Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 12.5

    The provisions set out in the table contain rules about specific types of deduction.

    Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold , are provisions of the Income Tax Assessment Act 1936.

 

accrued leave transfer payments
....................................	26 - 10
advance expenditure
generally ................................	82KZL to 82KZO
avoidance arrangements ......................	82KJ
when deductible ...........................	82KZM to 82KZN
Australian apprenticeship support loan
payment made to reduce a debt to the Commonwealth under the Australian Apprenticeship Support Loans Act 2014 , no deduction unless provided as fringe benefit	26 - 20
bad debts
deduction reduced because of forgiveness of debt if debtor and creditor are companies under common ownership and agree on the reduction	245 - 90
general .................................	25 - 35, 63F
companies ...............................	Subdivisions   165 - C, 166 - C and 175 - C
debt/equity swaps ..........................	63E, 63F , 709 - 220
deduction of a debt that used to be owed to a member of a consolidated group or MEC group by an entity that used to be a member of the group	Subdivisions 709 - D and 719 - I
money lenders, listed country branches, no deduction for	63D
see also losses
balancing adjustment
see buildings , capital allowances , industrial property , R&D and tax exempt entities
banks
foreign banks, Australian branches of .............	160ZZVA to 160ZZZJ
boats
deferral of deductions .......................	26 - 47
borrowing expenses
....................................	25 - 25
bribes to foreign public officials ....................	26 - 52
bribes to public officials ..........................	26 - 53
buildings
income producing buildings, capital allowances ......	Division   43
see also heritage conservation work
capital allowances
generally ................................	Division   40
balancing adjustments .......................	40 - 285(2), 40 - 370
business related costs ........................	40 - 880
electricity and telephone lines ..................	40 - 645
environmental protection activities ...............	40 - 755
exploration or prospecting ....................	40 - 80(1), 40 - 730
in - house software ....................	40 - 335, 40 - 455
intellectual property ........................	Subdivisions   40 - B and 40 - I
IRUs ..................................	Subdivision   40 - B
landcare operations .........................	40 - 630
low - value and software development pools ...	Subdivision   40 - E
mining and quarrying ........................	Subdivision   40 - H and Subdivision   40 - I
new business investment, additional deduction .......	Division   41
Petroleum Resource Rent Tax ..................	40 - 750
project pools .............................	40 - 830, 40 - 832
reducing deductions ........................	40 - 25, 40 - 27, 40 - 290 and 40 - 291
spectrum licences ..........................	Subdivision   40 - B
tax preferred use of asset ......................	Division   250
telecommunications site access rights .............	Subdivision   40 - B
trees in carbon sink forests ....................	Subdivision   40 - J
water facilities, horticultural plants, fodder storage assets and fencing assets	Subdivision   40 - F
capital gains
no deduction for an amount that would otherwise be deductible only because a net capital gain is included in assessable income	51AAA
small business retirement exemption, no deduction for payments made directly or indirectly to CGT concession stakeholder so company or trust complies with section   152 - 325	152 - 310
see also foreign residents
capital loss
net capital loss, no deduction for ................	102 - 10
net capital loss, transfer within company group .......	Subdivision   170 - B
car disposal
see capital allowances
car expenses
generally ................................	Division   28
"cents per kilometre" method ..................	Subdivision   28 - C
"log book" method .........................	Subdivisions   28 - F and 28 - G
substantiation of car expenses ..................	Division   900
see also transport expenses
car expenses of employee
employee's car expenses where car provided by employer can be used for private purposes, no deduction for .	51AF
carried interests
carried interests, no deduction for ................	118 - 21
car parking
employee's car parking expenses, no deduction for ....	51AGA
children's income
generally ................................	102AA to 102AH
taxable income of a child, deductions taken into consideration in calculating	102AD
club fees
club fees, no deduction for ....................	26 - 45
see also subscriptions to associations
Commonwealth places windfall tax
....................................	26 - 17
companies, co - operative and mutual
generally ................................	117 to 121
distributions of assessable income ...............	120
companies, private
excessive payments to shareholders directors and associates, reduced deduction	109
conservation covenants
....................................	Division   31
consolidated groups and MEC groups
assets in relation to Division   230 financial arrangement ............................	701 - 61(4)
controlled foreign companies
generally ................................	316 to 468
bad debts ................................	399A
decline in value of depreciating assets .............	398
finance share dividends ......................	394
taxes paid ...............................	393
convertible notes
see interest
copyrights
expenditure in obtaining registration ..............	Subdivisions   40 - B and 40 - I
COVID - 19
expenditure on COVID - 19 tests ...........	25 - 125
