in receipt of, or entitled to receive, such payments, were the individual ' s employer; and

(c) any other individual who receives (or is entitled to receive) ^* withholding payments covered by subsection (6):

(i) that result in that other individual being in receipt of, or entitled to receive, such payments; and

(ii) that the entity pays (or is liable to pay) to that other individual;

were an employee of the entity.

This section also applies to entities who are not employers

26-30(5)    

If an entity is not an employer, but pays (or is liable to pay) ^* withholding payments covered by subsection (6), this section applies to the entity as if:

(a) it were an employer; and

(b) an individual to whom the entity pays (or is liable to pay) such withholding payments were the entity ' s employee.

Withholding payments covered

26-30(6)    

This subsection covers:

(a) a ^* withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table; and

(b) a withholding payment covered by section 12-47 in Schedule 1 to the Taxation Administration Act 1953 where:

(i) the payment is made to a religious practitioner by a religious institution; and

(ii) the activity, or series of activities, for which the payment is made is done by the religious practitioner as a member of the religious institution.

Withholding payments covered
Item	Provision	Subject matter
1	Section 12-40	Payment to company director
.
2	Section 12-45	Payment to office holder
.
3	Section 12-50	Return to work payment
.
4	Subdivision 12-D	Benefit, training and compensation payments

SECTION 26-31   Travel related to use of residential premises as residential accommodation  

26-31(1)    
You cannot deduct under this Act a loss or outgoing you incur, insofar as it is related to travel, if:

(a) it is incurred in gaining or producing your assessable income from the use of *residential premises as residential accommodation; and

(b) it is not necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

Exception - kind of entity

26-31(2)    
Subsection (1) does not stop you deducting a loss or outgoing if, at any time during the income year in which the loss or outgoing is incurred, you are:

(a) a *corporate tax entity; or

(b) a *superannuation plan that is not a *self managed superannuation fund; or

(c) a *managed investment trust; or

(d) a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936 ); or

(e) a unit trust or partnership, if each *member of the trust or partnership is covered by a paragraph of this subsection at that time during the income year.

SECTION 26-35   Reducing deductions for amounts paid to related entities  

You can only deduct reasonable amounts paid to related entities

26-35(1)    
If, under another provision of this Act, you can deduct an amount for a payment you make, or for a liability you incur, to a ^* related entity, then you can only deduct so much of the amount as the Commissioner considers reasonable.

Note:

This section has a special operation if the payment is made, or the liability is incurred, by a partnership in which a private company is a partner: see section 65 (Payments to associated persons and relatives) of the Income Tax Assessment Act 1936 .

Meaning of related entity

26-35(2)    
A related entity is any of the following:

(a) your ^* relative; or

(b) a partnership in which your relative is a partner.

26-35(3)    
In the case of a partnership, a related entity is any of the following:

(a) a ^* relative of a partner in the partnership;

(b) an individual who is or has been a director of a company that is a partner in the partnership and is a ^* private company for the income year;

(c) an entity that is or has been a shareholder in a company of that kind;

(d) a ^* relative of an individual who is or has been a director or shareholder of a company of that kind;

(e) a beneficiary of a trust if the trustee is a partner in the partnership;

(f) a ^* relative of a beneficiary of a trust if the trustee is a partner in the partnership;

(g) another partnership, if a partner in the other partnership is a ^* relative of a partner in the first partnership.

However, a partner in a partnership is not a related entity of the partnership.

If you can ' t deduct, then related entity doesn ' t include amount as income

26-35(4)    
To the extent that subsection (1) stops you deducting an amount, the amount is neither assessable income, nor exempt income, of the ^* related entity.

26-35(5)    
(Repealed by No 75 of 2010 )

SECTION 26-40  

26-40   Maintaining your family  

You cannot deduct under this Act expenditure you incur for maintaining:

(a) your ^* spouse (except a spouse permanently living separately and apart from you); or

(b) your ^* child who is under 16 years.

Example:

A farmer cannot deduct an amount for food or lodgings that the farmer provides to his or her child who is under 16 years for the work the child performs on the farm.

SECTION 26-45   Recreational club expenses  

26-45(1)    
You cannot deduct under this Act a loss or outgoing to the extent you incur it to obtain or maintain:

(a) membership of a ^* recreational club; or

(b) rights to enjoy (otherwise than as a ^* member) facilities provided by a ^* recreational club for the use or benefit of its ^* members;

whether for yourself or someone else.

Meaning of recreational club

26-45(2)    
A recreational club is a company that was established or is carried on mainly to provide facilities, for the use or benefit of its ^* members, for drinking, dining, ^* recreation or entertainment.

Exception when you provide a fringe benefit

26-45(3)    
Subsection (1) does not stop you deducting expenditure you incur in ^* providing a ^* fringe benefit.

SECTION 26-47   Non-business boating activities  

Object

26-47(1)    
The object of this section is to improve the integrity of the taxation system by preventing deductions from boating activities that are not carried on as a *business being offset against other assessable income.

Rule

26-47(2)    
This Act applies to you as if so much of the amounts relating to using or *holding boats that you could otherwise deduct for an income year as exceeds your assessable income from using or holding boats for that year:

(a) were not deductible for that income year; and

(b) were an amount (a quarantined amount ) relating to using or holding boats that you can deduct for the next income year.

Note:

A quarantined amount may be reduced under subsection (5) (for boat capital gains), reduced under subsection (7) (where you deduct part of a quarantined amount under subsection (6) for boat business profits), reduced under subsection (8) (about exempt income) or affected by subsection (10) (about bankruptcy).

Example:

Ian does not use his boat in a business. In Year 1, Ian would be able to claim $100,000 in deductions for the boat (but for this subsection), including interest, depreciation and running costs. He earns only $40,000 of income from the boat. He can only deduct $40,000. He carries the remaining $60,000 forward to Year 2 (the quarantined amount).

In Year 2, Ian has $95,000 of expenses and $30,000 of income for the boat. He can deduct $30,000. The quarantined amount is now $125,000: the quarantined amount from Year 1 plus the excess of expenses over income from Year 2.

In Year 3, Ian has $60,000 of expenses and $150,000 of income from the boat. The expenses from Year 3 plus the quarantined amount is $185,000. Therefore, Ian claims a deduction of $150,000 and carries forward $35,000 to Year 4.

Exception: business use

26-47(3)    
The rule in subsection (2) does not apply to amounts that are attributable to one or more of the following:

(a) *holding a boat as your *trading stock;

(b) using a boat (or holding it) mainly for letting it on hire in the ordinary course of a *business that you carry on;

(c) using a boat (or holding it) mainly for transporting the public or goods for payment in the ordinary course of a business that you carry on;

(d) using a boat for a purpose that is essential to the efficient conduct of a business that you carry on.

Note:

Even if this exception applies to you, you may still have to quarantine losses under Division 35 (deferral of losses from non-commercial business activities).

Exception: fringe benefits

26-47(4)    
The rule in subsection (2) does not apply to so much of an amount you incur in *providing a *fringe benefit.

