Division 58—Capital allowances for depreciating assets previously owned by an exempt entity
Table of Subdivisions
Guide to Division 58
58‑A Application
58‑B Calculating decline in value of privatised assets under Division 40
58‑1 What this Division is about
This Division sets out special rules that apply in calculating deductions for the decline in value of depreciating assets and balancing adjustments for assets previously owned by an exempt entity if the assets:
· continue to be owned by that entity after the entity becomes taxable; or
· are acquired from that entity, in connection with the acquisition of a business, by a purchaser that is a taxable entity.
There is a choice of 2 methods for each depreciating asset:
· the notional written down value method; and
· the undeducted pre‑existing audited book value method.
Table of sections
58‑5 Application of Division
58‑10 When an asset is acquired in connection with the acquisition of a business
(1) This Division applies in 2 situations.
Entity sale
(2) The first (an entity sale situation) is where:
(a) at a particular time on or after 1 July 2001, an entity is an exempt entity; and
(b) just after that time, the entity’s *ordinary income or *statutory income becomes to any extent assessable income.
(3) In an entity sale situation:
(a) the entity is a transition entity; and
(b) the time when the entity’s *ordinary income or *statutory income becomes to that extent assessable is the transition time; and
(c) the income year in which the *transition time occurs is the transition year for the entity; and
(d) the *depreciating assets the *transition entity *held just before the transition time are privatised assets.
Asset sale
(4) The second (an asset sale situation) is where:
(a) at a particular time on or after 1 July 2001, an entity (the purchaser) whose *ordinary income or statutory income is to any extent assessable acquires a *depreciating asset from an *exempt entity; and
(b) the asset is acquired in connection with the acquisition of a *business from the exempt entity.
(5) In an asset sale situation:
(a) the *exempt entity is the tax exempt vendor; and
(b) the time when the *depreciating asset is acquired is the acquisition time; and
(c) the income year in which the *acquisition time occurs is the acquisition year; and
(d) each *depreciating asset the purchaser acquires from the *tax exempt vendor at the acquisition time is a privatised asset.
58‑10 When an asset is acquired in connection with the acquisition of a business
(1) A *depreciating asset is taken to be acquired in connection with the acquisition of a *business from the *exempt entity if and only if:
(a) the asset was used by the exempt entity in carrying on a business and the purchaser or another person uses the asset in carrying on the business; or
(b) subsection (2) applies.
(2) This subsection applies if:
(a) the asset was used by the *exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a *business by the exempt entity and the asset is used by the purchaser or another person in performing those functions or engaging in those activities as part of carrying on a business; or
(b) all of these subparagraphs apply:
(i) the acquisition by the purchaser of the asset was connected with the acquisition of another asset by the purchaser or another person from the exempt entity or from an *associate of the exempt entity;
(ii) ownership of the other asset gives the purchaser or other person a right, or imposes on the purchaser or other person an obligation, to perform functions or engage in activities as part of the carrying on of a business or confers on the purchaser or other person a commercial advantage or opportunity in connection with performing functions or engaging in activities as part of the carrying on of a business;
(iii) the asset is used by the purchaser or other person in performing those functions or engaging in those activities under the right or obligation or in taking the benefit of the advantage or opportunity; or
(c) the asset was acquired by the purchaser under an *arrangement under which the purchaser or another person acquired another asset from the exempt entity or from an associate of the exempt entity and:
(i) the other asset is taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; or
(ii) where the other asset is not a depreciating asset, it would, if it were a depreciating asset, be taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection;
to be acquired in connection with the acquisition of a business from the exempt entity.
(3) Paragraphs (2)(a), (b) and (c) do not apply if the asset is used by the purchaser solely to *derive assessable income from the provision of office or residential accommodation.
Subdivision 58‑B—Calculating decline in value of privatised assets under Division 40
Table of sections
58‑60 Purpose of rules in this Subdivision
58‑65 Choice of method to work out cost of privatised asset
58‑70 Application of Division 40
58‑75 Meaning of notional written down value
58‑80 Meaning of undeducted pre‑existing audited book value
58‑85 Pre‑existing audited book value of depreciating asset
58‑90 Method and effective life for transition entity
58‑60 Purpose of rules in this Subdivision
This Subdivision sets out rules that affect the way in which the *transition entity or the purchaser work out the decline in value of, and balancing adjustments for, *privatised assets under Division 40 after the *transition time or the *acquisition time.
58‑65 Choice of method to work out cost of privatised asset
(1) The *transition entity or the purchaser has a choice to work out the first element of the *cost of each *privatised asset.
(2) The choice is to use either:
(a) the *notional written down value of the asset; or
(b) the *undeducted pre‑existing audited book value (if any) of the asset.
(3) The choice must be made:
(a) for the *transition entity—by the day on which the transition entity lodges its income tax return for the *transition year; or
(b) for the purchaser—by the day on which the purchaser lodges the purchaser’s income tax return for the *acquisition year;
or within a further period allowed by the Commissioner.
(4) The choice, once made, cannot be changed.
58‑70 Application of Division 40
Application of Division 40
(1) The *transition entity and the purchaser work out the decline in value of, and the effect of a *balancing adjustment event occurring for, each *privatised asset using Division 40 (Capital allowances) as if the asset had been acquired under a contract entered into on or after 1 July 2001.
Entity sale situation
(2) Division 40 applies to a *privatised asset *held by the *transition entity as if the asset had not been used, or *installed ready for use, for any purpose before the *transition time.
(3) The first element of the *cost to the *transition entity at the *transition time is the *notional written down value of the asset or the *undeducted pre‑existing audited book value of the asset (depending on the choice made for the asset).
(4) No amount incurred before the *transition time is included in the second element of the *cost of a *privatised asset.
Asset sale situation
(5) The first element of the *cost of a *privatised asset to the purchaser at the *acquisition time is the sum of:
(a) the *notional written down value of the asset or the *undeducted pre‑existing audited book value of the asset (depending on the choice made for the asset); and
(b) the amount of any incidental costs to the purchaser in acquiring the asset.
58‑75 Meaning of notional written down value
(1) The notional written down value of a *privatised asset is its *adjustable value in the hands of:
(a) the *transition entity just before the *transition time; or
(b) the *tax exempt vendor just before the *acquisition time;
worked out using the assumptions in this section.
Application of Division 40
(2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset.
Use for taxable purposes
(3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes.
Cost and acquisition time: exempt Australian government agency
(4) If the *transition entity or the *tax exempt vendor was an *exempt Australian government agency just before the *transition time and had acquired the *privatised asset from another exempt Australian government agency:
(a) assume that the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency and that the first element of its *cost to the transition entity or tax exempt vendor is the amount that was its cost to the other exempt Australian government agency; or
(b) if it had, before its acquisition by the transition entity or tax exempt vendor, been successively *held by 2 or more exempt Australian government agencies—assume that:
(i) the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it; and
(ii) the first element of its cost to the transition entity or tax exempt vendor is the sum of the amount that was the first element of its cost to the first of those exempt Australian government agencies that owned it and any amount included in the second element of its cost for that first agency or a later successive agency.
Effective life
(5) Assume that:
(a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and
(b) subsection 40‑95(2) did not apply.
(5A) Assume that section 40‑102 did not apply to a *privatised asset unless all of the following are satisfied:
(a) it is an entity sale situation within the meaning of section 58‑5;
(b) a *capped life applies to the asset under subsection 40‑102(4) or (5) at both the asset’s *start time and the *transition time;
(c) the *transition entity chooses, for the purposes of this section, to have section 40‑102 apply to the asset.
If section 40‑102 is to be applied to the asset, disregard paragraphs 40‑102(2)(a) and (b) and assume that the relevant time for the purposes of the application of that section to the asset were the transition time.
(6) Assume also that section 40‑110 (about recalculating effective life) did not apply.
58‑80 Meaning of undeducted pre‑existing audited book value
(1) The undeducted pre‑existing audited book value of a *privatised asset is its *adjustable value in the hands of:
(a) the *transition entity just before the *transition time; or
(b) the *tax exempt vendor just before the *acquisition time;
worked out using the assumptions in this section.
Application of Division 40
(2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset.
Use for taxable purposes
(3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes.
Cost
(4) Assume that:
(a) the first element of the *privatised asset’s *cost to the *transition entity or the *tax exempt vendor is its *pre‑existing audited book value as at the latest time (the test time) at which it had a pre‑existing audited book value; and
(b) no amount was included in the second element of the asset’s cost before the test time; and
(c) any amount included in the second element of the asset’s cost after the test time had been incurred by the transition entity or the tax exempt vendor.
Acquisition time
(5) Assume that the *transition entity or the *tax exempt vendor had acquired the *privatised asset at the test time.
Effective life
(6) Assume that:
(a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and
(b) subsection 40‑95(2) did not apply.
Note: Section 40‑102 does not apply to a privatised asset for the purposes of this section.
(7) Assume also that section 40‑110 (about recalculating effective life) did not apply.
58‑85 Pre‑existing audited book value of depreciating asset
(1) A *privatised asset has a pre‑existing audited book value if:
(a) a balance sheet, as at the end of an annual accounting period (the balance date), that was prepared as part of an *exempt entity’s final accounts for that period showed the asset as an asset of the exempt entity and specified a value for it; and
(b) a qualified independent auditor who was engaged, or was required by law, to undertake an audit of those accounts had prepared and signed, before 4 August 1997, a final audit report on those accounts; and
(c) the report did not state that the auditor was not satisfied that the specified value fairly represented the value of the asset.
The asset is taken to have had a pre‑existing audited book value at the balance date of an amount equal to the specified value.
(2) If a balance sheet did not specify a value for the asset but specified a total value for 2 or more assets including the asset, the balance sheet is taken to have specified as the value of the asset so much of that total value as is reasonably attributable to the asset.
58‑90 Method and effective life for transition entity
(1) The *transition entity must, in working out the decline in value of a *privatised asset, use the *diminishing value method or the *prime cost method for the asset that it used to work out the *notional written down value, or the *undeducted pre‑existing audited book value, of the asset.
(2) In working out the decline in value of a *privatised asset held by a *transition entity:
(a) if section 40‑102 applied to the asset for the purposes of subsection 58‑75(5A)—section 40‑102 applies to the asset and applies as if the relevant time for the asset for the purposes of that section were the *transition time; or
(b) if section 40‑102 did not apply to the asset for the purposes of subsection 58‑75(5A) or section 58‑80—section 40‑102 does not apply to the asset.
Division 59—Particular amounts of non‑assessable non‑exempt income
59‑1 What this Division is about
This Division details particular amounts that are non‑assessable non‑exempt income.
Table of sections
Operative provisions
59‑5 Bonus payments made to certain older Australians
59‑10 Compensation under firearms surrender arrangements
59‑15 Mining payments
59‑20 Taxable amounts relating to franchise fees windfall tax
59‑25 Taxable amounts relating to Commonwealth places windfall tax
59‑30 Amounts you must repay
59‑35 Amounts that would be mutual receipts but for prohibition on distributions to members
59‑5 Bonus payments made to certain older Australians
A payment made to you under the A New Tax System (Bonuses for Older Australians) Act 1999 is not assessable income and is not *exempt income.
59‑10 Compensation under firearms surrender arrangements
A payment made to you by way of compensation under *firearms surrender arrangements for any loss of business is not assessable income and is not *exempt income.
(1) These are not assessable income and are not *exempt income:
(a) a *mining payment made to a *distributing body;
(b) a mining payment made to one or more *Aboriginals, or applied for their benefit.
(2) A payment:
(a) made to a *distributing body; or
(b) made to one or more *Aboriginals, or applied for their benefit;
is not assessable income and is not *exempt income if the payment is made by a *distributing body out of a *mining payment that it has received.
(3) A payment made to a *distributing body by another distributing body, out of a *mining payment received by the other distributing body, is taken to be a mining payment for the purposes of:
(a) any further applications of subsection (2); and
(b) any further applications of this subsection.
(4) Subsection (2) does not apply to a payment by a *distributing body for the purposes of meeting its administrative costs.
(5) This section does not apply to an amount paid to or applied for the benefit of a person if it is remuneration or consideration for goods or services provided by that person.
59‑20 Taxable amounts relating to franchise fees windfall tax
Taxable amounts on which tax is imposed by the Franchise Fees Windfall Tax (Imposition) Act 1997 are not assessable income and are not *exempt income.
59‑25 Taxable amounts relating to Commonwealth places windfall tax
Taxable amounts on which tax is imposed by the Commonwealth Places Windfall Tax (Imposition) Act 1998 are not assessable income and are not *exempt income.
(1) An amount you receive is not assessable income and is not *exempt income for an income year if:
(a) you must repay it; and
(b) you repay it in a later income year; and
(c) you cannot deduct the repayment for any income year.
