Income Tax Assessment Act| Apprentice Tax Practitioner Program
Table of Subdivisions
Guide to Division 20
20-A Insurance, indemnity or other recoupment for deductible expenses
20-B Disposal of a car for which lease payments have been deducted
This Division includes amounts in your assessable income to reverse the effect of certain kinds of deductions.
Table of sections
20-5 Other provisions that reverse the effect of deductions
The table lists other provisions that reverse the effect of certain kinds of deductions.
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.
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Provisions that adjust your tax position in respect of deductions |
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Item |
In this situation: |
See: |
1 |
A balancing charge for property on which you incurred expenditure deductible under a capital allowance is included in your assessable income. |
40-25 and 40-30 |
2 |
An amount you receive by way of insurance or indemnity for a loss of trading stock is included in your assessable income. |
70-115 |
3 |
Because of: • petroleum resource rent tax; or • an instalment of petroleum resource rent tax; that you have deducted or can deduct, an amount is refunded, credited, paid or applied: the amount is included in your assessable income. |
330-350(3) |
4 |
You receive a fringe benefit by way of reimbursement or payment of a loss or outgoing you incurred: your deduction for the loss or outgoing is reduced. |
51AH |
5 |
A company receives (or becomes entitled to) an amount: • in respect of the results of research and development activities on which it incurred deductible expenditure; or • attributable to it having incurred deductible expenditure on research and development activities. The amount is included in its assessable income. |
73B(27A) |
6 |
You receive an amount as recoupment of expenditure on research and development activities that you have deducted at the rate of 150%: the rate of deduction is reduced to 100%. |
73C |
7 |
You receive an amount as recoupment for your local governing body election expenses: an amount is included in your assessable income. |
74A(4) |
8 |
You receive superannuation benefits as a result of someone’s deductible contributions: the benefits are included in your assessable income. |
82AAQ |
Your assessable income may include an amount that you receive by way of insurance, indemnity or other recoupment if:
· it is for a deductible expense; and
· it is not otherwise assessable income.
Table of sections
20-15 How to use this Subdivision
What is an assessable recoupment?
20-20 Assessable recoupments
20-25 What is recoupment?
20-30 Tables of deductions for which recoupments are assessable
How much is included in your assessable income?
20-35 If the expense is deductible in a single income year
20-40 If the expense is deductible over 2 or more income years
20-45 Effect of balancing charge
20-50 If the expense is only partially deductible
20-55 Meaning of previous recoupment law
(1) First, read sections 20-20 to 20-30 to work out whether you have received an assessable recoupment. If not, you do not need to read the rest of the Subdivision.
(2) If you have received one or more assessable recoupments, sections 20-35 to 20-55 tell you how much is included in your assessable income for an income year.
Exclusion
(1) An amount is not an assessable recoupment to the extent that it is *ordinary income, or it is *statutory income because of a provision outside this Subdivision.
Insurance or indemnity
(2) An amount you receive as *recoupment of a loss or outgoing is an assessable recoupment if:
(a) you receive the amount by way of insurance or indemnity; and
(b) you can deduct an amount for the loss or outgoing for the *current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act.
Other recoupment
(3) An amount you receive as *recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if:
(a) you can deduct an amount for the loss or outgoing for the *current year; or
(b) you have deducted or can deduct an amount for the loss or outgoing for an earlier income year;
under a provision listed in section 20-30.
General
(1) Recoupment of a loss or outgoing includes:
(a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and
(b) a grant in respect of the loss or outgoing.
Amount paid for you
(2) If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing.
Amount for disposing of right to recoupment
(3) If you dispose of your right to receive an amount as *recoupment of a loss or outgoing you are taken to receive as recoupment of the loss or outgoing any amount you receive for disposing of that right. (The disposal need not be to another entity.)
Amount received that is recoupment to an unspecified extent
(4) If you receive an amount that is, to an unspecified extent, *recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable.
Balancing adjustments not covered
(5) If a balancing adjustment is required for property on which you incurred a loss or outgoing, no part of the *termination value of the property is an amount you receive as recoupment of the loss or outgoing.
Note: The termination value is usually the amount you receive because of disposal, loss or destruction of the property.
(1) This table shows the deductions under the Income Tax Assessment Act 1997 for which recoupments are assessable.
Note: References are to section numbers except where otherwise indicated.