Modification if you have boat capital gains

26-47(5)    
You reduce a quarantined amount you have for an income year by so much of that amount as is applied under section 118-80 to reduce a *capital gain you have for the year in relation to a boat. You make this reduction before you deduct an amount under subsection (6).

Deduction if you have boat business profits

26-47(6)    
You can deduct all or part of your remaining quarantined amount for an income year if your assessable income for the year from activities of a kind referred to in subsection (3) exceeds your deductions for the year relating to those activities. The amount you can deduct is the lesser of that excess and that remaining quarantined amount.

26-47(7)    
You reduce your quarantined amount for the year by the amount you deduct. You make this reduction before a reduction under subsection (8).

Modification if you have exempt income

26-47(8)    

You reduce any remaining quarantined amount you have for an income year by your * net exempt income for that year (after * utilising the net exempt income under section 35-15 (about non-commercial business activities) or section 36-10 or 36-15 (about tax losses)).

Modification if you become bankrupt

26-47(9)    
The modification in subsection (10) has effect if:

(a) in an income year (the current year ) you become bankrupt or are released from a debt by the operation of an Act relating to bankruptcy; or

(b) you became bankrupt before the current year and:

(i) the bankruptcy is annulled in the current year under section 74 of the Bankruptcy Act 1966 because your creditors have accepted a proposal for a composition or scheme of arrangement; and

(ii) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy.

26-47(10)    
This Act applies to you as if any amount that:

(a) is a quarantined amount for you for the current year or was a quarantined amount for you for an earlier year; and

(b) has not been applied under section 118-80 and that you have not yet deducted;

were not an amount relating to using or holding boats that you can deduct for the current year or a later year.

SECTION 26-50   Expenses for a leisure facility  

26-50(1)    

You cannot deduct under this Act a loss or outgoing to the extent you incur it:

(a) to acquire ownership of a ^* leisure facility; or

(b) to retain ownership of a leisure facility; or

(c) to acquire rights to use a leisure facility; or

(d) to retain rights to use a leisure facility; or

(e) to use, operate, maintain or repair a leisure facility; or

(f) in relation to any obligation associated with your ownership of a leisure facility; or

(g) in relation to any obligation associated with your rights to use a leisure facility.

However, there are exceptions (see subsections (3), (4) and (8)).

What is a leisure facility ?

26-50(2)    
A leisure facility is land, a building, or part of a building or other structure, that is used (or held for use) for holidays or ^* recreation.

Exception - leisure facilities

26-50(3)    
Subsection (1) does not stop you deducting a loss or outgoing for a ^* leisure facility if at all times in the income year:

(a) you hold the leisure facility for sale in the ordinary course of your business of selling leisure facilities; or

(b) you use the leisure facility (or hold it for use) mainly to provide it:

(i) in the ordinary course of your ^* business of providing leisure facilities for payment; or

(ii) to produce your assessable income in the nature of rents, lease premiums, licence fees or similar charges; or

(iii) for your employees to use; or

(iv) for the care of your employees ' *children.

In the case of a company, subparagraphs (b)(iii) and (iv) do not apply to employees who are ^* members or directors of the company.

Exception - part year use of leisure facilities

26-50(4)    
If you use a ^* leisure facility (or hold it) as described in subsection (3) at all times during part of the income year, then subsection (1) does not stop you deducting so much of the loss or outgoing as is reasonable in the circumstances.

26-50(5)    
(Repealed by No 78 of 2007 )

26-50(6)    
(Repealed by No 78 of 2007 )

Anti-avoidance - when exceptions do not apply

26-50(7)    

A ^* leisure facility is taken not to be used (or held) as described in subsection (3) if:

(a) apart from this subsection, the leisure facility would be used (or held) in that way because of a ^* scheme; and

(b) in the Commissioner's opinion, the scheme would not have been entered into or carried out if this section had not been enacted.

Exception when you provide a fringe benefit

26-50(8)    
Subsection (1) does not stop you deducting expenditure you incur in ^* providing a ^* fringe benefit.

SECTION 26-52   Bribes to foreign public officials  

26-52(1)    
You cannot deduct under this Act a loss or outgoing you incur that is a ^* bribe to a foreign public official.

26-52(2)    

An amount is a bribe to a foreign public official to the extent that:

(a)    you incur the amount in, or in connection with:

(i) providing a benefit to another person; or

(ii) causing a benefit to be provided to another person; or

(iii) offering to provide, or promising to provide, a benefit to another person; or

(iv) causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and

(b)    you incur the amount with the intention of improperly influencing a *foreign public official (who may be the other person) in order to obtain or retain business or a business or personal advantage (whether or not for yourself).

The benefit may be any advantage and is not limited to property.

26-52(2A)    

For the purposes of subsection (2) , disregard whether business, or a business or personal advantage, was actually obtained or retained.

Payments that written law of foreign public official ' s country requires or permits

26-52(3)    

An amount is not a bribe to a foreign public official if, assuming the benefit had been provided, and all related acts had been done, in the *foreign public official ' s country, a written law of that country would have required or permitted the provision of the benefit.

Facilitation payments

26-52(4)    

An amount is not a bribe to a foreign public official if:

(a)    the value of the benefit is of a minor nature; and

(b)    the amount is incurred for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature.

26-52(5)    
For the purposes of this section, a routine government action is an action of a ^* foreign public official that:

(a)    is ordinarily and commonly performed by the official; and

(b)    is covered by any of the following subparagraphs:

(i) granting a permit, licence or other official document that qualifies a person to do business in a foreign country or in a part of a foreign country;

(ii) processing government papers such as a visa or work permit;

(iii) providing police protection or mail collection or delivery;

(iv) scheduling inspections associated with contract performance or related to the transit of goods;

(v) providing telecommunications services, power or water;

(vi) loading and unloading cargo;

(vii) protecting perishable products, or commodities, from deterioration;

(viii) any other action of a similar nature; and

(c)    does not involve a decision about:

(i) whether to award new business; or

(ii) whether to continue existing business with a particular person; or

(iii) the terms of new business or existing business; and

(d)    does not involve encouraging a decision about:

(i) whether to award new business; or

(ii) whether to continue existing business with a particular person; or

(iii) the terms of new business or existing business.

Improper influence

26-52(6)    

In determining whether influence is improper, disregard the following:

(a)    

the fact that the benefit, or the offer or promise to provide the benefit, may be, or be perceived to be, customary, necessary or required in the situation;

(b)    any official tolerance of the benefit;

(c)    if particular business or a particular business or personal advantage is relevant to determining whether influence is improper - the following:

(i) if the value of the business or advantage is insignificant - that fact;

(ii) in the case of an advantage - any official tolerance of the advantage;

(iii) in the case of an advantage - the fact that the advantage may be customary, or perceived to be customary, in the situation.

26-52(7)    
(Repealed by No 5 of 2024)

Duties of foreign public official

26-52(8)    
The duties of a ^* foreign public official are any authorities, duties, functions or powers that:

(a)    are conferred on the official; or

(b)    the official holds himself or herself out as having.

SECTION 26-53   Bribes to public officials  

26-53(1)    
You cannot deduct under this Act a loss or outgoing you incur that is a ^* bribe to a public official.

