Draft Taxation Determination

TD 92/D226

Income tax: does an annual payment under an agreement that is high in relation to subsequent annual payments under the same agreement have to be apportioned in terms of section 82KZM of the Income Tax Assessment Act 1936?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 93/119.

FOI status:

draft only - for comment

Preamble

1. Yes, where an annual payment is high in relation to subsequent annual payments under the same agreement, which is entered into after 25 May 1988, then it is subject to the provisions of section 82KZM. This high payment has the effect of reducing the subsequent payments and the section applies to spread the deductibility of this high payment over the period to which it relates.

2. Section 82KZM does not apply to excluded expenditure which is defined in subsection 82KZL (1) as an amount of expenditure:

(a)

less than $1,000;

(b)

required to be incurred by a law, or by an order of a court, of the Commonwealth, a State or a Territory:

(c)

under a contract of service; or

(d)

to the extent that it is of a capital, private or domestic nature.

Example:

A five year lease (1826 days) is commenced on 1/7/91, annual lease payments being $100,000 for the first year, then $20,000 for each of the next four years.

The first payment comprises an annual payment of $36,000 applicable to the year ended 30 June 1992 plus an advance payment of $64,000 which relates to the period 1 July 1992 to 30 June 1996 (1460 days).

Deductions would be allowed as follows:

Commissioner of Taxation
10/12/92

References

ATO references:
NO NEW TD28

Subject References:
prepayments

Legislative References:
ITAA 82KZL
ITAA 82KZM