Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 20.45

  (1)   This section may affect the operation of section   20 - 35 or 20 - 40 (as appropriate) if:

  (a)   a balancing adjustment is required for the * current year (or for an earlier income year) because you have deducted or can deduct an amount for an income year for the loss or outgoing; and

  (b)   an amount (the balancing charge ) is included in your assessable income for the * current year (or for the earlier income year) because of the balancing adjustment.

To find out about balancing adjustments, see Subdivision   40 - D.

Effect on section   20 - 35

  (2)   In applying section   20 - 35, treat each of the following as reduced by the balancing charge:

  (a)   the amount of the loss or outgoing;

  (b)   the total of what you can deduct for the loss or outgoing for the * current year, or have deducted or can deduct for an earlier income year.

Effect on section   20 - 40

  (3)   In applying the method statement in subsection   20 - 40(2), reduce the total deductions for the loss or outgoing by the balancing charge.

Example:   Continuing the example in subsection   20 - 40(2): at the start of the 2005 - 06 income year, the company:

•   receives a further $10,000 as recoupment; and
•   sells the depreciating asset for $75,000.

  As a result of the sale, a balancing adjustment of $5,000 is included under section   40 - 285 in the company's assessable income for that income year.

  How much of the recoupment amount received in the 2005 - 06 income year is assessable for that income year?

  Applying the method statement in subsection   20 - 40(2):

  After step 1: the total assessable recoupment is $30,000 (received during 2002 - 03 and 2005 - 06).

  After step 2: the recoupment already assessed is $20,000 (for 2002 - 03 and 2003 - 04).

  After step 3: the unassessed recoupment is:
total assessable recoupment minus recoupment already assessed,
i.e. $30,000 minus $20,000 = $10,000.

  After step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 2002 - 03, 2004 - 04 and 2004 - 05), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), i.e. $25,000.

  After step 5: the outstanding deductions are:
total deductions for the loss or outgoing minus recoupment already assessed, i.e. $25,000 minus $20,000 = $5,000.

  After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $5,000.