26-53(2)    
An amount is a bribe to a public official to the extent that:

(a) you incur the amount in, or in connection with:

(i) providing a benefit to another person; or

(ii) causing a benefit to be provided to another person; or

(iii) offering to provide, or promising to provide, a benefit to another person; or

(iv) causing an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and

(b) the benefit is not legitimately due to the other person (see subsection (3)); and

(c) you incur the amount with the intention of influencing a ^* public official (who may or may not be the other person) in the exercise of the official's duties as a public official in order to:

(i) obtain or retain business; or

(ii) obtain or retain an advantage in the conduct of business that is not legitimately due to you, or another person, as the recipient, or intended recipient, of the advantage in the conduct of business (see subsection (4)).

The benefit may be any advantage and is not limited to property.

Benefit not legitimately due

26-53(3)    
In working out if a benefit is not legitimately due to another person in a particular situation, disregard the following:

(a) the fact that the benefit may be customary, or perceived to be customary, in the situation;

(b) the value of the benefit;

(c) any official tolerance of the benefit.

Advantage in the conduct of business that is not legitimately due

26-53(4)    
In working out if an advantage in the conduct of business is not legitimately due in a particular situation, disregard the following:

(a) the fact that the advantage may be customary, or perceived to be customary, in the situation;

(b) the value of the advantage;

(c) any official tolerance of the advantage.

Duties of public official

26-53(5)    
The duties of a ^* public official are any authorities, duties, functions or powers that:

(a) are conferred on the official; or

(b) the official holds himself or herself out as having.

SECTION 26-54   Expenditure relating to illegal activities  

26-54(1)    
You cannot deduct under this Act a loss or outgoing to the extent that it was incurred in the furtherance of, or directly in relation to, a physical element of an offence against an ^* Australian law of which you have been convicted if the offence was, or could have been, prosecuted on indictment.

26-54(2)    
Despite section 170 of the Income Tax Assessment Act 1936 , the Commissioner may amend your assessment at any time within 4 years after you are convicted of the relevant offence for the purpose of giving effect to subsection (1) of this section.

SECTION 26-55   Limit on deductions  

26-55(1)    

There is a limit on the total of the amounts you can deduct for the income year under these provisions:

(a) section 25-50 (which is about payments of pensions, gratuities or retiring allowances) of this Act;

(ba) Division 30 (which is about deductions for gifts or contributions) of this Act;

(bb) Division 31 (which is about deductions for conservation covenants) of this Act;

(b) - (c) (Repealed by No 101 of 2006 )

(d) section 290-150 (which is about deductions for personal superannuation contributions).

(e) (Repealed by No 101 of 2006 )

Do not include in the total an amount that you could also deduct under another provision of this Act, apart from section 8-10 (which prevents double deductions).

26-55(2)    
The limit is worked out by subtracting from your assessable income all your deductions except:

(a) ^* tax losses; and

See Division 36 (which is about tax losses of earlier income years).

(b) (Repealed by No 169 of 1999)

(c) the amount you can deduct for the income year under section 393-5 (which provides for deductions for making *farm management deposits).

SECTION 26-60  

26-60   Superannuation contributions surcharge  
You cannot deduct under this Act:

(a) a superannuation contributions surcharge within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 ; or

(b) a superannuation contributions surcharge within the meaning of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 .

26-65   (Repealed) SECTION 26-65 Termination payments surcharge  
(Repealed by No 23 of 2018)

SECTION 26-68   Loss from disposal of eligible venture capital investments  

Partners in VCLPs and ESVCLPs

26-68(1)    
You cannot deduct under this Act your share of a loss made from the disposal or other realisation of an ^* eligible venture capital investment if:

(a) it is made by a ^* VCLP, or an *ESVCLP, that is ^* unconditionally registered; and

(b) were that disposal or other realisation to be a ^* disposal of a ^* CGT asset, your share of any ^* capital gain or ^* capital loss would be disregarded under section 118-405 or 118-407 .

Partners in AFOFs

26-68(2)    
You cannot deduct under this Act your share of a loss made from the disposal or other realisation of an ^* eligible venture capital investment if:

(a) it is made by:

(i) an ^* AFOF that is ^* unconditionally registered; or

(ii) a ^* VCLP, or an *ESVCLP, that is unconditionally registered and in which an AFOF that is ^* unconditionally registered is a partner; and

(b) were that disposal or other realisation to be a ^* disposal of a ^* CGT asset, your share of any ^* capital gain or ^* capital loss would be disregarded under section 118-410 .

Eligible venture capital investors

26-68(3)    
You cannot deduct under this Act a loss made from the disposal or other realisation of an ^* eligible venture capital investment if:

(a) you are an ^* eligible venture capital investor; and

(b) were that disposal or other realisation to be a ^* disposal of a ^* CGT asset, any ^* capital gain or ^* capital loss would be disregarded under section 118-415 .

SECTION 26-70  

26-70   Loss from disposal of venture capital equity  

You cannot deduct under this Act a loss made from the disposal or other realisation of ^* venture capital equity in a ^* resident investment vehicle if:

(a) it is made by a ^* venture capital entity or a ^* limited partnership referred to in subsection 118-515(2) ; and

(b) if that disposal or other realisation were a ^* disposal of a ^* CGT asset, any ^* capital gain or ^* capital loss would be disregarded under Subdivision 118-G .

26-74   (Repealed) SECTION 26-74 Excess concessional contributions charge cannot be deducted  
(Repealed by No 45 of 2021)

SECTION 26-75  

26-75   Excess non-concessional contributions tax cannot be deducted  

You cannot deduct under this Act an amount of * excess non-concessional contributions tax that you pay.

SECTION 26-80   Financing costs on loans to pay superannuation contribution  

26-80(1)    
You can only deduct under this Act a *financing cost connected with a contribution you make to a *superannuation plan if you can deduct the contribution under Subdivision 290-B .

26-80(2)    
A financing cost connected with a contribution is expenditure incurred to the extent that it relates to obtaining finance to make the contribution, including:

(a) interest, and payments in the nature of interest; and

(b) expenses of borrowing.

SECTION 26-85   Borrowing costs on loans to pay life insurance premiums  

26-85(1)    
You can only deduct under this Act interest on, or other expenses associated with, money you borrow to pay a premium for a *life insurance policy if:

(a) the *risk component of the premium received by the insurer is the entire amount of the premium; and

(b) each amount the insurer is liable to pay under the policy would be included in your assessable income if it were paid.

26-85(2)    
The risk component of a premium for a *life insurance policy means the amount of the premium worked out on the basis specified in the regulations.

SECTION 26-90  

26-90   Superannuation supervisory levy  

You cannot deduct under this Act so much of a levy imposed by the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 as represents the late lodgment amount (within the meaning of section 6 of that Act).

SECTION 26-95   Superannuation guarantee charge  

26-95(1)    
You cannot deduct under this Act a charge imposed by the Superannuation Guarantee Charge Act 1992 .

