Bad debts - Lecture notes 10 PDF

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Bad debts - Lecture notes 10...

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Bad debts } sec 25-35(1) – 4 Conditions must be satisfied to give rise to deductibility: 1. There must be a debt in existence. 2. The debt must have been “bad” 3. The debt (or part of it) must have been written off as bad in the income year. 4. The debt must either have been included in the taxpayer’s assessable income or be in respect of money that the taxpayer lent in the course of a business of lending money. Ø Point v FCT (1970) Ø TR 92/18: Bad Debts } Further conditions are imposed on companies – where there has been a change in ownership of a business. } Subdiv 165-C ITAA97 – The new owners must either satisfy: Ø the “continuity of ownership test”; or Ø the “same business test” Rationale: To prevent “trafficking” in companies with bad debts

sec 25-5 provides a deduction for expenditure incurred: Ø In managing the taxpayer’s “tax affairs”, i.e. income tax affairs. Ø In complying with an obligation related to tax affairs imposed by Commonwealth law. Ø On the general interest charge. Ø On a penalty payable under the GST Act Ø In obtaining a valuation from the Commissioner in relation to a gift of property. } sec 25-25(1) – Expenses incurred in borrowing money: Ø Legal fees Ø Valuation and survey fees. Ø Stamp duty and loan guarantee insurance } NB: Interest payable on money borrowed is deductible under sec 8-1 } The maximum amount deductible is determined by either: Ø The period specified in the loan contract; or

Ø 5 years from the date money was borrowed Ø Whichever is the shorter Ø NB: If borrowing expenditure...