(2) It does not matter if:
(a) you received the amount as part of a larger amount; or
(b) the obligation to repay existed when you received the amount or it came into existence later.
(3) This section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation.
59‑35 Amounts that would be mutual receipts but for prohibition on distributions to members
An amount of *ordinary income of an entity is not assessable income and not *exempt income if:
(a) the amount would be a mutual receipt, but for the entity’s constituent document preventing the entity from making any *distribution, whether in money, property or otherwise, to its members; and
(b) apart from this section, the amount would be assessable income only because of section 6‑5.
Division 61—Generally applicable tax offsets
Table of Subdivisions
61‑H Private health insurance offset complementary to Private Health Insurance Incentives Act 1998
61‑I First child tax offset (baby bonus)
61‑IA Child care tax offset
61‑J 25% entrepreneurs’ tax offset
61‑K Mature age worker tax offset
61‑L Tax offset for Medicare levy surcharge (lump sum payments in arrears)
61‑330 What this Subdivision is about
You can choose to claim a tax offset for a premium, or an amount in respect of a premium, paid under a private health insurance policy instead of receiving a payment under Chapter 2 of the Private Health Insurance Incentives Act 1998.
Table of sections
Operative provisions
61‑335 Entitlement to the private health insurance tax offset
61‑340 Amount of the private health insurance tax offset
61‑342 Saving provision where a person 65 years or over ceases to be covered by policy
61‑345 How to work out the incentive amount
61‑335 Entitlement to the private health insurance tax offset
(1) If you are an individual (other than an individual in the capacity of an employer), you are entitled to a *tax offset for the 1998‑99 income year or a later income year if the conditions in subsections (2) and (3) are satisfied.
(2) A premium, or an amount in respect of a premium, was paid by you, or by your employer as a *fringe benefit for you, whether before or after the commencement of this Subdivision, under an appropriate private health insurance policy (within the meaning of the Private Health Insurance Incentives Act 1998) for the 1998‑99 income year or a later income year.
(3) The premium, or amount in respect of a premium, was paid during the income year or, for the 1998‑99 income year, before or during that year.
(4) You are also entitled to the *tax offset if:
(a) you are a trustee who is liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust estate; and
(b) the beneficiary who is presently entitled to the share of the income of the trust estate would be entitled to the tax offset because of subsection (1).
(5) However, you are not entitled to the *tax offset in respect of the payment of any premium, or any amount in respect of a premium, if:
(a) you have received an amount under Chapter 2 of the Private Health Insurance Incentives Act 1998 in relation to the payment; or
(b) the premium, or the amount in respect of a premium, was less than it would otherwise have been because of the operation of Chapter 3 of that Act.
Note: In certain circumstances you can get a refund of the tax offset under Division 67.
61‑340 Amount of the private health insurance tax offset
(1) The amount of the *tax offset for a premium, or an amount in respect of a premium, paid under a policy for the 1998‑99 income year depends upon whether or not a person was registered, or eligible to apply for registration, before 1 January 1999 under the Private Health Insurance Incentives Act 1997 in respect of the policy for the income year.
(2) If no person was so registered or eligible to apply for registration, the amount of the *tax offset is 30% of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy for the income year.
(3) If a person was so registered or eligible to apply for registration, the amount of the *tax offset is the greater of the amount worked out under paragraph (a) and the amount worked out under paragraph (b):
(a) 30% of:
(i) the amount of the premium, or the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy for the income year; or
(ii) if, because of the operation of the Private Health Insurance Incentives Act 1997, that amount was less than the amount that would otherwise have been payable—the amount that would otherwise have been payable; and
(b) the incentive amount for the policy for the income year.
(4) The amount of the *tax offset for a premium, or an amount in respect of a premium, paid under a policy for a later income year depends upon whether or not a person was registered, or eligible to apply for registration, before 1 January 1999 under the Private Health Insurance Incentives Act 1997 in respect of the policy for the 1998‑99 income year.
(5) If no person was so registered or eligible to apply for registration, the amount of the *tax offset is the sum of the following amounts:
(a) 30% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy in respect of days in the later income year on which no person covered by the policy was aged 65 years or over;
(b) 35% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy in respect of days in the later income year on which:
(i) at least one person covered by the policy was aged 65 years or over; and
(ii) no person covered by the policy was aged 70 years or over;
(c) 40% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy in respect of days in the later income year on which at least one person covered by the policy was aged 70 years or over.
(6) If a person was so registered or eligible to apply for registration, the amount of the *tax offset is the greater of:
(a) the sum of the amounts referred to in paragraphs (5)(a), (b) and (c); and
(b) the incentive amount for the policy for the later income year.
(7) In working out an amount of a *tax offset for an amount paid by you, or by your employer as a *fringe benefit for you, under a policy, disregard any part of the amount paid that relates to a period before 1 January 1999.
(8) If, because of the operation of the Private Health Insurance Incentives Act 1997, an amount paid by you, or by your employer as a *fringe benefit for you, under a policy for a period after 31 December 1998 was less than the amount that would otherwise have been payable, the *tax offset in respect of the amount paid is reduced by the amount of the difference.
61‑342 Saving provision where a person 65 years or over ceases to be covered by policy
(1) This section applies to a person (the first person) at a particular time (the relevant time) if:
(a) at any time before the relevant time, the first person was covered by an appropriate private health insurance policy (the original policy), other than as a dependent child; and
(b) at any time when the person was so covered, the amount of the *tax offset under section 61‑340 was 35% or 40% of the amount of premium payable under the original policy because of the age of another person (the entitling person) covered by the policy; and
(c) before the relevant time, the entitling person ceased to be covered by the original policy.
(2) If, at the relevant time:
(a) the first person is covered by an appropriate private health insurance policy (which may be either the original policy or another policy); and
(b) each other person (if any) covered, since the entitling person ceased to be covered by the original policy, by an appropriate private health insurance policy that also covered the first person:
(i) is or was covered as a dependent child; or
(ii) is a person who was covered by the original policy immediately before that cessation;
subsections 61‑340(5) and (6) are taken to apply (other than for the purposes of working out the incentive amount) as if the entitling person:
(c) were covered by the policy mentioned in paragraph (a); and
(d) were the same age as at that cessation.
(3) Subsection (2) does not apply if its application would result in the amount of the *tax offset under subsection 61‑340(5) or (6) being less than it would otherwise have been.
(4) In this section:
dependent child has the same meaning as in the Private Health Insurance Incentives Act 1998.
61‑345 How to work out the incentive amount
(1) The incentive amount for an appropriate private health insurance policy for an income year is worked out in accordance with the following table:
|
Incentive amounts |
||||
|
Item |
Number and kinds of people covered by the policy |
Policy provides *hospital cover but not *ancillary cover |
Policy provides *ancillary cover but not *hospital cover |
Policy provides *combined cover |
|
1 |
3 or more people |
$350 |
$100 |
$450 |
|
2 |
One dependent child and one other person |
$350 |
$100 |
$450 |
|
3 |
2 people neither of whom is a dependent child |
$200 |
$50 |
$250 |
|
4 |
One person |
$100 |
$25 |
$125 |
(2) If the amount of the premium, or the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the appropriate private health insurance policy is for part only of the income year, the incentive amount is worked out using the following formula:
Subdivision 61‑I—First child tax offset (baby bonus)
61‑350 What this Subdivision is about
You are entitled to a tax offset for your first child, for income years up to and including the year the child turns 5, if you meet certain conditions.
The amount of the offset is usually based on your tax liability in the year before you became responsible for the child, and on a comparison between your taxable income in that year and the year you are claiming for. However, if you are a low income taxpayer, a minimum offset will generally be available.
Instead of claiming the offset yourself, you may transfer your entitlement to your spouse.
If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption.
Table of sections
Entitlement to a first child tax offset
61‑355 Who is entitled to a tax offset under this section
61‑360 What is a child event?
61‑365 First child only
61‑370 Another carer with entitlement for another child
61‑375 Selection rules
61‑380 Special rules for death of first child
Transferring an entitlement
61‑385 You may transfer your entitlement to a tax offset
61‑390 Transfer is irrevocable
61‑395 Transferor is not entitled to tax offset
61‑400 Transferee is entitled to tax offset
Claiming a first child tax offset
61‑405 How to claim a tax offset for a child
61‑410 Claim is irrevocable
Amount of a first child tax offset
61‑415 Formula for working out amount of tax offset
61‑420 Component of formula—entitlement amount
61‑425 Component of formula—total of the entitlement days
61‑430 What is your base year?
Additional tax offset if a child is in your care before you legally adopt the child
61‑440 Additional tax offset if a child is in your care before you legally adopt the child
61‑445 When a child is first in your care
61‑450 What is your base year if a child is in your care before you legally adopt the child?
61‑455 Old Subdivision applies if you would be worse off
Entitlement to a first child tax offset
61‑355 Who is entitled to a tax offset under this section
(1) You are entitled to a *tax offset for a child for an income year if you meet the conditions in subsection (3) at any time in the income year.
Note: If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption (see section 61‑440).
(2) To meet those conditions for a child at a given time is to have a primary entitlement to the *tax offset for the child at that time.
(3) The conditions are that:
(a) you have had a *child event (see section 61‑360) in relation to the child (whether or not in the income year); and
(b) section 61‑365 (first child only) does not prevent you from having a *primary entitlement to the offset for the child; and
(c) at the time:
(i) the child is less than 5; and
(ii) you are *legally responsible for the child; and
(iii) the child is in your care; and
(iv) you are an Australian resident; and
(v) section 61‑370 (another carer) does not prevent you from having a primary entitlement to the offset for the child; and
(vi) if section 61‑375 (selection rules) applies—you are selected by subsection (3) of that section.
You have a child event at a particular time (the event time) if:
(a) you become *legally responsible for a child at the event time; and
Example: Giving birth is generally an example of becoming legally responsible for a child.
(b) the event time is on or after 1 July 2001 and before 1 July 2004; and
(c) you are an Australian resident at the event time; and
(d) you were not legally responsible for the child at any time before 1 July 2001; and
(e) there is no other person who is also legally responsible for the child at the event time and who was legally responsible for the child at any time before 1 July 2001.
You cannot have a *primary entitlement to a *tax offset under section 61‑355 for a child if:
(a) you have had a *child event in relation to another child that was earlier than the child event you had for the first‑mentioned child; and
(b) you meet, or met at any time, the conditions in subparagraphs 61‑355(3)(c)(i) to (iv) for that other child.
61‑370 Another carer with entitlement for another child
You cannot have a *primary entitlement to a *tax offset under section 61‑355 for a child at a time if:
(a) at that time:
(i) another person is *legally responsible for the child; and
(ii) the child is in the other person’s care; and
(b) the other person has, or had at any time, a primary entitlement to a tax offset for another child.
(1) This section applies if the conditions in subsection 61‑355(3) (other than subparagraph (c)(vi)) are met by more than one person at the same time in relation to the same child.
(2) Only one of those persons can have a *primary entitlement to a *tax offset under section 61‑355 for the child at that time.
(3) The person who gets the *primary entitlement to the offset at that time is selected in the following order of priority:
(a) the natural mother;
(b) if only one is the adoptive mother—the adoptive mother;
(c) if only one is a woman—the woman;
(d) the natural father;
(e) if only one is the adoptive father—the adoptive father;
(f) the person determined by the Commissioner, having regard to:
(i) any agreement between the persons; and
(ii) any other matters that the Commissioner considers relevant.
61‑380 Special rules for death of first child
Child dies aged less than 5
(1) This section applies if your *primary entitlement to a *tax offset under section 61‑355 for a child ends because the child dies aged less than 5.
Special extension of time in year of death
(2) Your *primary entitlement is extended until the end of the income year in which the death occurred.
Limit on application of first child only rule
(3) Section 61‑365 does not prevent you from having a *primary entitlement to a *tax offset for another child after the end of the income year in which the death occurred.
61‑385 You may transfer your entitlement to a tax offset
(1) If you are entitled to a *tax offset for a child for an income year under section 61‑355 or 61‑440, you may transfer that entitlement to another person.
(1A) However, if you are entitled to a *tax offset for a child for a particular income year under both of sections 61‑355 and 61‑440, you may only transfer one of those entitlements to another person if you also transfer the other entitlement to the same person.
(2) A transfer has effect only if:
(a) the transferee was your *spouse at all times when you had a *primary entitlement for the child for the income year; and
(b) the transferee does not have a primary entitlement for that, or another, child for any time during the income year; and
(c) you have not already claimed the *tax offset for the income year; and
(d) you make the transfer after the end of the income year; and
(e) the transfer is in the *approved form.
61‑390 Transfer is irrevocable
A transfer cannot be changed or revoked.