26-95(2)    

However, if the charge relates to a *superannuation guarantee shortfall for which you qualify for an amnesty under section 74 of the Superannuation Guarantee (Administration) Act 1992 , this section does not apply to a payment that:

(a) is made, under that Act, during the amnesty period (within the meaning of subsection 74(3) of that Act); and

(b) is made in relation to the charge, whether or not the Commissioner applies the payment to satisfy your liability to pay the charge;

except to the extent that the payment, when taken together with any other such payments made in relation to the charge, exceeds the amount paid as a result of a disclosure to which paragraph 74(1)(a) of that Act applies in relation to the shortfall.

SECTION 26-96  

26-96   Laminaria and Corallina decommissioning levy cannot be deducted  

You cannot deduct under this Act an amount of *Laminaria and Corallina decommissioning levy that you pay.

SECTION 26-97  

26-97   National Disability Insurance Scheme expenditure  

A participant (within the meaning of the National Disability Insurance Scheme Act 2013 ) cannot deduct under this Act a loss or outgoing to the extent the loss or outgoing is funded (including funded by way of reimbursement) by an *NDIS amount the participant *derives.

SECTION 26-98  

26-98   Division 293 tax cannot be deducted  

You cannot deduct under this Act any of the following:

(a) an amount of * Division 293 tax that you pay;

(b) an amount of * debt account discharge liability that you pay.

SECTION 26-99  

26-99   Excess transfer balance tax cannot be deducted  

You cannot deduct under this Act an amount of *excess transfer balance tax that you pay.

SECTION 26-99B  

26-99B   Build to rent development misuse tax cannot be deducted  

You cannot deduct under this Act an amount of *build to rent development misuse tax that you pay.

SECTION 26-99C  

26-99C   Australian IIR/UTPR tax and Australian DMT tax cannot be deducted  

You cannot deduct under this Act an amount of *Australian IIR/UTPR tax or *Australian DMT tax that you pay.

SECTION 26-100   Expenditure attributable to water infrastructure improvement payments  

26-100(1)    
You cannot deduct under this Act * SRWUIP expenditure if the matching * SRWUIP payment is, or is reasonably expected to be, * non-assessable non-exempt income (whether for you or for another entity) under section 59-65.

26-100(2)    
SRWUIP expenditure , in respect of a * SRWUIP program, is expenditure that:

(a) you incur that satisfies an obligation under an * arrangement under the program; and

(b) is, or is reasonably expected to be, matched by a * SRWUIP payment in respect of the program.

26-100(3)    
However, treat the expenditure as if it had never been SRWUIP expenditure if it is no longer reasonable to expect that the expenditure will be matched by a * SRWUIP payment in respect of the program.

SECTION 26-102   Expenses associated with holding vacant land  

Limit on deduction

26-102(1)    
If:

(a) at a particular time, you incur a loss or outgoing relating to holding land (including interest or any other ongoing costs of borrowing to acquire the land); and

(b) at the earlier of the following (the critical time ):

(i) that time;

(ii) if you have ceased to hold the land - the time just before you ceased to hold the land;

there is no substantial and permanent structure in use or available for use on the land having a purpose that is independent of, and not incidental to, the purpose of any other structure or proposed structure;

you can only deduct under this Act the loss or outgoing to the extent that the land is in use, or available for use, in carrying on a business covered by subsection (2) at the time applying under subsection (3).

Note 1:

The ordinary meaning of structure includes a building and anything else built or constructed.

Note 2:

The land need not be all of the land under a land title.

26-102(2)    
A *business is covered by this subsection if the business is carried on for the purpose of gaining or producing the assessable income of one or more of the following entities:

(a) you;

(b) your *affiliate, or an entity of which you are an affiliate;

(c) if you are an individual - your *spouse, or any of your *children who is under 18 years of age;

(d) an entity *connected with you.

26-102(3)    
The time applying under this subsection is the critical time unless:

(a) the business referred to in subsection (1) ceases before the critical time; and

(b) the loss or outgoing is otherwise deductible because of the use or availability for use of the land at an earlier time or during an earlier period; and

(c) at that earlier time or during that earlier period the land was in use or available for use in carrying on that business;

in which case the time applying under this subsection is that earlier time or the end of that earlier period.

Disregard certain residential premises if not rented etc.

26-102(4)    
For the purposes of paragraph (1)(b), treat a building as not being a substantial and permanent structure if it is *residential premises constructed, or *substantially renovated, while you hold the land unless:

(a) the residential premises are lawfully able to be occupied; and

(b) the residential premises are:

(i) leased, hired or licensed; or

(ii) available for lease, hire or licence.

Note:

If all of the structures on the land are disregarded under this subsection, then subsection (1) may deny you a deduction for a loss or outgoing relating to the land.

Exception - kind of entity

26-102(5)    
Subsection (1) does not stop you deducting a loss or outgoing if, at any time during the income year in which the loss or outgoing is incurred, you are:

(a) a *corporate tax entity; or

(b) a *superannuation plan that is not a *self managed superannuation fund; or

(c) a *managed investment trust; or

(d) a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936 ); or

(e) a unit trust or partnership, if each *member of the trust or partnership is covered by a paragraph of this subsection at that time during the income year.

Exception - structures affected by natural disasters or other exceptional circumstances

26-102(6)    
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if:

(a) had an earlier time been the critical time (see paragraph (1)(b)), paragraph (1)(b) would not have applied to you for the land because of the existence at that earlier time of a substantial and permanent structure on the land; and

(b) after that earlier time, paragraph (1)(b):

(i) began to apply to you for the land wholly or mainly because of a circumstance affecting that structure; and

(ii) continued to do so at the critical time; and

(c) the circumstance was exceptional and beyond the reasonable control of you, and of all the entities referred to in paragraphs (2)(b), (c) and (d); and

(d) the critical time happened before:

(i) the third anniversary of the time paragraph (1)(b) began to apply to you for the land as described in subparagraph (b)(i) of this subsection; or

(ii) such later time as the Commissioner allows.

26-102(7)    
If subsection (6) applies to you and you deduct the loss or outgoing, you must keep written records of:

(a) the circumstance; and

(b) the circumstance ' s effect on the affected structure;

until the fifth anniversary of the end of the income year in which you incurred the loss or outgoing.

Note:

There is an administrative penalty if you fail to keep these records (see section 288-25 in Schedule 1 to the Taxation Administration Act 1953 ).

Exception - land held by primary producers

26-102(8)    
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time (see paragraph (1)(b)):

(a) the land is under lease, hire or licence to another entity; and

(b) you are, or an entity referred to in paragraph (2)(b), (c) or (d) is, carrying on a *primary production business; and

(c) the land does not contain *residential premises; and

(d) residential premises are not being constructed on the land.

Exception - land in use or available for use in carrying on a business

26-102(9)    
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time (see paragraph (1)(b)):

(a) the land is under lease, hire or licence to another entity as a result of a dealing at *arm ' s length; and

(b) the land is in use, or available for use, in carrying on a *business; and

(c) the land does not contain *residential premises; and

(d) residential premises are not being constructed on the land.