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Provisions of the Income Tax Assessment Act 1997 |
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Item |
Provision |
Description of expense |
1.1 |
8-1 (so far as it allows you to deduct a bad debt, or part of a debt that is bad) |
bad debts |
1.2 |
8-1 (so far as it allows you to deduct rates or taxes) |
rates or taxes |
1.3 |
25-5 |
tax-related expenses |
1.4 |
25-35 |
bad debts |
1.5 |
25-45 |
embezzlement or larceny by an employee |
1.6 |
25-60 |
election expenses, Commonwealth and State elections |
1.7 |
25-75 |
rates and land taxes on premises used to produce mutual receipts |
1.8 |
330-15 |
exploration or prospecting expenditure |
1.9 |
330-80 |
allowable capital expenditure relating to mining or quarrying |
1.10 |
330-370 |
transport capital expenditure relating to mining or quarrying |
1.11 |
330-435 |
rehabilitation expenditure relating to mining or quarrying |
1.12 |
330-485 |
balancing adjustment deduction for expenditure relating to mining or quarrying |
1.13 |
Subdivision 387-A |
landcare operations expenditure |
1.14 |
Subdivision 387-B |
expenditure on facilities to conserve or convey water |
1.15 |
Subdivision 387-D |
grapevine establishment expenditure |
1.16 |
Subdivision 387-E |
mains electricity connection expenditure |
(2) This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable.
Note: References are to section numbers except where otherwise indicated.
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Provisions of the Income Tax Assessment Act 1936 |
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Item |
Provision |
Description of expense |
2.1 |
51(1) (so far as it allows you to deduct a bad debt, or part of a debt that is bad) |
bad debts |
2.2 |
51(1) (so far as it allows you to deduct rates or taxes) |
rates or taxes |
2.3 |
63 |
bad debts |
2.4 |
69 |
tax-related expenses |
2.5 |
70A(3) |
mains electricity connection expenditure |
2.6 |
71 |
embezzlement or larceny by an employee |
2.7 |
72 |
rates and land tax |
2.8 |
73B |
research and development activity expenditure |
2.9 |
74 |
election expenses, Commonwealth and State elections |
2.10 |
75AA(1) or (6) |
grape vine establishment expenditure |
2.11 |
75B(2) or (3A) |
water conservation or conveyance expenditure |
2.12 |
75D(2) |
land degradation prevention expenditure |
2.13 |
82AB |
development allowance expenditure |
2.14 |
82BB |
environmental impact study expenditure |
2.15 |
82BK |
environmental protection expenditure |
2.16 |
82Z(1) |
currency exchange loss |
2.17 |
Division 10 of |
mining and quarrying expenditure |
2.18 |
Division 10AAA of Part III |
expenditure on transport of minerals and quarry materials |
2.19 |
Division 10AA of Part III |
expenditure on prospecting and mining for petroleum |
2.20 |
124BA |
expenditure on rehabilitating mining, quarrying and petroleum sites |
2.21 |
124ZZF |
horticultural plant establishment expenditure (effective life of the plant less than 3 years) |
2.22 |
124ZZG |
horticultural plant establishment expenditure (effective life of the plant more than 3 years) |
2.23 |
628 |
drought mitigation property expenditure by a primary producer |
2.24 |
636 |
drought mitigation property expenditure by a leasing company |
(1) Your assessable income includes an *assessable recoupment of a loss or outgoing if:
(a) you can deduct the whole of the loss or outgoing for the *current year; or
(b) you have deducted or can deduct the whole of the loss or outgoing for an earlier income year.
Note 1: The operation of this section may be affected if a balancing charge has been included in your assessable income because of a deduction for the loss or outgoing: see section 20-45.
Note 2: Recoupment of a loss or outgoing for which you can deduct amounts over more than one income year is covered by section 20-40.
Note 3: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50.
Total assessed not to exceed the loss or outgoing
(2) The total of all amounts that subsection (1) includes in your assessable income for one or more income years in respect of a loss or outgoing cannot exceed the amount of the loss or outgoing.
Recoupment received before income year of the deduction
(3) If:
(a) you can deduct the whole of a loss or outgoing for the *current year; and
(b) before the current year you received an *assessable recoupment of the loss or outgoing;
your assessable income for the current year includes so much of the recoupment as subsection (1) would have included if you had instead received the recoupment at the start of the current year.
(1) This section includes an amount in your assessable income if:
(a) you receive in the *current year an *assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or
(b) you received in an earlier income year an *assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a *previous recoupment law).