61‑395 Transferor is not entitled to tax offset
You are no longer yourself entitled to a *tax offset for a child for an income year if you transfer the entitlement under section 61‑385 for that income year.
61‑400 Transferee is entitled to tax offset
If an entitlement to a *tax offset is transferred under section 61‑385, the transferee is entitled to the offset for the income year.
Claiming a first child tax offset
61‑405 How to claim a tax offset for a child
If you are entitled under this Subdivision to a *tax offset for an income year, you may claim the offset only:
(a) in the return you give the Commissioner, before 1 July 2014, for the income year for which you are entitled to the offset; or
(b) if you are not required to give the Commissioner a return for the income year—in the *approved form given to the Commissioner before 1 July 2014.
A claim for a *tax offset under this Subdivision cannot be revoked.
Amount of a first child tax offset
61‑415 Formula for working out amount of tax offset
The amount of your *tax offset under sections 61‑355 and 61‑440 for an income year is the amount (rounded up to the nearest whole dollar) worked out using the formula:
where:
entitlement amount has the meaning given by section 61‑420.
total of the entitlement days has the meaning given by section 61‑425.
61‑420 Component of formula—entitlement amount
(1) In section 61‑415, the entitlement amount is the amount (rounded up to the nearest whole dollar) worked out using the formula:
where:
base amount is the lesser of:
(a) one‑fifth of your basic income tax liability for your *base year (as worked out in step 2 of the method statement in subsection 4‑10(3)); and
(b) $2,500.
(2) However, if:
(a) the current income year is not your *base year; and
(b) your taxable income for the current income year is not more than $25,000; and
(c) the amount worked out under subsection (1) is less than $500;
then the entitlement amount is $500.
(3) If the amount worked out under subsection (1) is negative, then, unless subsection (2) applies, the entitlement amount is nil.
61‑425 Component of formula—total of the entitlement days
(1) In section 61‑415, the total of the entitlement days is the total number of days for which the primary person (see subsection (3)) had a *primary entitlement to a *tax offset under either or both of sections 61‑355 and 61‑440 for the child for the income year.
(2) In addition, if:
(a) the relevant *child event happened in the primary person’s *base year; and
(b) the primary person did not transfer the entitlement under section 61‑385 for the primary person’s base year; and
(c) the relevant child turns 5 during the income year;
the total of the entitlement days also includes the number of days in the base year for which the primary person had a primary entitlement to a *tax offset under either or both of sections 61‑355 and 61‑440 for the child.
(3) In this section, the primary person is:
(a) if you are claiming the offset as a person who has a *primary entitlement to the offset for the child—you; or
(b) if you are claiming the offset as a transferee under section 61‑400—the transferor.
61‑430 What is your base year?
Primary entitlement
(1) Your base year for an entitlement to a *tax offset for a child under section 61‑355 is:
(a) if you were an Australian resident at any time in the income year just before the income year in which the *child event for the child happened (the event year)—the income year just before the event year; and
(b) otherwise—the event year.
Note: If a child is in your care before you adopt the child, your base year can instead be the year the child was first in your care or the year before that (see section 61‑450).
(2) If paragraph (1)(a) applies to you, you may choose the event year to be your base year, in the *approved form. A choice cannot be revoked.
(3) A choice cannot be made:
(a) after you have claimed the *tax offset under section 61‑355 for any income year; or
(b) after you have transferred your entitlement to the tax offset under section 61‑355 for any income year.
Transferred entitlement
(4) Your base year for an entitlement transferred to you under section 61‑385 is the income year before the first income year for which the entitlement for the child was transferred to you.
Additional tax offset if a child is in your care before you legally adopt the child
61‑440 Additional tax offset if a child is in your care before you legally adopt the child
(1) You are entitled to a *tax offset for a child for an income year if:
(a) you meet the conditions in paragraph (3)(a) at any time in the income year; and
(b) you meet the conditions in paragraphs (3)(b), (c) and (d).
Note: You are not entitled to a tax offset under this section if section 61‑455 applies to you.
(2) To meet those conditions for a child at a given time is to have a primary entitlement to the *tax offset for the child at that time.
(3) The conditions are that:
(a) at the time:
(i) the child is less than 5; and
(ii) the child is in your care (but you are not legally responsible for the child); and
(iii) you are an Australian resident; and
(b) you meet the conditions in subsection 61‑355(3) in relation to the child in that year or a later income year; and
(c) you have become legally responsible for the child by adopting the child; and
(d) the time is on or after 1 July 2001 and before 1 July 2004.
Note: See section 61‑445 for when a child is first in your care.
61‑445 When a child is first in your care
For the purposes of sections 61‑440 and 61‑450, a child is first in your care on the date evidenced in writing by a court or relevant department of the relevant State or Territory.
61‑450 What is your base year if a child is in your care before you legally adopt the child?
Your base year can relate to a year during which a child was in your care before you adopted the child
(1) This section defines your base year if you are entitled to a *tax offset for a child under section 61‑440 (which is where a child is in your care before you legally adopt the child).
Primary entitlement
(2) Your base year for a *tax offset under sections 61‑355 and 61‑440 is:
(a) if you were an Australian resident at any time in the income year (the previous income year) just before the income year in which the child was first in your care—the later of the following years:
(i) the previous income year;
(ii) the income year commencing on 1 July 2000; and
(b) otherwise—the later of the following years:
(i) the earliest income year in which you were an Australian resident and the child was in your care;
(ii) the income year commencing on 1 July 2001.
Note: See section 61‑445 for when a child is first in your care.
(3) If paragraph (2)(a) applies to you, you may choose, in the *approved form, the later of the following years to be your base year:
(a) the year the child was first in your care;
(b) the income year commencing on 1 July 2001.
A choice cannot be revoked.
(4) A choice cannot be made:
(a) after you have claimed the *tax offset under section 61‑440 for any income year; or
(b) after you have transferred your entitlement to the tax offset under section 61‑440 for any income year.
Transferred entitlement
(5) Your base year for an entitlement transferred to you under section 61‑385 is the income year before the first income year for which the entitlement for the child was transferred to you.
61‑455 Old Subdivision applies if you would be worse off
This Subdivision as in force on 30 June 2004 (instead of this Subdivision as amended by Schedule 10 to the Tax Laws Amendment (2004 Measures No. 6) Act 2005) continues to apply to you if the amount of all *tax offsets to which you would be entitled under this Subdivision as in force on that date is more than the amount of all tax offsets to which you would be entitled under the amended Subdivision.
Note: The effect of this is that:
(a) you are only entitled to a tax offset in respect of days for which you are legally responsible for the child (and not days during which the child is in your care); and
(b) your base year is the income year in which the child event happened or the year before.
Subdivision 61‑IA—Child care tax offset
61‑460 What this Subdivision is about
You are entitled to a tax offset for an income year for child care fees if you meet certain conditions.
The amount of the offset is 30% of the difference between the amounts for each child, in the previous year, of child care fees incurred and child care benefit entitlement. This is subject to an indexed cap of $4,000 per child.
If the amount of the tax offset exceeds the amount of your income tax liability, the excess may be transferred to your spouse as a tax offset.
Table of sections
Operative provisions
61‑465 Object of this Subdivision
Entitlement to the child care tax offset
61‑470 Who is entitled to the tax offset
61‑475 Meaning of approved child care
61‑480 Meaning of entitled to child care benefit and entitlement to child care benefit
Amount of the child care tax offset
61‑485 Amount of the child care tax offset
61‑490 Component of formula—approved child care fees
61‑495 Component of formula—child care offset limit
Transfer of entitlement to unused balance of child care tax offset
61‑496 Entitlement to transfer
61‑497 Form of transfer
61‑465 Object of this Subdivision
The object of this Subdivision is to provide a *tax offset to assist families with the cost of child care.
Entitlement to the child care tax offset
61‑470 Who is entitled to the tax offset
(1) You are entitled to a *tax offset for an income year (the child care offset year) for *approved child care provided in the previous income year (the child care base year) if:
(a) you are an individual; and
(b) there is at least 1 *child care base week for you and a particular child in the child care base year.
Example: If there is at least 1 child care base week for you and a child in the 2004‑2005 income year (the child care base year), you are entitled to a tax offset for the child for the 2005‑2006 income year (the child care offset year).
(2) A week is a child care base week for you and a particular child in the child care base year if:
(a) the week starts on a Monday in the child care base year (whether or not it finishes in the child care base year); and
(b) you are *entitled to child care benefit for *approved child care provided for the child in the week; and
(c) one or more of the following limits applies under Subdivision G of Division 4 of Part 3 of the A New Tax System (Family Assistance) Act 1999 to your *entitlement to child care benefit for that week:
(i) the 50 hour limit (see section 54 of that Act);
(ii) the more than 50 hour limit (see section 55 of that Act);
(iii) the 24 hour care limit for a particular session (or sessions) of care (see section 56 of that Act).
Note: If one of the paragraph (c) limits applies, you satisfy the paragraph (c) condition even if you have not used approved child care for the child during the week up to the full extent of the limit.
(3) If you are *entitled to child care benefit subject to a limit of only 24 hours for a week under subsection 53(3) of the A New Tax System (Family Assistance) Act 1999, the condition mentioned in paragraph (2)(c) is not satisfied for the week.
(4) The 50 hour limit is taken, for the purposes of paragraph (2)(c), to apply to your entitlement for child care benefit for the week if it would have applied but for the fact that you failed to meet the requirements of paragraph 17A(1)(b) of the A New Tax System (Family Assistance) Act 1999 in relation to the week.
61‑475 Meaning of approved child care
(1) Approved child care, for a particular child, is care provided for the child by a child care service that is approved under section 195 of the A New Tax System (Family Assistance) (Administration) Act 1999.
(2) Approved child care is also taken to have been provided by such a child care service for the child during a period of absence from care if section 10 or 10A of the A New Tax System (Family Assistance) Act 1999 applies to the period of absence.
Note: If a child is absent from care during a period for which child care fees are incurred for the child, but neither of sections 10 or 10A of the A New Tax System (Family Assistance) Act 1999 apply to the period of absence, approved child care would not be taken to have been provided for the child. As a result, child care fees incurred for the child during the period would not count as approved child care fees for which the child care tax offset is payable (see sections 61‑485 and 61‑490).
61‑480 Meaning of entitled to child care benefit and entitlement to child care benefit
(1) You are entitled to child care benefit for *approved child care for a child as provided in this section, and not otherwise. The amount of your entitlement to child care benefit for the care is as provided in this section, and not otherwise.
Note: Child care benefit is a benefit provided for by the A New Tax System (Family Assistance) Act 1999.
General rule—actual determination of entitlement must have been made
(2) You are only entitled to child care benefit for the care if you are so entitled because of a determination made under section 51B or 52E of the A New Tax System (Family Assistance) (Administration) Act 1999. The amount of your entitlement to child care benefit for the care is the amount worked out under that Act by reference to that determination.
Entitlement based on fee reductions under a determination of conditional entitlement
(3) However, if:
(a) a determination (the conditional determination) has been made under section 50F of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are conditionally eligible for child care benefit by fee reduction for the care; and
(b) under section 219A of that Act as it applies in relation to the determination, fees for the care have been reduced;
you are, subject to subsections (4) and (5), taken to be entitled to child care benefit for the care. The amount of your entitlement to child care benefit for the care is the amount of the reduction.
(4) Despite subsection (3), if:
(a) a determination (the final determination) is subsequently made under section 51B of the A New Tax System (Family Assistance) (Administration) Act 1999 of your entitlement to be paid child care benefit by fee reduction for the care; and
(b) the amount (the final determination amount) of your entitlement to child care benefit for the care, as worked out by reference to the final determination, differs from the amount of the reduction referred to in paragraph (3)(b);
the amount of your entitlement to child care benefit for the care is taken to be, and always to have been, the final determination amount.
(5) Despite subsection (3), if a determination is subsequently made under section 51C of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are not entitled to be paid child care benefit by fee reduction for the care, you are taken not to be, and never to have been, entitled to be paid any child care benefit for the care.
Entitlement does not end with receipt
(6) In applying this Act at a particular time in relation to yourself and the care, the fact that you have, by that time, received some or all of your entitlement to child care benefit for the care does not mean that you are no longer to be regarded as being entitled to child care benefit for the care.
Later determinations, variations and substitutions to be taken into account
(7) If, after applying this Act at a particular time in relation to yourself and the care, a determination mentioned in this section is made or varied, or is set aside and a new determination substituted, the question of your entitlement to child care benefit for the care is to be redetermined taking account of the making, variation or substitution.
Amount of the child care tax offset
61‑485 Amount of the child care tax offset
The amount of your *tax offset for a child care offset year is worked out in this way:
Method statement
Step 1. For each child in relation to whom you are entitled to the *tax offset for the child care offset year, work out amounts in accordance with steps 2, 3 and 4.
