Tax Law Improvement Act 1997 (121 of 1997)

Schedule 1 Amendment of the Income Tax Assessment Act 1997

2 Before Part 2-5

Insert:

Part 2-1 - Assessable income

[The next Division is Division 15.]

Division 15 - Some items of assessable income

Guide to Division 15

15-1 What this Division is about

This Division sets out some items that are included in your assessable income. Remember that the general rules about assessable income in Division 6 apply to these items.

Table of sections

Operative provisions

15-3 Return to work payments

15-5 Accrued leave transfer payments

15-10 Bounties and subsidies

15-15 Profit-making undertaking or plan

15-20 Royalties

15-25 Amount received for lease obligation to repair

15-30 Insurance or indemnity for loss of assessable income

15-35 Interest on overpayments and early payments of tax

Operative provisions

15-3 Return to work payments

Your assessable income includes an amount you receive under an *arrangement that an entity enters into for a purpose of inducing you to resume working for, or providing services to, any entity.

15-5 Accrued leave transfer payments

Your assessable income includes an *accrued leave transfer payment that you receive.

To find out if the payment is deductible to the payer, see section 26-10.

15-10 Bounties and subsidies

Your assessable income includes a bounty or subsidy that:

(a) you receive in relation to carrying on a *business; and

(b) is not assessable as *ordinary income under section 6-5.

15-15 Profit-making undertaking or plan

(1) Your assessable income includes profit arising from the carrying on or carrying out of a profit-making undertaking or plan.

(2) This section does not apply to a profit that:

(a) is assessable as *ordinary income under section 6-5; or

(b) 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, your assessable income includes the profit: see section 25A of the Income Tax Assessment Act 1936.

15-20 Royalties

Your assessable income includes an amount that you receive as or by way of royalty within the ordinary meaning of “royalty” (disregarding the definition of royalty in subsection 995-1(1)) if the amount is not assessable as *ordinary income under section 6-5.

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

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

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

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.

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.

[The next Division is Division 20.]

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

Table of Subdivisions

Guide to Division 20

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

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

Guide to Division 20

20-1 What this Division is about

This Division includes amounts in your assessable income to reverse the effect of certain kinds of deductions.

Table of sections

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 charge for property on which you incurred expenditure deductible under a capital allowance is included in your assessable income.	40-25 and 40-30
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
3	Because of: • 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.	330-350(3)
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	A company receives (or becomes entitled to) an amount: • in respect of the results of research and development activities on which it incurred deductible expenditure; or • attributable to it having incurred deductible expenditure on research and development activities. The amount is included in its assessable income.	73B(27A)
6	You receive an amount as recoupment of expenditure on research and development activities that you have deducted at the rate of 150%: the rate of deduction is reduced to 100%.	73C
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.	82AAQ

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

Guide to Subdivision 20-A

20-10 What this Subdivision is about

Your assessable income may include an amount that you receive by way of insurance, indemnity or other recoupment if:

it is for a deductible expense; and

it is not otherwise assessable income.

Table of sections

20-15 How to use this Subdivision

What is an assessable recoupment ?

20-20 Assessable recoupments

20-25 What is recoupment ?

20-30 Tables of deductions for which recoupments are assessable

How much is included in your assessable income?

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

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

20-45 Effect of balancing charge

20-50 If the expense is only partially deductible

20-55 Meaning of previous recoupment law

20-15 How to use this Subdivision

(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.

(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.

What is an assessable recoupment ?

20-20 Assessable recoupments

Exclusion

(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

(2) An amount you receive as *recoupment of a loss or outgoing is an assessable recoupment if:

(a) you receive 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

(3) An amount you receive 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.

20-25 What is recoupment ?

General

(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

(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.

Amount for disposing of right to recoupment

(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

(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

(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.

20-30 Tables of deductions for which recoupments are assessable

(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
1.6	25-60	election expenses, Commonwealth and State elections
1.7	25-75	rates and land taxes on premises used to produce mutual receipts
1.8	330-15	exploration or prospecting expenditure
1.9	330-80	allowable capital expenditure relating to mining or quarrying
1.10	330-370	transport capital expenditure relating to mining or quarrying
1.11	330-435	rehabilitation expenditure relating to mining or quarrying
1.12	330-485	balancing adjustment deduction for expenditure relating to mining or quarrying
1.13	Subdivision 387-A	landcare operations expenditure
1.14	Subdivision 387-B	expenditure on facilities to conserve or convey water
1.15	Subdivision 387-D	grapevine establishment expenditure
1.16	Subdivision 387-E	mains electricity connection expenditure
(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	51(1) (so far as it allows you to deduct a bad debt, or part of a debt that is bad)	bad debts
2.2	51(1) (so far as it allows you to deduct rates or taxes)	rates or taxes
2.3	63	bad debts
2.4	69	tax-related expenses
2.5	70A(3)	mains electricity connection expenditure
2.6	71	embezzlement or larceny by an employee
2.7	72	rates and land tax
2.8	73B	research and development activity expenditure
2.9	74	election expenses, Commonwealth and State elections
2.10	75AA(1) or (6)	grape vine establishment expenditure
2.11	75B(2) or (3A)	water conservation or conveyance expenditure
2.12	75D(2)	land degradation prevention expenditure
2.13	82AB	development allowance expenditure
2.14	82BB	environmental impact study expenditure
2.15	82BK	environmental protection expenditure
2.16	82Z(1)	currency exchange loss
2.17	Division 10 of Part III	mining and quarrying expenditure
2.18	Division 10AAA of Part III	expenditure on transport of minerals and quarry materials
2.19	Division 10AA of Part III	expenditure on prospecting and mining for petroleum
2.20	124BA	expenditure on rehabilitating mining, quarrying and petroleum sites
2.21	124ZZF	horticultural plant establishment expenditure (effective life of the plant less than 3 years)
2.22	124ZZG	horticultural plant establishment expenditure (effective life of the plant more than 3 years)
2.23	628	drought mitigation property expenditure by a primary producer
2.24	636	drought mitigation property expenditure by a leasing company

How much is included in your assessable income?