SECTION 26-105   Non-compliant payments for work and services  

No deduction if amount not withheld or Commissioner not notified

26-105(1)    
You cannot deduct under this Act a payment if:

(a) any of the following provisions in Schedule 1 to the Taxation Administration Act 1953 require you to withhold an amount from the payment:

(i) section 12-35 (about payments to employees);

(ii) section 12-40 (about payments to directors);

(iii) section 12-47 (about payments to *religious practitioners);

(iv) section 12-60 (about payments under labour hire and certain other arrangements);

(v) in relation to a *supply, other than a supply referred to in subsection (3) of this section - section 12-190 (about quoting of *ABN); and

(b) either:

(i) you fail to withhold an amount (whether or not that amount is the amount required to be withheld as mentioned in paragraph (a)) from the payment; or

(ii) after withholding the amount from the payment, you fail to comply, or purportedly comply, with section 16-150 or 389-5 (as the case requires) in that Schedule, in relation to the amount.

26-105(2)    
You cannot deduct under this Act a *non-cash benefit if:

(a) section 14-5 in Schedule 1 to the Taxation Administration Act 1953 requires you to pay an amount to the Commissioner before providing the benefit, because of any of the following provisions in that Schedule:

(i) section 12-35 (about payments to employees);

(ii) section 12-40 (about payments to directors);

(iii) section 12-47 (about payments to *religious practitioners);

(iv) section 12-60 (about payments under labour hire and certain other arrangements);

(v) in relation to a *supply, other than a supply referred to in subsection (3) of this section - section 12-190 (about quoting of *ABN); and

(b) you fail to comply, or purportedly comply, with section 16-150 in that Schedule in relation to the amount.

26-105(3)    
For the purposes of subparagraphs (1)(a)(v) and (2)(a)(v), the supplies are supplies that are wholly a *supply of either or both of the following:

(a) a supply of goods (within the meaning of section 195-1 of the *GST Act);

(b) a supply of real property (within the meaning of that section of that Act).

Exception - nil amounts

26-105(4)    
Subsection (1) or (2) does not apply if the amount required to be withheld, or the amount required to be paid to the Commissioner, (as the case requires) is a nil amount.

Exception - ABN quoted

26-105(5)    
Subsection (1) does not apply in relation to an amount required to be withheld from a payment under section 12-35 in Schedule 1 to the Taxation Administration Act 1953 , if:

(a) when the payment is made, you have been given:

(i) an *invoice or some other document that relates to the payment that *quotes the individual ' s *ABN; or

(ii) if the payment relates to a *supply that has been made through an *agent - an invoice or some other document that relates to the payment that quotes the agent ' s ABN; or

(b) when the payment is made:

(i) you have been given an invoice or some other document that relates to the payment that purports to quote the individual ' s ABN; and

(ii) the individual does not have an ABN, or the invoice or other document does not in fact quote the individual ' s ABN; and

(iii) you have no reasonable grounds to believe that the individual does not have an ABN, or that the invoice or other document does not quote the individual ' s ABN; or

(c) if the payment relates to a supply that has been made through an agent - when the payment is made:

(i) you have been given an invoice or some other document that relates to the payment that purports to quote the agent ' s ABN; and

(ii) the agent does not have an ABN, or the invoice or other document does not in fact quote the agent ' s ABN; and

(iii) you have no reasonable grounds to believe that the agent does not have an ABN, or that the invoice or other document does not quote the agent ' s ABN.

26-105(6)    
Subsection (2) does not apply in relation to a *non-cash benefit that requires an amount to be paid to the Commissioner, if:

(a) when the non-cash benefit is provided, you have been given:

(i) an *invoice or some other document that relates to the non-cash benefit that *quotes the individual ' s *ABN; or

(ii) if the non-cash benefit relates to a *supply that has been made through an *agent - an invoice or some other document that relates to the non-cash benefit that quotes the agent ' s ABN; or

(b) when the non-cash benefit is provided:

(i) you have been given an invoice or some other document that relates to the non-cash benefit that purports to quote the individual ' s ABN; and

(ii) the individual does not have an ABN, or the invoice or other document does not in fact quote the individual ' s ABN; and

(iii) you have no reasonable grounds to believe that the individual does not have an ABN, or that the invoice or other document does not quote the individual ' s ABN; or

(c) if the non-cash benefit relates to a supply that has been made through an agent - when the non-cash benefit is provided:

(i) you have been given an invoice or some other document that relates to the non-cash benefit that purports to quote the agent ' s ABN; and

(ii) the agent does not have an ABN, or the invoice or other document does not in fact quote the agent ' s ABN; and

(iii) you have no reasonable grounds to believe that the agent does not have an ABN, or that the invoice or other document does not quote the agent ' s ABN.

Exception - voluntarily tell the Commissioner about a mistake

26-105(7)    
Subsection (1) does not apply if, before the Commissioner tells you that an examination is to be made of your affairs relating to a *taxation law for a relevant period, you voluntarily tell the Commissioner, in the *approved form, that you have failed to:

(a) withhold an amount; or

(b) comply with section 16-150 or 389-5 (as the case requires) in Schedule 1 to the Taxation Administration Act 1953 in relation to the amount.

26-105(8)    
Subsection (2) does not apply if, before the Commissioner tells you that an examination is to be made of your affairs relating to a *taxation law for a relevant period, you voluntarily tell the Commissioner, in the *approved form, that you have failed to comply with section 16-150 in Schedule 1 to the Taxation Administration Act 1953 in relation to the amount.

Division 27 - Effect of input tax creditsetc. on deductions  

SECTION 27-1   What this Division is about  

Subdivision 27-A - General  

SECTION 27-5  

27-5   Input tax credits and decreasing adjustments  

You cannot deduct under this Act a loss or outgoing you incur, to the extent that the loss or outgoing includes an amount relating to an ^* input tax credit to which you are entitled or a ^* decreasing adjustment that you have.

SECTION 27-10   Certain increasing adjustments  

27-10(1)    

You can deduct an amount of an ^* increasing adjustment that arises under Division 129 of the ^* GST Act.

27-10(2)    
However, you cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature.

27-10(3)    
If:

(a) you have an ^* increasing adjustment under Division 138 of the ^* GST Act in respect of an asset as a result of the cancellation of your registration under Part 2-5 of the GST Act; and

(b) immediately after the cancellation, you held the asset for the purpose of gaining or producing assessable income;

you can deduct the amount of the increasing adjustment.

27-10(4)    

However, you cannot deduct an amount under subsection (1) or (3) to the extent that, because it becomes a component of a ^* net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits).

SECTION 27-15   GST payments  

27-15(1)    
You cannot deduct under this Act a loss or outgoing consisting of a payment under Division 33 of the ^* GST Act.

27-15(2)    
This section does not apply to the payment:

(a) to the extent (if any) that the ^* net amount to which the payment relates was increased under section 21-5 of the *Wine Tax Act (which allows for such increases to take account of wine equalisation tax); and

(b) to the extent (if any) that the ^* net amount was increased under section 13-5 of the *Luxury Car Tax Act (which allows for such increases to take account of luxury car tax); and

(c) to the extent (if any) that the ^* net amount was increased under paragraph 13-10(1)(a) of the Luxury Car Tax Act (which allows for such alterations to take account of increasing luxury car tax adjustments under that Act).