Step 2. Work out the total amount of your *approved child care fees for the child in each *child care base week for you and the child in the child care base year.
Step 3. Work out the total amount of your *entitlement to child care benefit for *approved child care for the child in each *child care base week for you and the child in the child care base year.
Step 4. Work out the lesser of the following amounts (the child offset) for the child:
(a) the amount worked out using the formula:
(b) the *child care offset limit for the child care base year.
Step 5. Total the child offsets for each of those children. The result is the amount of your *tax offset for the child care offset year.
61‑490 Component of formula—approved child care fees
General rule—approved child care fees for a child care base week for you and a child
(1) The amount of your approved child care fees for a child for a *child care base week for you and the child is the amount of fees for *approved child care for the child during the week that are incurred by:
(a) you; or
(b) your partner, within the meaning of the A New Tax System (Family Assistance) Act 1999, during the week.
Subject to subsection (2), it does not matter whether you are *entitled to child care benefit for all of that care.
Special rule if the week is also a child care base week for your partner and the child
(2) If the *child care base week is also a child care base week for your partner and the child, your approved child care fees for the week do not include any fees incurred by your partner for *approved child care, for the child in the week, for which you are not *entitled to child care benefit.
If fee reduction applies, count unreduced amount of fees
(3) If fees for *approved child care have been reduced under section 219A of the A New Tax System (Family Assistance) (Administration) Act 1999, then for this section, a reference to the fees incurred for the care is taken to be a reference to the fees that would have been incurred for the care if they had not been so reduced.
61‑495 Component of formula—child care offset limit
(1) The child care offset limit for the 2004‑2005 child care base year is $4,000. The limit is indexed annually.
Note: Subdivision 960‑M shows you how to index amounts.
(2) In applying the indexation formula in subsection 960‑275(1) to determine the child care offset limit for the 2005‑2006 child care base year or a later child care base year, the relevant financial year is the child care base year rather than the child care offset year for which the offset is being calculated.
Transfer of entitlement to unused balance of child care tax offset
61‑496 Entitlement to transfer
(1) You may transfer your entitlement to so much of your *tax offset as is equal to the excess to the individual who was your *spouse as at the last day of the child care offset year.
Note: The excess part of a tax offset is worked out under Division 63.
(2) If you make a transfer:
(a) the transferee is entitled to the transferred part of the *tax offset for the child care offset year; and
(b) you are no longer entitled to the transferred part of the tax offset.
(3) A transfer cannot be revoked.
(4) If you die during the child care offset year, the reference to your *spouse in subsection (1) is taken to be a reference to your spouse just before your death.
(1) A transfer has effect only if you have applied for it in the *approved form.
(2) The *approved form must require the inclusion of:
(a) your *tax file number; and
(b) the tax file number of the transferee; and
(c) the transferee’s signed consent to:
(i) the transfer; and
(ii) the disclosure of his or her tax file number in the form.
(3) Subsection (2) does not limit what may be required by the *approved form.
Subdivision 61‑J—25% entrepreneurs’ tax offset
61‑500 What this Subdivision is about
This Subdivision provides a 25% tax offset on your income tax liability related to the business income of a business in the simplified tax system with annual group turnover of less than $75,000.
Your entitlement to the offset varies depending on what kind of entity you are. The amount of your offset varies depending on whether the annual group turnover is $50,000 or less or is more than $50,000.
You may be entitled to more than 1 tax offset. For example, if you are an individual STS taxpayer running your own business, you may be entitled to a tax offset under section 61‑505. If you are also a beneficiary of a trust that is an STS taxpayer, you may be entitled to a tax offset under section 61‑520.
Table of sections
Operative provisions
61‑505 25% entrepreneurs’ tax offset: individual or company
61‑510 25% entrepreneurs’ tax offset: partner in a partnership
61‑515 25% entrepreneurs’ tax offset: trustee of a trust
61‑520 25% entrepreneurs’ tax offset: beneficiary of a trust
61‑525 Meaning of net STS income and STS annual turnover
61‑505 25% entrepreneurs’ tax offset: individual or company
Entitlement
(1) You are entitled to a *tax offset for an income year if:
(a) you are an individual or a company; and
(b) you are an *STS taxpayer for the year; and
(c) your *STS group turnover for the year is less than $75,000; and
(d) you have *net STS income for the year.
Amount
(2) The amount of your *tax offset is worked out in this way:
Method statement
Step 1. Work out your taxable income for the income year.
Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4‑10(3)).
Step 3. Work out the percentage (the STS percentage) using the formula:
If that percentage is more than 100%, the STS percentage is 100%.
Step 4. If your *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset.
Step 5. If your *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula:
The amount of your *tax offset is worked out using the formula:
Example: A company runs a local sports business. The company is an STS taxpayer for the year. The company’s STS group turnover for the year is $50,000, the company’s net STS income for the year is $40,000 and the company’s taxable income for the year is $80,000.
The company is entitled to a tax offset.
The amount of the offset is worked out in this way:
The step 1 amount is $80,000.
The step 2 amount is $6,000: 25% of the company’s basic income tax liability of $24,000 ($80,000 multiplied by the 30% company tax rate).
The step 3 STS percentage is:
The amount of the company’s tax offset (step 4) is:
61‑510 25% entrepreneurs’ tax offset: partner in a partnership
Entitlement
(1) You are entitled to a *tax offset for an income year if:
(a) you are a partner in a partnership during the year; and
(b) the partnership is an *STS taxpayer for the year; and
(c) the partnership’s *STS group turnover for the year is less than $75,000; and
(d) the partnership has *net STS income for the year; and
(e) your assessable income for the year includes a share (your net STS income share) of that net STS income.
Amount
(2) The amount of your *tax offset is worked out in this way:
Method statement
Step 1. Work out your taxable income for the income year.
Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4‑10(3)).
Step 3. Work out the percentage (the STS percentage) using the formula:
If that percentage is more than 100%, the STS percentage is 100%.
Step 4. If the partnership’s *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset.
Step 5. If the partnership’s *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula:
The amount of your *tax offset is worked out using the formula:
61‑515 25% entrepreneurs’ tax offset: trustee of a trust
Entitlement
(1) You are entitled to a *tax offset for an income year if:
(a) you are a trustee of a trust during the year; and
(b) the trust is an *STS taxpayer for the year; and
(c) the trust’s *STS group turnover for the year is less than $75,000; and
(d) the trust has *net STS income for the year; and
(e) you are liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 on a share (your net STS income share) of that net STS income.
Amount
(2) The amount of your *tax offset is worked out in this way:
Method statement
Step 1. Work out the *net income of the trust for the income year.
Step 2. Work out 25% of the amount of income tax you are liable to pay for the year on that *net income (apart from any *tax offsets).
Step 3. Work out the percentage (the STS percentage) using the formula:
If that percentage is more than 100%, the STS percentage is 100%.
Step 4. If the trust’s *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset.
Step 5. If the trust’s *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula:
The amount of your *tax offset is worked out using the formula:
61‑520 25% entrepreneurs’ tax offset: beneficiary of a trust
Entitlement
(1) You are entitled to a *tax offset for an income year if:
(a) you are a beneficiary of a trust during the year; and
(b) the trust is an *STS taxpayer for the year; and
(c) the trust’s *STS group turnover for the year is less than $75,000; and
(d) the trust has *net STS income for the year; and
(e) your assessable income for the year includes a share (your net STS income share) of that net STS income.
Amount
(2) The amount of your *tax offset is worked out in this way:
Method statement
Step 1. Work out your taxable income for the income year.
Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4‑10(3)).
Step 3. Work out the percentage (the STS percentage) using the formula:
If that percentage is more than 100%, the STS percentage is 100%.
Step 4. If the trust’s *STS group turnover for the year is $50,000 or less, multiply the amount at step 2 by the STS percentage: the result is the amount of your *tax offset.
Step 5. If the trust’s *STS group turnover for the year is more than $50,000, work out the fraction (the STS phase‑out fraction) using the formula:
The amount of your *tax offset is worked out using the formula:
61‑525 Meaning of net STS income and STS annual turnover
Net STS income
(1) An entity’s net STS income for an income year is the amount by which the entity’s *STS annual turnover for the year is more than the sum of the entity’s deductions attributable to that turnover.
STS annual turnover
(2) An entity’s STS annual turnover for an income year is the sum of the *value of the business supplies the entity made in the year.
(3) To the extent that the *taxable supplies an entity makes in an income year includes *gambling supplies, use an amount equal to 11 times the entity’s *global GST amount for those supplies rather than the *value of the business supplies in working out the entity’s *STS annual turnover.
(4) In working out the *value of the business supplies made by an entity, disregard:
(a) any *supply made to the extent that the consideration for the supply is a payment or a supply by an insurer in settlement of a claim under an insurance policy; and
(b) to the extent that a supply is constituted by a loan—any repayment of principal, and any obligation to repay principal.
Subdivision 61‑K—Mature age worker tax offset
61‑550 What this Subdivision is about
You may get a tax offset under this Subdivision if you are an Australian resident individual who is aged 55 or over at the end of the income year and who has worked during the year.
The amount of the offset depends on the amount of your net income from working, but is up to a maximum of $500. (Basically, your net income from working is the total of amounts of assessable income that are mainly a reward for your personal efforts or skills, less any relevant deductions.)
Table of sections
Operative provisions
61‑555 Object of this Subdivision
61‑560 Entitlement to the mature age worker tax offset
61‑565 The amount of the tax offset
61‑570 Definition of net income from working
61‑555 Object of this Subdivision
The object of this Subdivision is to provide a *tax offset (subject to certain income conditions) as an incentive to Australians aged 55 or over to remain in work.
61‑560 Entitlement to the mature age worker tax offset
You are entitled to a *tax offset for an income year if you are an Australian resident individual who is aged 55 or over at the end of the income year.
Note: However, the amount of the tax offset is nil if have you no net income from working or your net income from working is over $63,000 (or $58,000 for the 2004‑2005 income year).
61‑565 The amount of the tax offset
(1) If your *net income from working for the income year is equal to or less than $53,000, the amount of the *tax offset is the lesser of the amount worked out under the following formula and $500:
(2) If your *net income from working for the income year is greater than $53,000, the amount of the *tax offset is the amount worked out under the following formula (but not below nil):
Special rule for the 2004‑2005 income year
(3) For the 2004‑2005 income year, references in subsections (1) and (2) to $53,000 are taken instead to be references to $48,000.
61‑570 Definition of net income from working
(1) Your net income from working for an income year is the sum of the following amounts (excluding amounts covered by subsection (2)):
(a) your assessable income for the year to the extent that it consists of the following:
(i) *personal services income;
(ii) assessable income from a *business you carry on;
(iii) an amount included under section 393‑15 of Schedule 2G to the Income Tax Assessment Act 1936 as a result of the repayment of a *farm management deposit;
(b) your *reportable fringe benefits total for the year;
less the sum of any amounts you can deduct for the year to the extent that they relate to assessable income mentioned in subparagraph (a)(i) or (ii).
(2) Your net income from working for an income year does not include your assessable income for the year to the extent that it consists of the following:
(a) amounts of *eligible termination payments;
(b) amounts to which section 26AC or 26AD of the Income Tax Assessment Act 1936 applies (about annual or long service leave payments);
(c) amounts of passive income (within the meaning of subsection 160AEA(1) of the Income Tax Assessment Act 1936).
Subdivision 61‑L—Tax offset for Medicare levy surcharge (lump sum payments in arrears)
61‑575 What this Subdivision is about
You may get a tax offset under this Subdivision if:
(a) Medicare levy surcharge is payable by you for the current year; and
(b) a substantial lump sum was paid to you in the current year; and
(c) the lump sum accrued in whole or in part in a previous year.
The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your lump sums and your spouse’s lump sums.
Alternatively, you may get a tax offset under this Subdivision if your spouse gets a tax offset under this Subdivision. The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your spouse’s lump sums.
Table of sections
Operative provisions
61‑580 Entitlement to a tax offset
61‑585 The amount of a tax offset
61‑590 Definition of MLS lump sums
61‑580 Entitlement to a tax offset
Tax offset for MLS lump sums paid to you
(1) You are entitled to a *tax offset for the *current year if:
(a) you are an individual; and
(b) *Medicare levy surcharge is payable by you for the current year because of:
(i) section 8B, 8C or 8D of the Medicare Levy Act 1986; or
(ii) the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999; and
(c) your assessable income or *exempt foreign employment income for the current year includes one or more *MLS lump sums paid to you; and
(d) the total of the MLS lump sums paid to you is greater than or equal to one‑eleventh of the total of the following amounts:
(i) your normal taxable income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) for the current year;
(ii) your exempt foreign employment income for the current year;
(iii) your *reportable fringe benefits total for the current year;
(iv) the amounts that would be included in your assessable income for the current year if, and only if, subsection 271‑105(1) (family trust distribution tax) in Schedule 2F to the Income Tax Assessment Act 1936 were ignored.
