INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 3 - Deductions  

Subdivision A - General  

SECTION 63B   BAD DEBTS ETC. OF COMPANY NOT ALLOWABLE DEDUCTIONS IN CERTAIN CIRCUMSTANCES  

63B(1AA)   [No application from 1998/99 year onwards]  

This section does not apply to the 1998-99 year of income or a later year of income.

Note:

Subdivisions 165-C , 166-C and 175-C of the Income Tax Assessment Act 1997 deal with a company deducting bad debts for those income years.

63B(1A)   [Continuing effect of section]  

This section has effect:


(a) despite sections 8-1 and 25-35 of the Income Tax Assessment Act 1997 and section 63A of this Act; but


(b) subject to section 63C of this Act.

63B(1)   [Compliance with s 63A insufficient]  

A debt owed to a taxpayer that is a company, being a debt that is written off as a bad debt during the year of income, is not an allowable deduction if:


(a) during the year of income the company derived income that the company would not have derived, or a capital gain accrued to the company that would not have accrued to the company, if the debt had not been incurred and written off, or capable of being written off, as a bad debt;


(b) a person other than the company will, either directly or indirectly, receive any benefit or obtain any advantage in relation to the application of this Act as a result of the operation of any agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business that would not have been entered into or carried out if the debt had not been incurred and written off, or capable of being written off, as a bad debt;


(c) the affairs or business operations of the company were managed or conducted -


(i) where the debt was incurred before the year of income - during the year of income; or

(ii) where the debt was incurred during the year of income - during the part of the year of income that followed the day on which the debt was incurred,
without proper regard to the rights, powers or interests of continuing shareholders in the company;


(d) where the debt was incurred before the year of income - during the whole or any part of the year of income the voting power in the company was, either directly or through one or more interposed companies, trustees or partnerships, controlled by a person who did not, either directly or through one or more interposed companies, trustees or partnerships, control the voting power in the company during the whole of the year in which the debt was incurred or, in a case to which subsection 63A(5) applies, during the part of that year that commenced on the day on which the debt was incurred, and that person acquired the control of that voting power for the purpose, or for purposes that included the purpose, of receiving any benefit or obtaining any advantage in relation to the application of this Act or securing that another person would receive such a benefit or obtain such an advantage; or


(e) where the debt was incurred during the year of income - at any time during the part of the year of income that followed the day on which the debt was incurred the voting power in the company was, either directly or through one or more interposed companies, trustees or partnerships, controlled by a person who did not, either directly or through one or more interposed companies, trustees or partnerships, control the voting power in the company at all times during the part of the year of income that commenced on the first day of the year of income and ended on the day on which the debt was incurred, and that person acquired the control of that voting power for the purpose, or for purposes that included the purpose, referred to in paragraph (d).

63B(2)   [Application of s 63B(1)(a)]  

Paragraph (1)(a) applies notwithstanding that the income was derived by the company, or the capital gain accrued to the company, in the course of ordinary family or commercial dealing but that paragraph does not apply where the continuing shareholders will benefit from the derivation of the income, or the accrual of the capital gain, to an extent that the Commissioner considers to be fair and reasonable having regard to their rights and interests in the company.

63B(3)   [Deemed benefit for s 63B(1)(b) purposes]  

Without limiting the generality of paragraph (1)(b), a person shall be deemed, for the purposes of that paragraph, to receive a benefit or obtain an advantage in relation to the application of this Act if the person is not liable to pay income tax in respect of a year of income, or the liability of the person to pay income tax in respect of a year of income is reduced, by reason that the person has not derived income that the person would have derived, or a capital gain did not accrue to the person that would have accrued to the person, if the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business had not been entered into or carried out.

63B(4)   [Application of s 63B(1)(b)]  

Paragraph (1)(b) applies notwithstanding that the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business was entered into or carried out in the course of ordinary family or commercial dealing but that paragraph does not apply in relation to a benefit or advantage that is received or obtained by a person who had a shareholding interest in the company in the year of income, being a benefit or advantage that the Commissioner considers to be fair and reasonable having regard to that shareholding interest.

63B(5)   [Definition of ``shareholding interest'']  

For the purposes of this section:


(a) a person has a shareholding interest in a company if:


(i) the person is the beneficial owner of, or of an interest in, any shares in the company; or

(ii) the person is the trustee of a family trust (within the meaning of section 272-75 of Schedule 2F ) who is the owner of, or of an interest in, any shares in the company; and


(b) where a person has a shareholding interest in a company that has a shareholding interest in another company (including a shareholding interest that the company has in that other company by any other application or applications of this paragraph) that person shall be deemed to have a shareholding interest in that other company.

63B(6)   [Identification of continuing shareholders]  

For the purposes of the application of this section in relation to a debt owed to a company, a reference in this section to continuing shareholders in the company shall be read as a reference to persons referred to in whichever of the following subsections of section 63A , namely, subsections (2), (4), (6) and (8), applies for the purpose of determining whether the debt is an allowable deduction.

63B(7)   [Management or conduct of affairs for s 63B(1)(c) purposes]  

In determining for the purposes of this section whether the affairs or business operations of a company were managed or conducted as mentioned in paragraph (1)(c), regard shall be had to any act or thing done in the course of the management or conduct of those affairs or business operations, irrespective of the purpose or purposes for which that act or thing was done and notwithstanding that the doing of that act or thing took place in the course of ordinary family or commercial dealing.

63B(8)   [Interpretation]  

For the purposes of this section, it shall be taken that:


(a) income would not have been derived by, or a capital gain would not have accrued to, a company if a particular act had not been done;


(b) income would have been derived by, or a capital gain would have accrued to, a person if a particular act had not been done; or


(c) an agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business would not have been entered into or carried out if a particular act had not been done,

if the income would not have been derived by, or the capital gain would not have accrued to, the company, the income would have been derived by, or the capital gain would have accrued to, the person, or the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business would not have been entered into or carried out, as the case may be, if none of 2 or more acts (including that act) had been done.

63B(9)   [The ``doing of an act'']  

A reference in subsection (8) to the doing of an act includes a reference to the happening of an event or the existence of a matter or circumstance.

63B(10)   [Part debt write offs]  

Where a part of a debt is an allowable deduction in an assessment, the preceding provisions of this section apply as if the part were an entire debt that is an allowable deduction in the assessment.

63B(11)   [Losses re debt/equity swaps]  

This section has the same effect in relation to an allowable deduction under section 63E in respect of the whole or part of a debt that is extinguished as it has in relation to an allowable deduction under section 8-1 or 25-35 of the Income Tax Assessment Act 1997 in respect of the whole or part of a debt that is written off as bad.


 

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