(This section applies even if the recoupment was received before the first of those income years.)
Note: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50.
(2) Work out as follows how much is included in your assessable income for the *current year because of one or more *assessable recoupments of the loss or outgoing.
Note: The method statement ensures that assessable recoupments are included:
only so far as they have not already been included for an earlier income year; and
only to the extent of your total deductions to date for the loss or outgoing.
Method statement
Step 1. Add up all the *assessable recoupments of the loss or outgoing that you have received (in the *current year or earlier). The result is the total assessable recoupment.
Step 2. Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a *previous recoupment law. The result is the recoupment already assessed. (If no amount was included, the recoupment already assessed is nil.)
Step 3. Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment.
Step 4. Add up each amount that you can deduct for the loss or outgoing for the *current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing.
Note: The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45.
Step 5. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions.
Step 6. The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead.
Example: At the start of the 1997-98 income year, a mining company incurs $100,000 of expenditure on mining operations. $10,000 is deductible for the 1997-98 income year and for each of the following 9 income years under section 330-80.
In the 1997-98 income year, the company receives $20,000 as recoupment. How much is assessable for the 1997-1998 income year?
Applying the method statement:
After Step 1: the total assessable recoupment is $20,000.
After Step 2: the recoupment already assessed is nil.
After Step 3: the unassessed recoupment is:
total assessable recoupment – recoupment already assessed,
ie $20,000 – 0 = $20,000.
After Step 4: the total deductions for the loss or outgoing are $10,000.
After Step 5: the outstanding deductions are:
total deductions for the loss or outgoing – recoupment already assessed, ie $10,000 – 0 = $10,000.
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, ie $10,000.
Applying the method statement to the 1998-99 income year: a further $10,000 is included in the company’s assessable income.
(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 section 40-25.
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(3), reduce the total deductions for the loss or outgoing by the balancing charge.
Example: Continuing the example in subsection 20-40(3): during the 2000-2001 income year, the mining company:
receives a further $10,000 as recoupment of the original expenditure; and
sells its mining operations for $75,000.
As a result of the sale, a balancing charge of $5,000 is included under section 330-485 in the company’s assessable income for that income year.
How much of the recoupment amount received in the 2000-2001 income year is assessable for that income year?
Applying the method statement in subsection 20-40(3):
After Step 1: the total assessable recoupment is $30,000 (received during 1997-98 and 2000-2001).
After Step 2: the recoupment already assessed is $20,000 (for 1997-98 and 1998-99).
After Step 3: the unassessed recoupment is:
total assessable recoupment – recoupment already assessed,
ie $30,000 – $20,000 = $10,000.
After Step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 1997-98, 1998-99 and 1999-2000), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), ie $25,000.
After Step 5: the outstanding deductions are:
total deductions for the loss or outgoing – recoupment already assessed, ie $25,000 – $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, ie $5,000.
(1) This section extends the operation of section 20-35 or 20-40 (as appropriate) to a case where the total of what you can deduct under a provision (the deduction provision) for a loss or outgoing is limited to a proportion of the loss or outgoing.
(2) If you receive an *assessable recoupment of the loss or outgoing, section 20-35 or 20-40 applies as if:
(a) you had incurred only that proportion of the loss or outgoing, but could deduct the whole of that proportion under the deduction provision; and
(b) you had received only that proportion of the recoupment.
Example: You incur expenditure of $500. A provision listed in section 20-30 entitles you to deduct 10% of the expenditure ($50) over 5 years. This means you can deduct $10 in each of the 5 years.
You recoup $300 of the expenditure. This section treats you as receiving only 10% of the recoupment. Therefore, $30 is dealt with by section 20-40.
Previous recoupment law means a provision of the Income Tax Assessment Act 1936 listed in this table.
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Previous recoupment law |
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What kind of expense the provision relates to: |
1 |
26(j) (so far as it relates to an amount received for or in respect of a loss or outgoing that is an allowable deduction) |
a loss or outgoing that is an allowable deduction |
2 |
26(k) |
embezzlement or larceny by an employee |
3 |
63(3) |
bad debts |
4 |
69(8) |
tax-related expenses |
5 |
70A(5) |
mains electricity connection expenditure |
6 |
72(2) (so far as it relates to a refund of an amount allowed or allowable as a deduction) |
rates or taxes |
7 |
74(2) |
election expenses, Commonwealth and State elections |
Income Tax Assessment Act| Apprentice Tax Practitioner Program