cross staple arrangements
rent from land investment .....................	25 - 115, 25 - 120
currency exchange gains and losses
see foreign exchange
death of timber owner
see timber
debt interests
certain returns in respect of debt interests ...........	25 - 85
depreciation
see capital allowances
designs
expenditure in obtaining or extending registration .....	Subdivisions   40 - B and 40 - I
disposal of depreciating assets
see capital allowances
dividends
dividends including LIC capital gain component ......	115 - 280
franking credits, companies and foreign residents ......	207 - 95(2), 207 - 95(3), 220 - 405(3)
franking credits, pooled development funds (PDFs) ....	124ZM
non - share equity interests, no deduction for return in respect of	26 - 26
unfranked non - portfolio dividends .........	46FA
education expenses
Higher Education Contribution Scheme, no deduction unless provided as fringe benefit	26 - 20
see also overseas debtors repayment levy
see also student start - up loans
see also VET student loans
election expenses
Federal and State Parliament election expenses .......	25 - 60, 25 - 70
local government election expenses, limited deduction for	25 - 65, 25 - 70
electricity connections
see capital allowances
embezzlement
see theft
employees
labour mobility programs, delayed deduction for salary, wages etc. paid to employees under program until labour mobility program withholding tax payable has been paid	26 - 25A
pensions, gratuities or retiring allowances for ex - employees	25 - 50
see also shares
entertainment
expenditure, no deduction for some ..............	Division   32
meal entertainment, calculation of deductible amount ...	51AEA to 51AEC
environment
see capital allowances
excess non - concessional contributions tax
no deduction .............................	26 - 75
exploration and prospecting
see capital allowances
family
no deduction for maintaining spouse or child .........	26 - 40
farm management deposits
see primary production
film licensed investment companies (FLICs)
see shares
financial arrangements
losses from ...............................	230 - 15(2) and (3)
see also borrowing expenses , interest , leases and securities
foreign exchange
losses ..................................	775 - 30
foreign financial entities' Australian permanent establishments
generally ................................	Part   IIIB
thin capitalisation ..........................	Subdivision   820 - FB
transfer of losses ...........................	Subdivisions   170 - A and 170 - B
forestry managed investment schemes
payments under scheme ......................	394 - 10(1)
franchise fees windfall tax
....................................	26 - 15
freight
freight for shipped goods .....................	135A
fringe benefits
contributions for private component, no deduction for ..	51AJ
employee's car expenses where car provided by employer can be used for private purposes, no deduction for	51AF
employee's car parking expenses, no deduction for ....	51AGA
expense payment fringe benefits, reduced deduction ...	51AH
general insurance companies and companies that self insure
claims paid ...............................	321 - 25 and 321 - 95
increase in value of outstanding claims liability .......	321 - 15 and 321 - 85
increase in value of unearned premium reserve .......	321 - 55
gifts
general .................................	Division   30
limit on deduction ..........................	26 - 55
see also tax avoidance schemes
horticultural plants
see capital allowances
higher education assistance	26 - 20
hybrid mismatch rules
disallowing of deductions .....................	Division   832
illegal activities	26 - 54
income equalisation deposits
see primary production
industrial property
see intellectual property and R&D
infrastructure
see tax losses
insurance with non - residents
generally ................................	141 to 148
insurance premiums, no deduction unless arrangement to pay tax	145
reinsurance, no deduction for resident carrying on insurance business in Australia for reinsurance premiums paid to a non - resident	148
intellectual property
see capital allowances
interest
convertible notes, interest on, generally ............	82L to 82T
foreign residents, debt creation involving, generally ....	159GZY to 159GZZF
foreign residents, delayed deduction for interest paid to until withholding tax payable has been paid	26 - 25
life assurance premiums, interest etc. on loans to finance, no deduction for	26 - 85
superannuation contributions, interest etc. on loans to finance, no deduction for	26 - 80
underpayment or late payment of tax, interest for .....	25 - 5
international agreements
see transfer pricing
international profit shifting
see transfer pricing
investment company
see shares
IRUs
see capital allowances
land
land degradation, see primary production
vacant land, limit on deduction ..................	26 - 102
lease document expenses
....................................	25 - 20
lease, authority, licence, permit or quota
expenditure to terminate ......................	25 - 110
leases
finance leases and arrangements, use of property if end - user an exempt public body or use outside Australia to produce exempt income	159GE to 159GO
leases of assets being put to tax preferred use ........	Division   250
leveraged arrangements, property used:
•   other than to produce assessable income; or
•   by a non - resident outside Australia; or
•   by a previous owner
....................................	51AD
payment for failure to comply with lease obligation to repair premises	25 - 15
leases of luxury cars
accrual amounts ...........................	242 - 35
adjustment amounts (lessee)	242 - 70
adjustment amounts (lessor)	242 - 65
lease payments not deductible ..................	242 - 55