27-15(3)    

This section does not apply to the payment of *assessed GST (under section 33-15 of the ^* GST Act) on a ^* taxable importation that:

(a) was not a ^* creditable importation; or

(b) was ^* partly creditable;

but only to the extent that that payment of assessed GST exceeds the ^* input tax credit (if any) to which you are entitled for that importation.

SECTION 27-20  

27-20   Elements in calculation of amounts  

In calculating an amount that you may be able to deduct:

(a) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any ^* input tax credit for an ^* acquisition related to the amount paid or payable, or any ^* decreasing adjustment related to that amount; and

(b) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any ^* GST payable on a ^* taxable supply related to the amount received or receivable, or any ^* increasing adjustment related to that amount.

SECTION 27-25   GST groups and GST joint ventures  

27-25(1)    
A ^* member of a ^* GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the ^* GST Act (other than subsections 48-45(3) and (4)) did not apply to that member.

27-25(2)    
A ^* participant in a ^* GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the ^* GST Act did not apply to that participant.

SECTION 27-35  

27-35   Certain sections not to apply to certain assets or expenditure  

Sections 27-5 , 27-10 , 27-15 and 27-20 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or 328 .

Note:

See instead Subdivision 27-B .

Subdivision 27-B - Effect of input tax credits etc. on capital allowances  

SECTION 27-80   Cost or opening adjustable value of depreciating assets reduced for input tax credits  

27-80(1)    
A ^* depreciating asset ' s ^* cost is reduced if:

(a) an entity ' s acquisition or importation of the asset constitutes a ^* creditable acquisition or ^* creditable importation; and

(b) the entity is or becomes entitled to an ^* input tax credit for the acquisition or importation; and

(c) the entity can deduct amounts for the asset under Division 40 or 328 .

The reduction is the amount of the input tax credit.

27-80(2)    
A ^* depreciating asset ' s ^* cost is also reduced if:

(a) the entity that ^* holds the asset incurs expenditure that is included in the second element of the asset ' s cost for the income year in which the asset ' s ^* start time occurs; and

(b) the entity is or becomes entitled to an ^* input tax credit for the ^* creditable acquisition or ^* creditable importation to which the expenditure relates; and

(c) the entity can deduct amounts for the asset under Division 40 or 328 .

The reduction is the amount of the input tax credit.

27-80(3)    
However, subsections (1) and (2) do not apply if the ^* cost of the ^* depreciating asset is modified under Division 40 to be its ^* market value.

27-80(3A)    

A ^* depreciating asset ' s ^* opening adjustable value for an income year and its ^* cost is reduced if:

(a) an entity ' s acquisition or importation of the asset constitutes a ^* creditable acquisition or ^* creditable importation; and

(b) the entity is or becomes entitled to an ^* input tax credit in an income year (the credit year ) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred; and

(c) the income year is after the one in which the asset ' s ^* start time occurs; and

(d) the entity can deduct amounts for the asset under Division 40 or 328 .

The reduction is the amount of the input tax credit.

27-80(4)    

A ^* depreciating asset ' s ^* opening adjustable value for an income year and its ^* cost is reduced if:

(a) the entity that ^* holds the asset incurs expenditure that is included in the second element of the asset ' s cost for that income year; and

(b) that income year is after the one in which the asset ' s ^* start time occurs; and

(c) the entity is or becomes entitled to an ^* input tax credit for the ^* creditable acquisition or ^* creditable importation to which the expenditure relates for the income year in which the expenditure was incurred; and

(d) the entity can deduct amounts for the asset under Division 40 or 328 .

The reduction is the amount of the input tax credit.

27-80(5)    

If the reduction under subsection (2), (3A) or (4) is more than:

(a) for a subsection (2) case - the ^* depreciating asset ' s ^* cost; or

(b) for a subsection (3A) or (4) case - the depreciating asset ' s ^* opening adjustable value;

the excess is included in the entity ' s assessable income unless the entity is an ^* exempt entity.

Exception: pooling

27-80(6)    
This section does not apply to:

(a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the ^* current year; or

(b) ^* in-house software if expenditure on the software is allocated to a software development pool for the current year; or

(c) a project pool.

SECTION 27-85   Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments  

27-85(1)    
This section applies to an entity if:

(a) the entity can deduct amounts for a ^* depreciating asset under Division 40 or 328 ; and

(b) the entity has a ^* decreasing adjustment in an income year that relates directly or indirectly to the asset.

27-85(1A)    
However, this section does not apply to a ^* decreasing adjustment that arises under Division 129 or 132 of the ^* GST Act.

Note:

See instead section 27-87 .

27-85(2)    
The asset ' s ^* cost is reduced by an amount equal to the ^* decreasing adjustment if the adjustment arises in the income year in which the asset ' s ^* start time occurs.

27-85(3)    

The asset ' s ^* opening adjustable value for an income year and its ^* cost is reduced by an amount equal to the ^* decreasing adjustment if the adjustment arises in that year and that year is after the one in which the asset ' s ^* start time occurs.

27-85(4)    
If the reduction under subsection (2) or (3) is more than:

(a) for a subsection (2) case - the ^* depreciating asset ' s ^* cost; or

(b) for a subsection (3) case - the depreciating asset ' s ^* opening adjustable value;

the excess is included in the entity ' s assessable income unless the entity is an ^* exempt entity.

Exception: pooling

27-85(5)    
This section does not apply to:

(a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the ^* current year; or

(b) ^* in-house software if expenditure on the software is allocated to a software development pool for the current year; or

(c) a project pool.

SECTION 27-87   Certain decreasing adjustments included in assessable income  

27-87(1)    
This section applies to an entity if:

(a) the entity can deduct amounts for a ^* depreciating asset under Division 40 or 328 ; and

(b) the entity has a ^* decreasing adjustment that arises under Division 129 or 132 of the ^* GST Act in an income year that relates directly or indirectly to the asset; and

(c) section 27-95 does not apply to the entity in relation to the asset.

27-87(2)    
The amount of the ^* decreasing adjustment is included in the entity ' s assessable income for the income year unless the entity is an ^* exempt entity.

SECTION 27-90   Cost or opening adjustable value of depreciating assets increased: increasing adjustments  

27-90(1)    
This section applies to an entity if:

(a) the entity can deduct amounts for a ^* depreciating asset under Division 40 or 328 ; and

(b) the entity has an ^* increasing adjustment in an income year that relates directly or indirectly to the asset.

27-90(1A)    
However, this section does not apply to an ^* increasing adjustment that arises under Division 129 or 132 of the ^* GST Act.

Note:

See instead section 27-92 .

27-90(2)    
The asset ' s ^* cost is increased by an amount equal to the ^* increasing adjustment if the adjustment arises in the income year in which the asset ' s ^* start time occurs.

27-90(3)    

The asset ' s ^* opening adjustable value for an income year and its ^* cost is increased by an amount equal to the ^* increasing adjustment if the adjustment arises in that year and that year is after the one in which the asset ' s ^* start time occurs.

