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Edited version of your written advice
Authorisation Number: 1051404658105
Date of advice: 23 July 2018
Ruling
Subject: Assessable recoupment
Question 1
Is the reimbursement by Company B to Company A for the costs of the Works an assessable recoupment to Company A pursuant to Subdivision 20-A of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No. As the reimbursement payments are ordinary business income in the hands of Company A, they will not be assessable recoupments under Subdivision 20-A because of subsection 20-20(1) of the ITAA 1997.
Question 2
Are the costs incurred by Company A to undertake the Works deductible pursuant to section 8-1 of the ITAA 1997?
Answer
Yes. The costs incurred by Company A for the Realignment Works do not amount to improvements or change in character of its assets. The costs are not outgoings that are capital or of a capital nature and are therefore deductible under section 8-1 of the ITAA 1997.
This ruling applies for the following periods:
Income tax year ended 31 March 2018
Income tax year ended 31 March 2019
The scheme commences on
01 April 2017
Relevant facts and circumstances
Companies A and B are Australian tax resident companies.
Company B, an entity unrelated to Company A, requested that Company A realign a portion of its assets (the Works). Company B will reimburse Company A in full for the costs incurred in delivering the Works.
The Works will not improve or change the character of Company A’s assets.