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

(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

(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

(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.

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

(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.

(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

Step 1. Add up all the *assessable recoupments of the loss or outgoing that you have received (in the *current year or earlier). The result is the total assessable recoupment .

Step 2. Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a *previous recoupment law. The result is the recoupment already assessed . (If no amount was included, the recoupment already assessed is nil.)

Step 3. Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment .

Step 4. Add up each amount that you can deduct for the loss or outgoing for the *current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing .

Note: The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45.

Step 5. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions .

Step 6. The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead.

Example: At the start of the 1997-98 income year, a mining company incurs $100,000 of expenditure on mining operations. $10,000 is deductible for the 1997-98 income year and for each of the following 9 income years under section 330-80.

In the 1997-98 income year, the company receives $20,000 as recoupment. How much is assessable for the 1997-1998 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 – recoupment already assessed,
ie $20,000 – 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 – recoupment already assessed, ie $10,000 – 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, ie $10,000.

Applying the method statement to the 1998-99 income year: a further $10,000 is included in the company’s assessable income.

20-45 Effect of balancing charge

(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 section 40-25.

Effect on section 20-35

(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

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

Example: Continuing the example in subsection 20-40(3): during the 2000-2001 income year, the mining company:

· receives a further $10,000 as recoupment of the original expenditure; and

· sells its mining operations for $75,000.

As a result of the sale, a balancing charge of $5,000 is included under section 330-485 in the company’s assessable income for that income year.

How much of the recoupment amount received in the 2000-2001 income year is assessable for that income year?

Applying the method statement in subsection 20-40(3):

After Step 1: the total assessable recoupment is $30,000 (received during 1997-98 and 2000-2001).

After Step 2: the recoupment already assessed is $20,000 (for 1997-98 and 1998-99).

After Step 3: the unassessed recoupment is:
total assessable recoupment – recoupment already assessed,
ie $30,000 – $20,000 = $10,000.

After Step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 1997-98, 1998-99 and 1999-2000), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), ie $25,000.

After Step 5: the outstanding deductions are:
total deductions for the loss or outgoing – recoupment already assessed, ie $25,000 – $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, ie $5,000.

20-50 If the expense is only partially deductible

(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.

(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.

20-55 Meaning of previous recoupment law

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	26(j) (so far as it relates to an amount received for or in respect of a loss or outgoing that is an allowable deduction)	a loss or outgoing that is an allowable deduction
2	26(k)	embezzlement or larceny by an employee
3	63(3)	bad debts
4	69(8)	tax-related expenses
5	70A(5)	mains electricity connection expenditure
6	72(2) (so far as it relates to a refund of an amount allowed or allowable as a deduction)	rates or taxes
7	74(2)	election expenses, Commonwealth and State elections

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

Guide to Subdivision 20-B

20-100 What this Subdivision is about

This Subdivision reverses the effect of deductions for lease payments for a car leased to you (or to your associate), but only if you make a profit by disposing of the car after acquiring it from the lessor. The smallest of these amounts is included in your assessable income:

your profit on the disposal;

the total deductible lease payments for the period of the lease;

the total amounts you could have deducted for depreciation of the car if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income.

Table of sections

20-105 Map of this Subdivision

The usual case

20-110 Disposal of a leased car for profit

20-115 Working out the profit on the disposal

20-120 Meaning of notional depreciation

The associate case

20-125 Disposal of a leased car for profit

Successive leases

20-130 Successive leases

Previous disposals of the car

20-135 No amount included if earlier disposal for market value

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

Miscellaneous rules

20-145 No amount included if you inherited the car

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

20-155 Exception for particular cars taken on hire

Disposals of interests in a car: special rules apply

20-160 Disposal of an interest in a car

20-105 Map of this Subdivision

Map of Subdivision 20-B

The usual case

20-110 Disposal of a leased car for profit

(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.

(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.

(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.

20-115 Working out the profit on the disposal

(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.

(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 a price specific to it	that price, less the expenses of the sale
2	you sell the *car with other property without a specific price being allocated to it	the part of the total sale price 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

20-120 Meaning of notional depreciation

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

Method statement

Step 1. Compare:

• the *car’s *cost to the lessor for the purposes of Subdivision 42-B (which is about working out the cost of *plant for the purposes of depreciation);

with:

• the car’s *termination value for the purposes of section 42-205 when the lessor disposed of it.

Step 2. If the car’s cost exceeds the car’s termination value, multiply the excess by:

• the number of days in the lease period;

divided by:

• the number of days the lessor owned the car.

Step 3. The result is the notional depreciation for the lease period.

Step 4. If the car’s cost does not exceed the car’s termination value, the notional depreciation for the lease period is zero.

Note 1: The notional depreciation for the lease period represents:

· the amount you could have deducted for depreciation of the car 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

20-125 Disposal of a leased car for profit

(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

(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.

(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).

(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

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

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.

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

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.

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 42-190 and 42-240) requires you to include in your assessable income because of the disposal.

Note: Sections 42-190 and 42-240 are about including an amount after making a balancing adjustment on the disposal of a car.

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.

Disposals of interests in a car: special rules apply

20-160 Disposal of an interest in a car

(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.

(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.

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

(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.

(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.

[The next Part is Part 2-5.]

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