Exception: pooling

27-90(4)    
This section does not apply to:

(a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the ^* current year; or

(b) ^* in-house software if expenditure on the software is allocated to a software development pool for the current year; or

(c) a project pool.

SECTION 27-92   Certain increasing adjustments can be deducted  

27-92(1)    
This section applies to an entity if:

(a) the entity can deduct amounts for a ^* depreciating asset under Division 40 or 328 ; and

(b) the entity has an ^* increasing adjustment that arises under Division 129 or 132 of the ^* GST Act in an income year that relates directly or indirectly to the asset.

27-92(2)    
The entity can deduct the amount of the ^* increasing adjustment for the income year.

27-92(3)    
However, the entity cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature.

SECTION 27-95   Balancing adjustment events  

27-95(1)    
The ^* termination value of a ^* depreciating asset is reduced if the relevant ^* balancing adjustment event is a ^* taxable supply. The reduction is an amount equal to the ^* GST payable on the supply.

27-95(2)    
However, subsection (1) does not apply if the ^* termination value of the ^* depreciating asset is modified under Division 40 to be its ^* market value.

27-95(3)    
The ^* termination value of a ^* depreciating asset is increased if the entity that ^* held the asset has a ^* decreasing adjustment that relates directly or indirectly to that ^* taxable supply in the income year in which the ^* balancing adjustment event occurred. The increase is the amount of the decreasing adjustment.

27-95(4)    
The ^* termination value of a ^* depreciating asset is decreased if the entity that ^* held the asset has an ^* increasing adjustment that relates directly or indirectly to that ^* taxable supply in the income year in which the ^* balancing adjustment event occurred. The decrease is the amount of the increasing adjustment.

27-95(5)    
An amount is included in the assessable income of the entity that ^* held the asset if the entity has a ^* decreasing adjustment that relates directly or indirectly to that ^* taxable supply in a later income year. The amount included is the amount of the decreasing adjustment.

27-95(6)    
The entity that ^* held the asset can deduct an amount if the entity has an ^* increasing adjustment that relates directly or indirectly to that ^* taxable supply in a later income year. The amount it can deduct is the amount of the increasing adjustment.

SECTION 27-100   Pooling  

27-100(1)    
This section contains special rules for expenditure (the pooled expenditure ) incurred by an entity:

(a) on a ^* depreciating asset allocated to a low-value pool; or

(b) on a depreciating asset allocated to a pool under Division 328 for or in an income year; or

(c) on ^* in-house software if the expenditure on the software is allocated to a software development pool; and

(d) on ^* project amounts if the amounts are allocated to a project pool.

Reduction to pools etc.

27-100(2)    
There is a reduction under subsection (3) or (5) if:

(a) the pooled expenditure relates directly or indirectly to a ^* creditable acquisition or ^* creditable importation; and

(b) the entity is or becomes entitled to an ^* input tax credit in an income year (the credit year ) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred.

27-100(2A)    
There is a reduction under subsection (4) if:

(a) the pooled expenditure relates directly or indirectly to a ^* creditable acquisition or ^* creditable importation; and

(b) the entity is or becomes entitled to an ^* input tax credit in an income year (the credit year ) for the acquisition or importation.

Reduced cost of assets allocated to a pool

27-100(2B)    
A ^* depreciating asset's ^* cost is reduced if:

(a) an entity's acquisition or importation of the asset constitutes a ^* creditable acquisition or ^* creditable importation; and

(b) the entity is or becomes entitled to an ^* input tax credit for the acquisition or importation and the income year in which the acquisition or importation occurred is the same as the one in which the input tax credit arose; and

(c) the asset is allocated to a low-value pool or a pool under Division 328 for or in that year.

The reduction is the amount of the input tax credit.

Low-value pools

27-100(3)    
For a low-value pool, the ^* closing pool balance of the pool for:

(a) if the credit year is later than the first income year for which ^* depreciating assets were allocated to the pool - the income year before the credit year; or

(b) if the credit year is the first income year for which ^* depreciating assets were allocated to the pool - the credit year;

is reduced by an amount equal to the input tax credit.

Software development pools and project pools

27-100(4)    
For a software development pool or a project pool, the expenditure in the pool for the credit year, or the ^* pool value for the credit year, is reduced by an amount equal to the ^* input tax credit.

Small business pools

27-100(5)    
For a pool under Division 328 , the ^* opening pool balance of the pool for the credit year is reduced by an amount equal to the input tax credit.

No reduction if market value

27-100(5A)    
However, there is no reduction to the ^* cost of a ^* depreciating asset if its cost is modified under Division 40 to be its ^* market value.

Second element of cost

27-100(6)    
There is a reduction under subsection (7) if:

(a) the entity incurs expenditure in an income year (also the credit year ) that is included in the second element of the ^* cost of a ^* depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the credit year; and

(b) the entity is or becomes entitled, after the credit year, to an ^* input tax credit for the expenditure.

27-100(7)    
An amount equal to the amount of the ^* input tax credit is applied in reduction of:

(a) for a low-value pool:

(i) if the credit year is later than the first income year for which ^* depreciating assets were allocated to the pool - the ^* closing pool balance of the pool for the income year before the credit year; or

(ii) if the credit year is the first income year for which ^* depreciating assets were allocated to the pool - the ^* closing pool balance of the pool for the credit year; or

(b) for a pool under Division 328 - the ^* opening pool balance of the pool for the credit year.

27-100(7A)    
There is a reduction to an amount of expenditure included in the second element of the ^* cost of a ^* depreciating asset if:

(a) the asset is allocated to a low-value pool or a pool under Division 328 for or in the income year in which the expenditure was incurred; and

(b) the entity that incurred the expenditure is or becomes entitled to an ^* input tax credit for the expenditure; and

(c) the entitlement arises in the income year in which the expenditure was incurred.

The reduction is the amount of the input tax credit.

Increasing adjustments

27-100(8)    
There is an increase under subsection (9) if the entity has an ^* increasing adjustment (except one that arises under Division 129 or 132 of the ^* GST Act) in an income year (the adjustment year ) that relates directly or indirectly to a ^* creditable acquisition or ^* creditable importation to which the pooled expenditure relates.

Note:

For an increasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-92 .

27-100(9)    
An amount equal to the amount of that ^* increasing adjustment is added to:

(a) for a low-value pool:

(i) if the adjustment year is later than the first income year for which ^* depreciating assets were allocated to the pool - the ^* closing pool balance of the pool for the income year before the adjustment year; or

(ii) if the adjustment year is the first income year for which ^* depreciating assets were allocated to the pool - the ^* closing pool balance of the pool for the adjustment year; or

(b) for a pool under Division 328 - the ^* opening pool balance of the pool for the adjustment year; or

(c) for ^* in-house software - the amount of expenditure allocated to the software development pool for the adjustment year; or

(d) for a project pool - the ^* pool value for the adjustment year.

Decreasing adjustments

27-100(10)    
There is a decrease under subsection (11) if the entity has a ^* decreasing adjustment (except one that arises under Division 129 or 132 of the ^* GST Act) in an income year (also the adjustment year ) that relates directly or indirectly to a ^* creditable acquisition or ^* creditable importation to which the pooled expenditure relates.