payments to acquire car not deductible .............	242 - 85
leave payments
accrued leave transfer payments .................	26 - 10
no deduction for leave payments until paid ..........	26 - 10
leisure facilities
no deduction for ...........................	26 - 50
life insurance companies ..........................	Subdivision   320 - C
limited recourse debt
later payments .............................	243 - 45
later payments (replacement debt)	243 - 50
loans
see borrowing expenses , interest and securities
losses
foreign exchange ..........................	775 - 30
profit - making undertaking or scheme .......	25 - 40
property sale .............................	25 - 40
traditional securities, loss on disposal or redemption of	70B
see also tax losses
managed investment trusts
losses from carried interests ....................	275 - 200(4)
management and investment company shares
see shares
membership of associations
see subscriptions to associations
mining
Laminaria and Corallina decommissioning levy ......	26 - 96
see also capital allowances
misappropriation
by employee or agent ........................	25 - 47
mortgage
expenses of discharging a mortgage ..............	25 - 30
motor vehicles
see car expenses and leases
National Disability Insurance Scheme
National Disability Insurance Scheme expenditure .....	26 - 97
non - cash transactions
non - cash business benefits ..............	51AK
non - cash consideration, money value deemed to have been paid or given	21
non - commercial business activities
deferral of non - commercial losses ..........	Division   35
non - resident trust estates
generally ................................	102AAA to 102AAZG
modified application of depreciation provisions . ......	102AAY
modified application of trading stock provisions ......	102AAZ
no deductions allowable under Division   36 .........	102AAZC
notional sales and loans
adjustment amounts (lessee)	240 - 110(1)
adjustment amounts (lessor)	240 - 105(3)
arrangement payments, no deduction for ...........	240 - 55
notional interest ............................	240 - 50, 250 - 155
deemed loan treatment for financial benefits provided for tax preferred use of asset	Subdivision   250 - C
payments to acquire property, no deduction for .......	240 - 85
offshore banking units
generally ................................	121B to 121EL
overseas debtors repayment levy
payment made to reduce a liability to overseas debtors repayment levy under the Student Loans (Overseas Debtors Repayment Levy) Act 2015 , no deduction unless provided as fringe benefit	26 - 20
partnerships
foreign hybrid loss exposure adjustment ............ .............................	830 - 50
losses, partner's share of partnership loss ...........	90, 92
patents
expenditure relating to grant of patents, etc. .........	Subdivisions   40 - B and 40 - I
penalties
no deduction for penalties .....................	26 - 5
personal services income
alienated personal services income ...............	Subdivision   86 - B
general .................................	Division   85
political contributions and gifts
denial of certain deductions ....................	26 - 22
deductions for individuals .....................	Subdivision   30 - DA
pooled development funds (PDFs)
....................................	124ZM to 124ZZD
prepaid expenditure
see advance expenditure
primary production
farm management deposits ....................	Division   393
see also capital allowances and timber
property
arrangements relating to assets being put to tax preferred use	Division   250
arrangements relating to use of property if end - user an exempt public body or use outside Australia to produce exempt income	159GE to 159GO
leveraged arrangements, property used:
•   other than to produce assessable income; or
•   by a non - resident outside Australia; or
•   by a previous owner
....................................	51AD
sale of property, profit or loss ..................	82(2)
see also capital allowances and losses
public trading trusts
generally ................................	102M to 102T
qualifying securities
see securities
R&D	Division   355
rates and land taxes
premises used to produce mutual receipts ...........	25 - 75
rebatable benefits
no deduction for ...........................	26 - 19
registered emissions units
expenditure incurred in becoming the holder of .......	420 - 15
expenditure incurred in ceasing to hold ............	420 - 42
excess of opening over closing value of.......... ........	420 - 45
reimbursements
expense payment fringe benefits, reduced deduction ...	51AH
reinsurance
see insurance with non - residents
related entities (including relatives)
reduction of deduction for payment or liability to ......	26 - 35, 65(1B) and (1C)
repairs
general .................................	25 - 10
repair covenants, payment for non - compliance with covenant to repair under lease	25 - 15
roads
see timber
royalties
royalty, no deduction for royalty paid to a foreign resident until the withholding tax payable has been paid	26 - 25
scientific research
see R&D
securities
qualifying securities ........................	159GP to 159GZ
substituted securities ........................	23K
traditional securities, loss on disposal or redemption of	70B
shares
buy - backs .........................	159GZZZJ to 159GZZZT
cancellation of subsidiary's shares in holding company .	159GZZZC to 159GZZZI
employee share schemes, deduction for provider of ESS interests	Subdivision   83A - D
see also dividends and securities
Software
see capital allowances
spectrum licences
see capital allowances
State or Territory bodies (STBs)
body ceasing to be STB, some deductions not allowed ..	24AW to 24AYA
student start - up loans