Note: The test in paragraph (d) is similar to the 10% test in paragraph 159ZRA(1)(b) of the Income Tax Assessment Act 1936, which also deals with a tax offset for lump sum payments in arrears.
Tax offset for MLS lump sums paid to your spouse
(2) You are also entitled to a *tax offset for the *current year if:
(a) during all or part of the current year, you were married to an individual (within the meaning of section 3 of the Medicare Levy Act 1986 or section 7 of the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999); and
(b) the individual is entitled to a tax offset for the current year under subsection (1); and
(c) *Medicare levy surcharge is payable by you for the current year because of:
(i) section 8D of the Medicare Levy Act 1986; or
(ii) Division 4 of Part 3 of the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999;
(which are about Medicare Levy surcharge for individuals who are married); and
(d) you are not entitled to a tax offset for the current year under subsection (1); and
(e) less of the Medicare levy surcharge referred to in paragraph (c) would be payable by you for the current year if the *MLS lump sums paid to the individual referred to in paragraph (a) were disregarded.
61‑585 The amount of a tax offset
(1) The amount of a *tax offset under subsection 61‑580(1) is the amount worked out using the following formula:
where:
total Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61‑580(1)(b) that is payable by you for the *current year.
total non‑arrears Medicare levy surcharge means the amount that would be the total Medicare levy surcharge if the *MLS lump sums paid to you (and the MLS lump sums paid to the individual referred to in paragraph 61‑580(2)(a)) were disregarded.
(2) The amount of a *tax offset under subsection 61‑580(2) is the amount worked out using the following formula:
where:
total family Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61‑580(2)(c) that is payable by you for the *current year.
total non‑arrears family Medicare levy surcharge means the amount that would be the total family Medicare levy surcharge if the *MLS lump sums referred to in paragraph 61‑580(2)(e) were disregarded.
61‑590 Definition of MLS lump sums
Both of the following are MLS lump sums paid to an individual:
(a) a lump sum payment of eligible income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) that is included in the individual’s assessable income for the *current year (but only to the extent that it accrued in an earlier income year);
(b) a lump sum payment that is included in the individual’s *exempt foreign employment income for the current year (but only to the extent that it accrued during a period ending more than 12 months before the date on which it was paid).
Division 63—Common rules for tax offsets
63‑1 What this Division is about
This Division sets out some rules that are common to all tax offsets.
Table of sections
63‑10 Priority rules
(1) If you have one or more *tax offsets for an income year, apply them against your basic income tax liability in the order shown in the table. To the extent that an amount of a tax offset remains, the table tells you what happens to it.
|
Order of applying tax offsets |
||
|
Item |
Tax offset |
What happens to any excess |
|
5 |
*Tax offset under section 160AAAA of the Income Tax Assessment Act 1936 (tax offset for low income aged persons) |
Your entitlement to it is transferred in accordance with regulations made under that Act |
|
10 |
*Tax offset under section 160AAAB of the Income Tax Assessment Act 1936 (tax offset for low income aged persons—trustee assessed under section 98) |
Your entitlement to it is transferred in accordance with regulations made under that Act |
|
15 |
*Tax offset under section 160AAA of the Income Tax Assessment Act 1936 (tax offset in respect of certain pensions) |
Your entitlement to it is transferred in accordance with regulations made under that Act |
|
20 |
Any *tax offset not covered by another item in this table |
You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year |
|
25 |
Child care *tax offset under Subdivision 61‑IA |
You may transfer your entitlement to it to your *spouse (under sections 61‑496 and 61‑497) |
|
30 |
Landcare and water facility *tax offset under the former Subdivision 388‑A |
You may carry it forward to a later income year (under Division 65) |
|
35 |
Foreign tax credit under Division 18 of Part III of the Income Tax Assessment Act 1936 |
You may carry it forward to a later income year (under section 160AFE of that Act) |
|
40 |
*Tax offset that is subject to the refundable tax offset rules in Division 67 |
You can get a refund of the remaining amount |
|
45 |
*Tax offset arising from payment of *franking deficit tax (see section 205‑70) |
You may carry it forward to a later income year (under section 205‑70) |
Note 1: Section 13‑1 lists tax offsets.
Note 2: Former Division 388 was repealed by the New Business Tax System (Capital Allowances—Transitional and Consequential) Act 2001.
Note 3: Section 160AFE of the Income Tax Assessment Act 1936 also affects how much of a foreign tax credit can be applied against your basic income tax liability.
Note 4: The remaining amount of a carry forward tax offset may be reduced by section 65‑30 or 65‑35 to take account of net exempt income.
Note 5: Tax offsets mentioned in items 5 and 10 are more commonly referred to as the Senior Australians Tax Offset.
(2) Within each item, apply the tax offsets in the order in which they arose.
Note: This would be relevant if you have carry forward tax offsets of the same category for different income years.
Division 65—Tax offset carry forward rules
65‑10 What this Division is about
This Division sets out the rules about carrying forward excess tax offsets to later years of income.
You can only carry forward certain tax offsets.
Before you can apply a tax offset to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income.
The same rules that prevent companies from using certain losses that are carried forward prevent companies from applying tax offsets that they have carried forward.
Table of sections
Operative provisions
65‑30 Amount carried forward
65‑35 How to apply carried forward tax offsets
65‑40 When a company cannot apply a tax offset
65‑50 Effect of bankruptcy
65‑55 Deduction for amounts paid for debts incurred before bankruptcy
The amount of the *tax offset that is carried forward is the amount of the excess worked out under Division 63. However, if you have a taxable income for the income year, reduce the tax offset by the following amount:
65‑35 How to apply carried forward tax offsets
(1) A *tax offset that you have carried forward decreases the amount of income tax that you would otherwise have to pay under section 4‑10 in a later income year.
(2) You apply a *tax offset that is carried forward to a later year in accordance with the priorities set out in Division 63 as if it were a tax offset for that later year.
(3) Before you apply a *tax offset to reduce the amount of income tax that you pay in a later income year in which you have a taxable income, you must apply it to reduce to nil any *net exempt income for:
(a) that later income year; or
(b) any income year after the year in which the tax offset arose and before the later income year in which you had a taxable income but did not apply the tax offset to reduce the amount of income tax you had to pay.
In reducing net exempt income, each 30 cents of tax offset reduces the net exempt income by $1.
Note: Paragraph (b) would apply to cases such as where your taxable income was below your tax‑free threshold or where you had other tax offsets that reduced your income tax to nil.
(4) You can only apply a *tax offset that you have carried forward to the extent that it has not already been applied.
Note: Section 65‑40 contains special restrictions on applying carried forward tax offsets.
65‑40 When a company cannot apply a tax offset
(1) In working out its *tax offset for the *current year, a company cannot apply a *tax offset it has carried forward if, assuming:
(a) the tax offset were a *tax loss of the company for the income year in which it became entitled to the tax offset; and
(b) section 165‑20 (deducting part of a tax loss) were disregarded;
Subdivision 165‑A would prevent the company from deducting it for the current year.
Note: Subdivision 165‑A deals with the deductibility of a company’s tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year.
(2) If subsection (1) prevents the company from applying the *tax offset, it can apply the part of the tax offset that it is reasonable to consider relates to a part of the income year in which it became entitled to the tax offset, but only if, assuming that part of that income year had been treated as the whole of it, the company would have been entitled to apply the tax offset.
(1) If during the *current year:
(a) you became bankrupt; or
(b) you were released from debts under a law relating to bankruptcy;
you cannot apply a *tax offset that you have carried forward from an earlier income year in working out the tax offset for the current year or a later income year.
(2) Subsection (1) applies even though your bankruptcy is annulled if:
(a) the annulment happens under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and
(b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy.
65‑55 Deduction for amounts paid for debts incurred before bankruptcy
(1) If:
(a) you pay an amount in the *current year for a debt that you incurred in an earlier income year; and
(b) you have a *tax offset referred to in section 65‑50 for that earlier income year;
you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax offset.
(2) The total of the following amounts cannot exceed the total of the expenditure that the Commissioner is satisfied was taken into account in calculating the amount of the *tax offset that you are unable to apply because of section 66‑50:
(a) your deductions under subsection (1) for amounts paid in the *current year or an earlier income year for debts incurred in the income year for which you have the tax offset; and
(b) the expenditure that the Commissioner is satisfied was taken into account in calculating any amounts of the tax offset that, apart from section 65‑50, would have been applied in reducing your *net exempt income for the current year or earlier income years.
Division 67—Refundable tax offset rules
67‑10 What this Division is about
This Division sets out the rules about refunds of tax offsets.
Table of sections
Operative provisions
67‑20 Which tax offsets this Division applies to
67‑25 Tax offsets that are subject to the refundable tax offset rules
67‑20 Which tax offsets this Division applies to
This Division only applies to a *tax offset if it is stated to be subject to the refundable tax offset rules.
67‑25 Tax offsets that are subject to the refundable tax offset rules
Franked distributions
(1) *Tax offsets available under Division 207 (which sets out the effects of receiving a *franked distribution) or Subdivision 210‑H (which sets out the effects of receiving a *distribution *franked with a venture capital credit) are subject to the refundable tax offset rules, unless otherwise stated in this section.
(1A) Where the trustee of a *non‑complying superannuation fund or a *non‑complying ADF is entitled to a *tax offset under Division 207 because a *franked distribution is made to, or *flows indirectly to, the trustee, the tax offset is not subject to the refundable tax offset rules.
(1B) If:
(a) the trustee of a trust to whom a *franked distribution *flows indirectly under subsection 207‑50(4) is entitled to a *tax offset under Division 207 for an income year because of the distribution; and
(b) the trustee is liable to be assessed under section 98 or 99A of the Income Tax Assessment Act 1936 on a share of, or all or a part of, the trust’s *net income for that income year;
the tax offset is not subject to the refundable tax offset rules.
(1C) Where a *corporate tax entity is entitled to a *tax offset under Division 207 because a *franked distribution is made to the entity, the tax offset is not subject to the refundable tax offset rules unless:
(a) the entity is an *exempt institution that is eligible for a refund; or
(b) the entity is a *life insurance company and the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:
(i) starting at the beginning of the income year of the company in which the distribution is made; and
(ii) ending when the distribution is made.
(1D) Where a *corporate tax entity is entitled to a *tax offset under Division 207 because a *franked distribution *flows indirectly to the entity, the tax offset is not subject to the refundable tax offset rules unless:
(a) the entity is an *exempt institution that is eligible for a refund; or
(b) the entity is a *life insurance company and the company’s interest in the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:
(i) starting at the beginning of the income year of the company in which the distribution is made; and
(ii) ending when the distribution is made.
(1DA) A *tax offset is not subject to the refundable tax offset rules if:
(a) an entity is entitled to the tax offset under Division 207 because a *franked distribution is made, or *flows indirectly, to the entity; and
(b) the entity is a foreign resident and carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of:
(i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936) that relates to a foreign country and affects the entity; or
(ii) subsection 6(1) of that Act, if there is no such agreement; and
(c) the distribution is attributable to the permanent establishment.
(1E) Where a *corporate tax entity is entitled to a *tax offset under Subdivision 210‑H because a *distribution *franked with a venture capital credit is made to the entity, the tax offset is not subject to the refundable tax offset rules unless:
(a) the entity is a *life insurance company; and
(b) the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:
(i) starting at the beginning of the income year of the company in which the distribution is made; and
(ii) ending when the distribution is made.
Private health insurance
(2) Private health insurance tax offsets under Subdivision 61‑H, except those arising under subsection 61‑335(4), are subject to the refundable tax offset rules.
Note: Subsection 61‑335(4) deals with tax offsets for trustees who are assessed and liable to pay tax under section 98 of the Income Tax Assessment Act 1936.
Films
(2A) The *tax offset available under Division 376 is subject to the refundable tax offset rules.
Research and development
(3) The tax offset available under section 73I of the Income Tax Assessment Act 1936 (research and development) is subject to the refundable tax offset rules.
First child
(4) First child tax offsets under Subdivision 61‑I are subject to the refundable tax offset rules.
Life insurance company’s subsidiary joining consolidated group
(5) The *tax offset available under subsection 713‑545(5) is subject to the refundable tax offset rules.
Table of Subdivisions
Guide to Division 70
70‑A What is trading stock
70‑B Acquiring trading stock
70‑C Accounting for trading stock you hold at the start or end of the income year
70‑D Assessable income arising from disposals of trading stock and certain other assets
70‑E Miscellaneous
70‑1 What this Division is about
This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations:
• you acquire an item of trading stock;
• you carry on a business and hold trading stock at the start or the end of the income year;
• you dispose of an item of trading stock outside the ordinary course of business, or it ceases to be trading stock in certain other circumstances.