Note:

For a decreasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-87 .

27-100(11)    
An amount equal to the amount of the ^* decreasing adjustment is applied in reduction of:

(a) for a low-value pool:

(i) if the adjustment year is later than the first income year for which ^* depreciating assets were allocated to the pool - the ^* closing pool balance of the pool for the income year before the adjustment year; or

(ii) if the adjustment year is the first income year for which ^* depreciating assets were allocated to the pool - the ^* closing pool balance of the pool for the adjustment year; or

(b) for a pool under Division 328 - the ^* opening pool balance of the pool for the adjustment year; or

(c) for ^* in-house software - the amount of expenditure allocated to the software development pool for the adjustment year; or

(d) for a project pool - the ^* pool value for the adjustment year.

27-100(12)    
If the amount available for reduction under subsection (11) is more than the amount referred to in paragraph (11)(a), (b), (c) or (d) (whichever is applicable), the excess is included in the entity's assessable income unless the entity is an ^* exempt entity.

SECTION 27-105   Other Division 40 expenditure  

27-105(1)    
This section applies to expenditure for which an entity can deduct amounts under Division 40 (but not under Subdivision 40-B or 40-E , or Subdivision 40-I to the extent that that Subdivision relates to project pools).

27-105(2)    
The amount of the expenditure is reduced if the entity is or becomes entitled to an ^* input tax credit for a ^* creditable acquisition or ^* creditable importation to which the expenditure directly or indirectly relates. The reduction is the amount of the input tax credit that relates to that expenditure.

27-105(3)    
If the entity has a ^* decreasing adjustment in an income year that relates directly or indirectly to the expenditure, an amount equal to the decreasing adjustment is included in the entity ' s assessable income for that income year.

27-105(4)    
If the entity has an ^* increasing adjustment in an income year that relates directly or indirectly to the expenditure, the entity can deduct an amount equal to the increasing adjustment for that income year.

27-105(5)    

If the entity is a partnership and partners in that partnership can deduct amounts under Division 40 because section 40-570 or 40-665 applies, an amount equal to the ^* input tax credit, the ^* decreasing adjustment or the ^* increasing adjustment is apportioned to each of the partners as set out in subsection 40-570(2) or 40-665(2) .

27-105(6)    
However, this section does not apply to an ^* exempt entity.

SECTION 27-110  

27-110   Input tax credit etc. relating to 2 or more things  

This Subdivision applies to an ^* input tax credit, or an ^* increasing adjustment or ^* decreasing adjustment, that relates directly or indirectly to 2 or more things of which at least one is a ^* depreciating asset as if a reasonable proportion of the input tax credit or adjustment related directly or indirectly to each of those depreciating assets and each of those other things.

Division 28 - Car expenses  

SECTION 28-1   What this Division is about  

SECTION 28-5   Map of this Division  

28_5 Map of this Division
        

Subdivision 28-A - Deductions for car expenses  

SECTION 28-10   Application of Division 28  

28-10(1)    
This Division applies to an individual.

28-10(2)    
It also applies to a partnership that includes at least one individual, as if the partnership were an individual.

28-10(3)    
It does not apply to any other entity.

SECTION 28-12   Car expenses  

28-12(1)    

If you owned or leased a *car, you can deduct for the car ' s expenses an amount or amounts worked out using one of 2 methods.

Note 1:

For particular types of cars taken on hire you cannot use one of the 2 methods: see section 28-165 .

Note 2:

In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2) ).

Note 3:

In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2) ).

28-12(2)    

You must use one of the 2 methods unless an exception applies. If you can ' t use either of the methods, you can ' t deduct anything for the *car expenses.

SECTION 28-13   Meaning of car expense  

28-13(1)    
A car expense is a loss or outgoing to do with a ^* car.

28-13(2)    
In addition, any of the following is a car expense:

(a) a loss or outgoing to do with operating a ^* car;

(b) the decline in value of a car.

28-13(3)    
None of the following is a car expense:

(a) a loss or outgoing incurred, or a payment made, in respect of travel outside Australia;

(b) a taxi fare or similar loss or outgoing.

Subdivision 28-B - Choosing which method to use  

SECTION 28-14   What this Subdivision is about  

SECTION 28-15   Choosing between the 2 methods  

28-15(1)    
Below is a diagram giving information about the 2 methods of calculating car expense deductions.

28-15(2)    
The 2 methods give you the choice of which method best suits your situation and needs. For instance, one method may involve more paperwork than the other, but could give you bigger deductions.

Operative provision

SECTION 28-20   Rules governing choice of method  

28-20(1)    

You can choose only one method for all the *car expenses for the *car for the income year. Choosing one method precludes the other method.

28-20(2)    
However, you can change your choice for the income year.

Example:

You choose the " log book " method and deduct $1,000. On audit, the Commissioner finds that your claim is too high and should be reduced to $500. You would have been able to deduct $700 if you had chosen the " cents per kilometre " method. This rule lets you change your choice and deduct the $700.

28-20(3)    
You can also choose different methods for the same *car for different income years and different methods for different cars for the same year.

Subdivision 28-C - The " cents per kilometre " method  

SECTION 28-25   How to calculate your deduction  

28-25(1)    

To calculate your deduction using the " cents per kilometre " method, use this formula:

Number of *business kilometres travelled by the *car in the income year

×

Rate of cents/kilometre determined under subsection (4) for the car for the income year

28-25(2)    
But you can use this formula for the first 5,000 *business kilometres only. If the *car travelled more than 5,000 business kilometres, you must discard the kilometres in excess of 5,000.

Example:

If the car travelled 5,085 business kilometres, you could claim for 5,000, and would lose the extra 85.

28-25(3)    

Business kilometres are kilometres the *car travelled in the course of:

(a) producing your assessable income; or

(b) your *travel between workplaces.

You calculate the number of business kilometres by making a reasonable estimate.

28-25(4)    

For the purposes of subsection (1), the Commissioner may, by legislative instrument, determine rates of cents per kilometre for cars for an income year.

28-25(5)    

In determining a rate, the Commissioner must have regard to the average operating costs for the cars to be covered by that rate.

Note:

Examples of operating costs include fixed costs such as registration, insurance and depreciation, and variable costs such as fuel and maintenance.

SECTION 28-30  

28-30   Capital allowances  

If a ^* balancing adjustment event occurs for the ^* car, you will need to refer to the capital allowances rules in Division 40 to find out how using this method affects the operation of those rules. See section 40-370 (about balancing adjustments for some cars).

SECTION 28-35  

28-35   Substantiation  
To use this method, you do not need to substantiate the ^* car expenses for the ^* car.

(Repealed) Subdivision 28-D - The " 12% of original value " method  

28-45   (Repealed) SECTION 28-45 How to calculate your deduction  
(Repealed by No 162 of 2015)

28-50   (Repealed) SECTION 28-50 Eligibility  
(Repealed by No 162 of 2015)

28-55   (Repealed) SECTION 28-55 Capital allowances  
(Repealed by No 162 of 2015)