payment made to reduce a debt to the Commonwealth under Chapter   2AA of the Social Security Act 1991 (student start - up loans), no deduction unless provided as fringe benefit	26 - 20
payment made to reduce a debt to the Commonwealth under Part   2 of the Student Assistance Act 1973 (ABSTUDY student start - up loans), no deduction unless provided as fringe benefit	26 - 20
subscriptions to associations
....................................	25 - 55
substantiation
work, travel and car expenses ..................	Division   900
superannuation
see insurance and annuity business and interest
superannuation and related business
generally ................................	Part   3 - 30
asset disposals ............................	295 - 85
death or disability benefits, deduction for future service element	295 - 470
death or disability cover, premiums for ............	295 - 465
financial assistance levy ......................	295 - 490(1) (table item   3)
superannuation contributions surcharge
no deduction .............................	26 - 60
superannuation--deductibility of contributions
generally .......... ............................	Division   290
contributions for employees etc. .................	Subdivision   290 - B
contributions to non - complying funds .......	sections   290 - 10 and 290 - 75
first home super saver scheme re - contribution .	section   290 - 168
limit on deduction ..........................	26 - 55
no deduction under any other provision of the Act .....	section   290 - 10
personal contributions .......................	Subdivision   290 - C
superannuation guarantee charge
no deduction for ...........................	26 - 95
late contribution offset , no deduction for ...........	290 - 95
superannuation supervisory levy
late lodgment amount, no deduction for ............	26 - 90
tax agent's fees
see tax related expenses
tax avoidance schemes
companies, use of tax losses or deductions to avoid tax .	Division   175
diverted assessable income ........ ............	121F to 121L
dividend stripping ..........................	177E
gifts ...................................	78A
imputation, manipulation of ....................	207 - 150(2), 207 - 150(3)
prepaid outgoings to avoid tax ..................	82KJ
recouped expenditure ........................	82KH to 82KL
tax avoidance scheme, no deduction allowable where deduction the result of	177A to 177G
trading stock .............................	70 - 20, 52A
tax exempt entities
treatment of losses and outgoings on becoming taxable ...............................	Schedule   2D
tax losses
bad debts, companies ........................	165 - 120
change of ownership or control of a company
generally .........................	Division   165
for earlier income years ...............	Subdivision   165 - A
for income year of the change ...........	Subdivision   165 - B
designated infrastructure project entities ...........	Division   415
earlier income years ........................	Division   36
life insurance companies ......................	Subdivision   320 - D
pooled development funds ....................	Subdivision   195 - A
transfer between companies in same wholly - owned group ................................	Subdivision   170 - A
tax preferred asset financing
generally ................................	Division   250
denial of capital allowance deductions in relation to asset being put to tax preferred use	250 - 145
reduction in capital allowance deductions in relation to asset being put to tax preferred use	250 - 150
tax related expenses
....................................	25 - 5
telecommunications site access rights
see capital allowances
telephone lines
see primary production
theft
by employee or agent ........................	25 - 45
thin capitalisation
disallowing of deductions .....................	Division   820
timber
death of owner of land carrying trees, deduction of the part of land cost attributable to trees	70 - 120
disposal of land carrying trees, deduction of the part of land cost attributable to trees	70 - 120
felling trees, deduction of cost of land attributable to trees felled or of cost of right to fell trees	70 - 120
see also capital allowances
trading ships
see capital allowances
trading stock
Commissioner may determine whether consideration paid for chose in action is reasonable	52A
excess of opening stock over closing value ..........	70 - 35(3)
expenditure deemed not to be of a capital nature ......	70 - 25
prepayments, when stock becomes trading stock on hand ................................	70 - 15
see also tax avoidance schemes and timber
traditional securities
see securities
training guarantee
training guarantee charge, no deduction for .........	51(7)
transfer pricing
arm's length principle for cross - border conditions between entities	Subdivision   815 - B
arm's length principle for permanent establishments ....	Subdivision   815 - C
transport expenses
incurred in travel between workplaces .............	25 - 100
travel expenses
accompanying relatives, no deduction for some travel expenses	26 - 30
travel related to the use of residential premises as residential accommodation	26 - 31
see also substantiation
trees in carbon sink forests
see capital allowances
trusts
trust income, deductions considered in calculating .....	95 to 102
see also foreign residents , non - resident trust estates and public trading trusts
uniforms
non - compulsory uniforms ..............	Division   34
uranium mining
see mining
VET student loans
payment made to reduce a debt to the Commonwealth under Part   3A of the VET Student Loans Act 2016 (VETSL debts), no deduction unless provided as fringe benefit	26 - 20
water facilities
improvements .............................	26 - 100
see also capital allowances
work expenses
see substantiation
work in progress
payment of a work in progress amount ............	25 - 95