Table of sections
70‑5 The 3 key features of tax accounting for trading stock
70‑5 The 3 key features of tax accounting for trading stock
The purpose of income tax accounting for trading stock is to produce an overall result that (apart from concessions) properly reflects your activities with your trading stock during the income year.
There are 3 key features:
(1) You bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock.
(2) Those outgoings and earnings are on revenue account, not capital account. As a result:
(a) the gross outgoings are usually deductible as general deductions under section 8‑1 (when the trading stock becomes trading stock on hand); and
(b) the gross earnings are usually assessable as ordinary income under section 6‑5 (when the trading stock stops being trading stock on hand).
(3) You must bring to account any difference between the value of your trading stock on hand at the start and at the end of the income year. This is done in such a way that, in effect:
(a) you account for the value of your trading stock as assessable income; and
(b) you carry that value over as a corresponding deduction for the next income year.
Note: You may not have to bring to account that difference if you are an STS taxpayer: see Division 328.
Subdivision 70‑A—What is trading stock
Table of sections
70‑10 Meaning of trading stock
70‑10 Meaning of trading stock
Trading stock includes:
(a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a *business; and
(b) *live stock.
Note 1: Shares in a PDF are not trading stock. See section 124ZO of the Income Tax Assessment Act 1936.
Note 2: If a company becomes a PDF, its shares are taken not to have been trading stock before it became a PDF. See section 124ZQ of the Income Tax Assessment Act 1936.
Subdivision 70‑B—Acquiring trading stock
Table of sections
70‑15 In which income year do you deduct an outgoing for trading stock?
70‑20 Non‑arm’s length transactions
70‑25 Cost of trading stock is not a capital outgoing
70‑30 Starting to hold as trading stock an item you already own
70‑15 In which income year do you deduct an outgoing for trading stock?
(1) This section tells you in which income year to deduct under section 8‑1 (about general deductions) an outgoing incurred in connection with acquiring an item of *trading stock. (The outgoing must be deductible under that section.)
(2) If the item becomes part of your *trading stock on hand before or during the income year in which you incur the outgoing, deduct it in that income year.
(3) Otherwise, deduct the outgoing in the first income year:
(a) during which the item becomes part of your *trading stock on hand; or
(b) for which an amount is included in your assessable income in connection with the disposal of that item.
Note You can deduct your capital costs of acquiring land carrying trees or of acquiring a right to fell trees, to the extent that the trees are felled for sale, or for use in manufacture, by you. (This is because the trees will then usually become your trading stock.) See section 70‑120.
70‑20 Non‑arm’s length transactions
If:
(a) you incur an outgoing that is directly attributable to your buying or obtaining delivery of an item of your *trading stock; and
(b) you and the seller of the item did not deal with each other at arm’s length; and
(c) the amount of the outgoing is greater than the *market value of what the outgoing is for;
the amount of the outgoing is instead taken to be that market value. This has effect for the purposes of applying this Act to you and also to the seller.
Note 1: This section also affects the value of the item of trading stock at the end of an income year if you value it at its cost under section 70‑45 (Value of trading stock at end of income year).
Note 2: This section is disregarded in applying Division 13 (about transfer‑pricing arrangements) of Part III of the Income Tax Assessment Act 1936.
70‑25 Cost of trading stock is not a capital outgoing
An outgoing you incur in connection with acquiring an item of *trading stock is not an outgoing of capital or of a capital nature.
Note: This means that paragraph 8‑1(2)(a) does not prevent the outgoing from being a general deduction under section 8‑1.
70‑30 Starting to hold as trading stock an item you already own
(1) If you start holding as *trading stock an item you already own, but do not hold as trading stock, you are treated as if:.
(a) just before it became trading stock, you had sold the item to someone else (at arm’s length) for whichever of these amounts you elect:
• its cost (as worked out under subsection (3) or (4));
• its *market value just before it became trading stock; and
(b) you had immediately bought it back for the same amount.
Example: You start holding a depreciating asset as part of your trading stock. You are treated as having sold it just before that time, and immediately bought it back, for its cost or market value, whichever you elect. (Subdivision 40‑D provides for the consequences of selling depreciating assets.)
The same amount is normally a general deduction under section 8‑1 as an outgoing in connection with acquiring trading stock. The amount is also taken into account in working out the item’s cost for the purposes of section 70‑45 (about valuing trading stock at the end of the income year).
Note: Depending on how you elect under paragraph (1)(a), the sale may or may not give rise to a capital gain or a capital loss for the purposes of Parts 3‑1 and 3‑3 (about CGT). It does not if you elect to be treated as having sold the item for what would have been its cost: see subsection 118‑25(2). However, it can if you elect market value.
When you must make the election
(2) You must make the election by the time you lodge your *income tax return for the income year in which you start holding the item as *trading stock. (If you do not make the election by then because you do not realise until later that you started to hold the item as trading stock, you must make the election as soon as is reasonable after realising that.)
However, the Commissioner can allow you to make it later (in either case).
How to work out the item’s cost
(3) The item’s cost is what would have been its cost for the purposes of section 70‑45 (about valuing trading stock at the end of the income year) if it had been your *trading stock ever since you last acquired it. In working that out, disregard section 70‑55 (about acquiring live stock by natural increase).
(4) However, if you last acquired the item for no consideration, its cost is worked out using this table:
|
Cost of item acquired for no consideration |
||
|
Item |
In this case: |
The cost is: |
|
1 |
you acquired the item during or after the 1998‑99 income year, and the acquisition involved a *CGT event |
the item’s *market value when you last acquired it |
|
2 |
you acquired the item before or during the 1997‑98 income year, and the acquisition involved a disposal of the item to you within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936 |
the item’s *market value when you last acquired it |
|
3 |
your acquisition of the item involved the item: (a) devolving to you as someone’s *legal personal representative; or (b) *passing to you as a beneficiary in someone’s estate; and, if a *CGT event had happened in relation to the item just before you started holding it as *trading stock, a *capital gain or *capital loss could have resulted that would have been taken into account in working out your *net capital gain or *net capital loss for the income year of the event |
(a) if the person died during or after his or her 1998‑99 income year—the dead person’s *cost base for the item just before his or her death; or (b) if the person died before or during his or her 1997‑98 income year—the dead person’s indexed cost base (within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936) for the item just before his or her death (but worked out disregarding former section 160ZG (which affects the indexed cost base for a non‑listed personal use asset) of that Act) |
|
4 |
any other case where you last acquired the item for no consideration |
a nil amount |
Exceptions
(5) Subsection (1) does not apply if you start holding any of the following as *trading stock because they are severed from land:
(a) standing or growing crops;
(b) crop‑stools;
(c) trees planted and tended for sale.
(This does not prevent subsection (1) from applying to a severed item that you later start holding as *trading stock.)
Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936:
· subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)
· paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).
Subdivision 70‑C—Accounting for trading stock you hold at the start or end of the income year
Table of sections
General rules
70‑35 You include the value of your trading stock in working out your assessable income and deductions
70‑40 Value of trading stock at start of income year
70‑45 Value of trading stock at end of income year
Special valuation rules
70‑50 Valuation if trading stock obsolete etc.
70‑55 Working out the cost of natural increase of live stock
70‑60 Valuation of horse breeding stock
70‑65 Working out the horse opening value and the horse reduction amount
70‑70 Valuing interests in FIFs
(1) If you carry on a *business, you compare:
(a) the *value of all your *trading stock on hand at the start of the income year; and
(b) the *value of all your *trading stock on hand at the end of the income year.
Note: You may not need to do this stocktaking if you are an STS taxpayer: see Division 328.
(2) Your assessable income includes any excess of the *value at the end of the income year over the value at the start of the income year.
(3) On the other hand, you can deduct any excess of the *value at the start of the income year over the value at the end of the income year.
70‑40 Value of trading stock at start of income year
(1) The value of an item of *trading stock on hand at the start of an income year is the same amount at which it was taken into account under this Division or Subdivision 328‑E (about trading stock for STS taxpayers) at the end of the last income year.
(2) The value of the item is a nil amount if the item was not taken into account under this Division or Subdivision 328‑E (about trading stock for STS taxpayers) at the end of the last income year.
70‑45 Value of trading stock at end of income year
(1) You must elect to value each item of *trading stock on hand at the end of an income year at:
(a) its *cost; or
(b) its market selling value; or
(c) its replacement value.
Note: An item’s market selling value at a particular time may not be the same as its market value.
(1A) In working out the *cost, market selling value or replacement value of an item of *trading stock (other than an item the *supply of which cannot be a *taxable supply) at the end of an income year, disregard an amount equal to the amount of the *input tax credit (if any) to which you would be entitled if:
(a) you had *acquired the item at that time; and
(b) the acquisition had been solely for a *creditable purpose; and
Note: Some assets, such as shares, cannot be the subject of a taxable supply.
(2) The rest of this Subdivision deals with cases where the normal operation of this section is modified, or where a different valuation method may or must be used. The table sets out other cases where that happens because of provisions outside this Subdivision.
|
Rules about the value of trading stock |
||
|
Item |
For this situation: |
See: |
|
2 |
In working out the attributable income of a non‑resident trust estate, trading stock is taken to be valued at cost. |
Section 102AAY of the Income Tax Assessment Act 1936 |
|
3 |
In working out the attributable income of a controlled foreign corporation, the corporation must value at cost. |
Section 397 of the Income Tax Assessment Act 1936 |
|
4 |
Some anti‑avoidance provisions reduce the amount that is taken to be the cost of an item of trading stock. |
Subsections 52A(7), 82KH(1N), 82KL(6) and 100A(6B) of the Income Tax Assessment Act 1936 |
|
5 |
The value of the item at the end of an income year may be the same as at the start of the year for an STS taxpayer |
Subdivision 328‑E of this Act |
70‑50 Valuation if trading stock obsolete etc.
You may elect to value an item of your *trading stock below all the values in section 70‑45 if:
(a) that is warranted because of obsolescence or any other special circumstances relating to that item; and
(b) the value you elect is reasonable.
70‑55 Working out the cost of natural increase of live stock
(1) The cost of an animal you hold as *live stock that you acquired by natural increase is whichever of these you elect:
(a) the actual cost of the animal;
(b) the cost prescribed by the regulations for each animal in the applicable class of live stock.
(2) However, if you incur a service fee for insemination and, as a result, acquire a horse by natural increase, its cost is the greater of:
(a) the amount worked out under subsection (1); and
(b) the part of the service fee that is attributable to your acquiring the horse.
(3) An election under this section must be made by the time you lodge your *income tax return for the income year in which you acquired the animal. However, the Commissioner can allow you to make it later.
70‑60 Valuation of horse breeding stock
(1) For a horse at least 3 years old that you acquired under a contract and hold for breeding, you can elect a value other than the values in section 70‑45.
(2) The value you can elect for the horse at the end of the income year is worked out using the table:
|
Value of horse breeding stock |
|
|
If the horse is: |
... you can value it at this amount: |
|
female 12 years or over |
$1 |
|
any other horse |
the *horse opening value less the *horse reduction amount (see section 70‑65) |
(3) However, if the value worked out under subsection (2) would be less than $1, you must elect the value of $1.
(4) A horse’s age is to be measured in whole years as at the end of the relevant income year. The age of a horse not born on 1 August is determined as if the horse had been born on the last 1 August before it was actually born.
70‑65 Working out the horse opening value and the horse reduction amount
(1) The horse opening value is:
(a) if the horse has been your *live stock ever since the start of the income year—its *value as *trading stock at the start of the income year; or
(b) otherwise—the horse’s base amount (see subsection (3)).
(2) The horse reduction amount is worked out as follows:
(a) for female horses under 12 years of age:
(b) for any male horse:
(3) In this section:
base amount is the lesser of:
(a) the horse’s *cost; and
(b) the horse’s *adjustable value when it most recently became your *live stock.
breeding days is the number of whole days in the income year since you most recently began to hold the horse for breeding.
nominated percentage is any percentage, up to 25%, you nominate when you make the election in section 70‑60.
reduction factor is the greater of:
(a) 3; and
(b) the difference between 12 and the horse’s age when you most recently began to hold it for breeding.
70‑70 Valuing interests in FIFs
(1) You must value at its cost an item of your *trading stock that is an interest in a *foreign investment fund (a *FIF).
Note: For special rules about valuing an interest in a FIF that was an item of your trading stock on hand at the start of the 1991‑92 income year, see section 70‑70 of the Income Tax (Transitional Provisions) Act 1997.
(2) However, you may elect to value all your interests in *FIFs at their *market value instead. If you make this election, then for the income year of the election, and for all later income years, you must value at their market value all your interests in FIFs.
