Draft Taxation Determination

TD 93/D13

Income tax: is an income tax deduction allowable for factoring fees incurred by the taxpayer when debts are factored by the taxpayer to a related party?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 93/83.

FOI status:

Preamble

1. Yes, factoring fees are allowable deductions under subsection 51(1) of the Income Tax Assessment Act 1936, where :

(i)

there is a factoring arrangement,

(ii)

the factoring arrangement is based on ordinary business or commercial standards, and,

(iii)

there are no unusual circumstances or tax avoidance implications.

Example:

XYZ Ltd has book debts of $10,000. It enters into a factoring arrangement with its subsidiary, ABC Ltd. ABC Ltd acquires the debts from XYZ Ltd at face value less the agreed factoring fee of 5 percent of face value.

The $500 factoring fee is an allowable deduction under subsection 51(1), provided the factoring arrangement is comparable to normal commercial standards in the taxpayer's industry and there are no tax avoidance implications.

Commissioner of Taxation
21 January 1993

References

BO SYD/DTD/92/8

Related Rulings/Determinations:

IT 2538
IT 2432

Subject References:
allowable deductions
factoring of debts
factoring fees

Legislative References:
ITAA 51(1)