(3) You can only make this election before you lodge your *income tax return for the first income year in which a *notional accounting period of any *FIF you have an interest in ends.
Subdivision 70‑D—Assessable income arising from disposals of trading stock and certain other assets
70‑75 What this Subdivision is about
Your assessable income includes the market value of an item of trading stock if you dispose of it outside the ordinary course of business or it ceases to be trading stock in certain other circumstances.
This Subdivision treats certain other assets in the same way as trading stock.
Table of sections
70‑80 Why the rules in this Subdivision are necessary
Operative provisions
70‑85 Application of this Subdivision to certain other assets
70‑90 Assessable income on disposal of trading stock outside the ordinary course of business
70‑95 Purchase price is taken to be market value
70‑100 Notional disposal when you stop holding an item as trading stock
70‑105 Death of owner
70‑110 You stop holding an item as trading stock but still own it
70‑115 Compensation for lost trading stock
70‑80 Why the rules in this Subdivision are necessary
(1) When you dispose of an item of your trading stock in the ordinary course of business, what you get for it is included in your assessable income (under section 6‑5) as ordinary income.
(2) If an item stops being your trading stock for certain other reasons, an amount is generally included in your assessable income to balance the reduction in trading stock on hand, which is a transaction on revenue account.
(3) The other reasons for an item to stop being your trading stock are:
(a) you dispose of it outside the ordinary course of *business; or
(b) interests in it change; or
(c) you die; or
(d) you stop holding it as trading stock.
70‑85 Application of this Subdivision to certain other assets
This Subdivision (except section 70‑115) applies to certain assets of a *business as if they were *trading stock on hand of the entity that carries on that business. The assets are:
(a) standing or growing crops; and
(b) crop‑stools; and
(c) trees planted and tended for sale.
Note: Section 70‑115 assesses insurance or indemnity amounts for lost trading stock.
70‑90 Assessable income on disposal of trading stock outside the ordinary course of business
(1) If you dispose of an item of your *trading stock outside the ordinary course of a *business:
(a) that you are carrying on; and
(b) of which the item is an asset;
your assessable income includes the *market value of the item on the day of the disposal.
(1A) If the disposal is the giving of a gift of property by you for which a valuation under section 30‑212 is obtained, you may choose that the *market value is replaced with the value of the property as determined under the valuation. You can only make this choice if the valuation was made no more than 90 days before or after the disposal.
(2) Any amount that you actually receive for the disposal is not included in your assessable income (nor is it *exempt income).
Note 1: In the case of an asset covered by section 70‑85 (which applies this Subdivision to certain other assets), the disposal will usually involve disposing of the land of which the asset forms part.
Note 2: For certain disposals of live stock by primary producers, special rules apply: see Subdivision 385‑E.
Note 3: If the disposal is by way of gift, you may be able to deduct the gift: see Division 30 (Gifts).
Note 4: If the disposal is of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70‑120.
Note 5: This section and section 70‑95 also apply to disposals of certain items on hand at the end of 1996‑97 that are not trading stock but were trading stock as defined in the Income Tax Assessment Act 1936: see section 70‑10 of the Income Tax (Transitional Provisions) Act 1997.
70‑95 Purchase price is taken to be market value
If an entity disposes of an item of the entity’s *trading stock outside the ordinary course of *business, the entity acquiring the item is treated as having bought it for the amount included in the disposing entity’s assessable income under section 70‑90.
70‑100 Notional disposal when you stop holding an item as trading stock
(1) An item of *trading stock is treated as having been disposed of outside the ordinary course of *business if it stops being trading stock on hand of an entity (the transferor) and, immediately afterwards:
(a) the transferor is not the item’s sole owner; but
(b) an entity that owned the item (alone or with others) immediately beforehand still has an interest in the item.
Example: A grocer decides to take her daughters into partnership with her. Her trading stock becomes part of the partnership assets, owned by the partners equally. As a result, it becomes trading stock on hand of the partnership instead of the grocer. This section treats the grocer as having disposed of the trading stock to the partnership outside the ordinary course of her business.
Note: If the transferor is the item’s sole owner after it stops being trading stock on hand of the transferor, section 70‑110 applies instead of this section.
(2) As a result, the transferor’s assessable income includes the *market value of the item on the day it stops being *trading stock on hand of the transferor.
(3) The entity or entities (the transferee) that own the item immediately after it stops being *trading stock on hand of the transferor are treated as having bought the item for the same value on that day.
Election to treat item as disposed of at closing value
(4) However, an election can be made to treat the item as having been disposed of for what would have been its *value as *trading stock of the transferor on hand at the end of an income year ending on that day.
(5) If this election is made, this *value is included in the transferor’s assessable income for the income year that includes that day. The transferee is treated as having bought the item for the same value on that day.
(6) This election can only be made if:
(a) immediately after the item stops being *trading stock on hand of the transferor, it is an asset of a *business carried on by the transferee; and
(b) immediately after the item stops being *trading stock on hand of the transferor, the entities that owned it immediately beforehand have (between them) interests in the item whose total value is at least 25% of the item’s *market value on that day; and
(c) the *value elected is less than that market value; and
(d) the item is not a thing in action.
(7) Also, the election can only be made before 1 September following the end of the *financial year in which the item stops being *trading stock on hand of the transferor. However, the Commissioner can allow the election to be made later.
(8) An election must be in writing and signed by or on behalf of each of:
(a) the entities that own the item immediately before it stops being *trading stock on hand of the transferor; and
(b) the entities that own it immediately afterwards.
(9) If a person whose signature is required for the election has died, the *legal personal representative of that person’s estate may sign instead.
When election has no effect
(10) An election has no effect if:
(a) the item stops being *trading stock on hand of the transferor outside the course of ordinary family or commercial dealing; and
(b) the *consideration receivable by the transferor (or by any of the entities constituting the transferor) substantially exceeds what would reasonably be expected to be the consideration receivable by the entity concerned if the *market value of the item immediately before it stops being *trading stock on hand of the transferor were the *value elected under subsection (4).
(11) Consideration receivable by an entity means so much of the value of any benefit as it is reasonable to expect that the entity will obtain in connection with the item ceasing to be *trading stock on hand of the transferor.
(1) When you die, your assessable income up to the time of your death includes the *market value at that time of the *trading stock of your *business (if any).
Note: In the case of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70‑120.
(2) The entity on which the *trading stock devolves is treated as having bought it for its *market value at that time.
(3) However, your *legal personal representative can elect to have included in your assessable income (instead of the *market value) the amount that would have been the *value of the *trading stock at the end of an income year ending on the day of your death.
(4) In the case of an asset covered by section 70‑85 (which applies this Subdivision to certain other assets), your *legal personal representative can elect to have a nil amount included in your assessable income (instead of the *market value).
(5) Your *legal personal representative can make an election only if:
(a) the *business is carried on after your death; and
(b) the *trading stock continues to be held as trading stock of that business, or the asset continues to be held as an asset of that business, as appropriate.
(6) If an election is made, the entity on which the *trading stock devolves is treated as having bought it for the amount referred to in subsection (3) or (4).
(7) An election can only be made on or before the day when your *legal personal representative lodges your *income tax return for the period up to your death. However, the Commissioner can allow it to be made later.
70‑110 You stop holding an item as trading stock but still own it
If you stop holding an item as *trading stock, but still own it, you are treated as if:
(a) just before it stopped being trading stock, you had sold it to someone else (at arm’s length and in the ordinary course of business) for its *cost; and
(b) you had immediately bought it back for the same amount.
Example 1: You are a sheep grazier and take a sheep from your stock to slaughter for personal consumption. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.
Although you are also treated as having bought the sheep for the same amount, it would not be deductible because the sheep is for personal consumption.
Example 2: You stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.
You are also treated as having bought the item for the same amount, which is relevant to working out the item’s cost for capital allowance purposes (see Subdivision 40‑C) and the item’s cost base for CGT purposes (see Division 110).
Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936:
· subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)
· paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).
70‑115 Compensation for lost trading stock
Your assessable income includes an amount that:
(a) you receive by way of insurance or indemnity for a loss of *trading stock; and
(b) is not assessable as *ordinary income under section 6‑5.
Subdivision 70‑E—Miscellaneous
Table of sections
70‑120 Deducting capital costs of acquiring trees
70‑120 Deducting capital costs of acquiring trees
(1) This section gives you deductions for your capital costs of acquiring land carrying trees or of acquiring a right to fell trees.
Note: This section is included in this Division because:
· trees felled for sale, or for use in manufacture, by you will usually become your trading stock; and
· before they are felled, the trees are covered by sections 70‑90 and 70‑105 because of section 70‑85.
Land carrying trees
(2) You can deduct the amount you paid to acquire land carrying trees if:
(a) some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the *purpose of producing assessable income; or
(b) some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of *royalty; or
(c) the *market value of some or all of the trees is included in your assessable income for the income year by section 70‑90 (because you disposed of the trees outside the ordinary course of *business) or section 70‑105 (because of your death).
(It does not matter when you acquired the land.)
Note: The market value of trees is not included in your assessable income for the income year by section 70‑105 (because of your death) if your legal personal representative elects under subsection 70‑105(4) to have a nil amount included instead.
Right to fell trees
(3) You can deduct the amount you paid to acquire a right to fell trees if:
(a) some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the *purpose of producing assessable income; or
(b) some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of *royalty.
(It does not matter when you acquired the right.)
How much you can deduct for costs of acquiring land or right
(4) You can deduct for the income year so much of the amount you paid as is attributable to the trees covered by a paragraph of subsection (2) or (3).
(5) If you can deduct an amount because of paragraph (2)(c), you can also deduct for the income year so much of any other capital expenditure you incurred as is attributable to acquiring the trees covered by that paragraph (except so far as you have deducted it, or can deduct it, for any income year under a provision of this Act outside this section).
Non‑arm’s length transactions
(6) If:
(a) you can deduct an amount under this section for expenditure incurred in connection with a transaction; and
(b) the parties to the transaction did not deal with each other at arm’s length; and
(c) the amount of the expenditure is greater than the *market value of what the expenditure is for;
the amount of the expenditure is instead taken to be that market value. This has effect for the purposes of working out what you can deduct under this section.
Part 2‑42—Personal services income
This Part is about 2 issues relating to personal services income.
Division 85 limits the entitlements of individuals to deductions relating to their personal services income.
Division 86 sets out the tax consequences of individuals’ personal services income being diverted to other entities (often called alienation of the income).
These Divisions do not affect individuals or other entities that conduct personal services businesses. Division 87 defines personal services businesses.
Note: This Part may not apply until the 2002‑03 income year to participants in the prescribed payments system on 13 April 2000: see item 26 of Schedule 1 to the New Business Tax System (Alienation of Personal Services Income) Act 2000.
Table of sections
84‑5 Meaning of personal services income
84‑10 This Part does not imply that individuals are employees
84‑5 Meaning of personal services income
(1) Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).
Example 1: NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients’ equipment and software to do the work. NewIT’s ordinary income from providing the services is Ron’s personal services income because it is a reward for his personal efforts or skills.
Example 2: Trux Pty. Ltd. owns one semi‑trailer, and Tom is the only person who drives it. Trux’s ordinary income from transporting goods is not Tom’s personal services income because it is produced mainly by use of the semi‑trailer, and not mainly as a reward for Tom’s personal efforts or skills.
Example 3: Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm’s ordinary income or statutory income is Jim’s personal services income because it is produced mainly by the firm’s business structure, and not mainly as a reward for Jim’s personal efforts or skills.
(2) Only individuals can have personal services income.
(3) This section applies whether the income is for doing work or is for producing a result.
(4) The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills.
84‑10 This Part does not imply that individuals are employees
The application of this Part to an individual does not imply, for the purposes of any *Australian law or any instrument made under an Australian law, that the individual is an employee.
Division 85—Deductions relating to personal services income
85‑1 What this Division is about
This Division sets out amounts, relating to personal services income, that an individual cannot deduct. In particular, deductions that are unavailable to an employee are similarly unavailable to an individual who has personal services income and who is not an employee.
However, this Division does not apply if the individual is conducting a personal services business or receives the income as an employee or office holder.
Table of sections
85‑5 Object of this Division
85‑10 Deductions for non‑employees relating to personal services income
85‑15 Deductions for rent, mortgage interest, rates and land tax
85‑20 Deductions for payments to associates etc.
85‑25 Deductions for superannuation for associates
85‑30 Exception: personal services businesses
85‑35 Exception: employees, office holders and religious practitioners
85‑40 Application of Subdivision 900‑B to individuals who are not employees
The object of this Division is to ensure that individuals who are not conducting *personal services businesses cannot deduct certain amounts (such as amounts that employees cannot deduct).
Note: This Division also affects the extent to which a personal services entity is entitled to deductions relating to gaining or producing an individual’s personal services income: see section 86‑60.
85‑10 Deductions for non‑employees relating to personal services income
(1) You cannot deduct under this Act an amount to the extent that it relates to gaining or producing that part of your *ordinary income or *statutory income that is your *personal services income if:
(a) the income is not payable to you as an employee; and
(b) you would not be able to deduct the amount under this Act if the income were payable to you as an employee.
Example: Ruth is an architect who works as an independent contractor for one firm. She is not conducting a personal services business. On most days she travels from her home to the business premises of the firm, where she does her work. She also has a home office, where she does some of her work.
This section confirms that Ruth cannot deduct her expenses of travelling between her home and the firm’s premises because she could not deduct them if she were an employee.
(2) Subsection (1) does not stop you deducting an amount to the extent that it relates to:
(a) gaining work; or
Examples: Advertising, tendering and quoting for work.
(b) insuring against loss of your income or your income earning capacity; or
Examples: Sickness, accident and disability insurance.
(c) insuring against liability arising from your acts or omissions in the course of earning income; or
Examples: Public liability insurance and professional indemnity insurance.
(d) engaging an entity that is not your *associate to perform work; or
(e) engaging your *associate to perform work that forms part of the principal work for which you gain or produce your *personal services income; or
(f) contributing to a fund in order to obtain superannuation benefits for yourself or for your dependants in the event of your death; or
Note: For deductions for superannuation contributions: see Subdivision AB of Division 3 of Part III of the Income Tax Assessment Act 1936.
(g) meeting your obligations under a *workers’ compensation law to pay premiums, contributions or similar payments or to make payments to an employee in respect of *compensable work‑related trauma; or
(h) meeting your obligations, or exercising your rights, under the *GST law.
85‑15 Deductions for rent, mortgage interest, rates and land tax
You cannot deduct under this Act an amount of rent, mortgage interest, rates or land tax:
(a) for some or all of your residence; or
(b) for some or all of your *associate’s residence;
to the extent that the amount relates to gaining or producing your *personal services income.
85‑20 Deductions for payments to associates etc.
(1) You cannot deduct under this Act:
(a) any payment you make to your *associate; or
(b) any amount you incur arising from an obligation you have to your associate;
to the extent that the payment or amount relates to gaining or producing your *personal services income.
(2) Subsection (1) does not stop you deducting a payment or amount to the extent that it relates to engaging your *associate to perform work that forms part of the principal work for which you gain or produce your *personal services income.
(3) An amount or payment that you cannot deduct because of this section is neither assessable income nor *exempt income of your *associate.
85‑25 Deductions for superannuation for associates
(1) You cannot deduct under this Act a contribution you make to a fund or an *RSA to provide for superannuation benefits payable for your *associate, to the extent that the associate’s work for you relates to gaining or producing your *personal services income.
(2) Subsection (1) does not stop you deducting a contribution to the extent that your *associate’s performance of work forms part of the principal work for which you gain or produce your *personal services income.
(3) However, if subsection (2) applies, your deduction cannot exceed the amount you would have to contribute, for the benefit of the *associate, to a *complying superannuation fund or an *RSA in order to ensure that you did not have any *individual superannuation guarantee shortfalls in respect of the associate for any of the *quarters in the income year.
(4) To work out the amount you would have to contribute for the purposes of subsection (3), the *associate’s salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that neither section 85‑10 nor 85‑20 prevent you deducting for salary or wages you paid to the associate.
Note: See paragraph 85‑10(2)(e) for deductions relating to employment of associates.
85‑30 Exception: personal services businesses
This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to income from you conducting a *personal services business.
85‑35 Exception: employees, office holders and religious practitioners
(1) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to *personal services income that you receive as:
(a) an employee; or
(b) an individual referred to in paragraph 12‑45(1)(a), (b), (c), (d) or (e) (about payments to office holders) in Schedule 1 to the Taxation Administration Act 1953.
(2) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to a payment referred to in section 12‑47 in Schedule 1 to the Taxation Administration Act 1953 (payments to *religious practitioners).
85‑40 Application of Subdivision 900‑B to individuals who are not employees
This Division does not have the effect of applying Subdivision 900‑B (about substantiating work expenses) to an individual who is not an employee.
Division 86—Alienation of personal services income
Table of Subdivisions
Guide to Division 86
86‑A General
86‑B Entitlement to deductions
86‑1 What this Division is about
Income from the rendering of your personal services is treated as your assessable income if it is the income of another entity and is not promptly paid to you as salary.
However, this does not apply if the other entity is conducting a personal services business.
There are limits to the other entity’s entitlement to deductions to offset against the amount treated as your income.
86‑5 A simple description of what this Division does
(1) This diagram shows an example of a simple arrangement for the alienation of personal services income.
Note 1: Solid lines indicate actual payments between the parties. Dotted lines indicate other interactions between the parties.
Note 2: This Division also applies to different and more complex arrangements.
(2) This Division has the effect of attributing the personal services entity’s income from the personal services to the individual who performed them (unless the income is promptly paid to the individual as salary). Certain deduction entitlements of the personal services entity can reduce the amount of the attribution.
Table of sections
86‑10 Object of this Division
86‑15 Effect of obtaining personal services income through a personal services entity
86‑20 Offsetting the personal services entity’s deductions against personal services income
86‑25 Apportionment of entity maintenance deductions among several individuals
86‑27 Deduction for net personal services income loss
86‑30 Assessable income etc. of the personal services entity
86‑35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes
86‑40 Salary payments shortly after an income year
The object of this Division is to ensure that individuals cannot reduce or defer their income tax (and other liabilities) by alienating their *personal services income through companies, partnerships or trusts that are not conducting *personal services businesses.
Note: The general anti‑avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 may still apply to cases of alienation of personal services income that fall outside this Division.
86‑15 Effect of obtaining personal services income through a personal services entity
Amounts included in your assessable income
(1) Your assessable income includes an amount of *ordinary income or *statutory income of a *personal services entity that is your *personal services income.
Example: Continuing example 1 in section 84‑5: Assume that NewIT only provides services to one client. Ron’s assessable income includes ordinary income of NewIT from providing the computer programming services, because the income is Ron’s personal services income.
Note: The amount included in your assessable income can be reduced by certain deductions to which the personal services entity is entitled: see section 86‑20.
(2) A personal services entity is a company, partnership or trust whose *ordinary income or *statutory income includes the *personal services income of one or more individuals.
Exception: personal services businesses
(3) This section does not apply if that amount is income from the *personal services entity conducting a *personal services business.
Note: Even if the entity is conducting a personal services business, it is possible that some of its income is not income from conducting that business.
Exception: amounts promptly paid to you as salary or wages
(4) This section does not apply to the extent that:
(a) the *personal services entity pays that amount to you, as an employee, as salary or wages; and
(b) the payment is made before the end of the 14th day after the *PAYG payment period during which the amount became *ordinary income or *statutory income of the entity.
Note: The entity is obliged to withhold amounts from salary or wages paid before the end of that day: see section 12‑35 in Schedule 1 to the Taxation Administration Act 1953.
Exception: exempt income etc.
(5) This section only applies to the extent that that amount would be assessable income of the personal services entity if this Division did not apply.
Example: If the entity’s income includes an amount that is your personal services income for a service on which GST is payable, the amount included in your assessable income will not include the GST, because the GST is neither assessable income nor exempt income of the entity: see section 17‑5.
86‑20 Offsetting the personal services entity’s deductions against personal services income
(1) The amount of your *personal services income included in your assessable income under section 86‑15 may be reduced (but not below nil) by the amount of certain deductions to which the *personal services entity is entitled.
Note 1: Subdivision 86‑B limits a personal services entity’s entitlement to deductions.
Note 2: If the amount of the deductions exceeds the amount of the personal services income, a deduction for the excess is available to you under section 86‑27. The personal services entity cannot deduct the amount of the excess: see section 86‑87.
(2) Use this method statement to work out whether, and by how much, the amount is reduced:
Method statement
Step 1. Work out, for the income year, the amount of any deductions (other than *entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the *personal services entity is entitled that are deductions relating to your *personal services income.
Step 2. Work out, for the income year, the amount of any *entity maintenance deductions to which the *personal services entity is entitled.
Step 3. Work out the *personal services entity’s assessable income for that income year, disregarding any income it receives that is your *personal services income or the personal services income of anyone else.
Step 4. Subtract the amount under step 3 from the amount under step 2.
Note 1: Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not personal services income.
Note 2: If the personal services entity receives another individual’s personal services income, see section 86‑25.
Step 5. If the amount under step 4 is greater than zero, the amount of the reduction under subsection (1) is the sum of the amounts under steps 1 and 4.
Step 6. If the amount under step 4 is not greater than zero, the amount of the reduction under subsection (1) is the amount under step 1.
Example 1: Continuing example 1 in section 84‑5: Assume these additional facts:
· $120,000 of NewIT’s income is Ron’s personal services income;
· NewIT has deductions (including superannuation contributions) of $50,000 relating to Ron’s personal services income (step 1);
· NewIT has entity maintenance deductions of $8,000 (step 2);
· NewIT has investments that produce income. NewIT’s assessable income, disregarding Ron’s or anyone else’s personal services income, is $20,000 (step 3).
Because the step 4 amount is less than zero (‑$12,000), step 5 does not apply and, under step 6, the amount of the reduction is $50,000. Therefore the amount included in Ron’s assessable income is:
Example 2: Assume, as an alternative set of facts, that NewIT’s assessable income under step 3 was only $2,000.
The step 4 amount would have been $6,000, and, under step 5, the amount of the reduction would have been $56,000 (adding the amounts under steps 1 and 4). The amount included in Ron’s assessable income would then have been:
Note: The personal services entity’s deductions that do not relate to your personal services income and that are not entity maintenance deductions cannot reduce the amount included in your assessable income under section 86‑15.
86‑25 Apportionment of entity maintenance deductions among several individuals
If, in the income year:
(a) the amount worked out under step 4 of the method statement in section 86‑20 is greater than zero; and
Note: This happens if the entity has entity maintenance deductions that form some or all of the reduction under section 86‑20.
(b) the *ordinary income or *statutory income of the *personal services entity includes another individual’s *personal services income (as well as your personal services income); and
(c) the other individual’s personal services income is included in the other individual’s assessable income under section 86‑15;
the amount worked out under step 4 is taken to be:
where:
original step 4 amount is the amount that would be the amount worked out under step 4 if this section did not apply.
total personal services income is the sum of all the amounts of personal services income (whether your personal services income or someone else’s) that are included in the personal services entity’s ordinary income or statutory income for the income year.
your personal services income is the sum of all the amounts of your personal services income that are included in the personal services entity’s ordinary income or statutory income for the income year.
Example: Continuing example 2 in section 86‑20: Assume that Robyn, another computer consultant, joined NewIT, and NewIT’s ordinary income from providing the services also includes Robyn’s personal services income of $168,000.
Because NewIT now receives the personal services income of someone else, Ron’s step 4 amount is reduced as follows:
Under step 5 of the method statement in section 86‑20, the amount of the reduction under that section is therefore $52,500, and the amount included in Ron’s assessable income is $67,500.
86‑27 Deduction for net personal services income loss
If your personal services deduction amount exceeds your unreduced personal services income, then you can deduct the excess amount. For this purpose:
(a) your personal services deduction amount is the amount of deductions relating to your *personal services income worked out under step 1 of the method statement in section 86‑20, increased by the amount (if greater than zero) worked out under step 4 of the method statement; and
(b) your unreduced personal services income is the personal services income that would have been included in your assessable income for the income year if there had not been any reduction under section 86‑20.
86‑30 Assessable income etc. of the personal services entity
*Ordinary income or *statutory income of the *personal services entity is neither assessable income nor *exempt income of the entity, to the extent that it is *personal services income included in your assessable income under section 86‑15.
Note: Subsection 118‑20(4) prevents this income being treated as a capital gain.
(1) To the extent that a payment by the *personal services entity, or by your *associate, is a payment to you or any of your associates of:
(a) *personal services income included in your assessable income under section 86‑15; or
(b) any other amount that is attributable to that income;
the payment:
(c) is neither assessable income nor *exempt income of the entity receiving it; and
Note: Subsection 118‑20(4) prevents this income being treated as a capital gain.
(d) is not an amount that the entity making it can deduct.
Note: Section 118‑65 prevents this amount being treated as a capital loss.
Example: Continuing example 2 in section 86‑20: Assume that NewIT had paid Jill, Ron’s wife, an amount for work that is not the principal work of NewIT. The payment is made from money already included in Ron’s assessable income under section 86‑15.
The amount is neither assessable income nor exempt income of Jill, and NewIT cannot deduct the amount.
(2) To the extent that you are entitled, or any of your *associates are entitled, to a share of the net income of the *personal services entity, or of any of your associates, and that inc