Table of Subdivisions
41-A Guide to Division 41 (Roll-over relief for related entities)
41-B Common rule 2 (Non-arm’s length transactions)
41-C Common rule 3 (Anti-avoidance provisions relating to the
ownership of property)
Subdivision 41-A—Common rule 1 (Roll-over relief for related entities)
41-10 What this Common rule is about
This Rule tells you when roll-over relief can be obtained to delay a balancing adjustment in relation to the disposal of property. It also tells you what the roll-over relief consists of.
Table of sections
Operative provisions
41-15 When is roll-over relief available?
41-20 Disposals of property
41-25 How are the balancing adjustment provisions affected?
41-30 What is the effect of the roll-over on the transferor’s and transferee’s entitlement to a deduction?
41-35 Subsequent applications of this Common rule—relief available even if subsequent transferor got no deduction
41-40 Subsequent disposal—modify the balancing adjustment accordingly
41-45 Commissioner may amend assessment after recoupment despite section 170 of the Income Tax Assessment Act 1936
41-15 When is roll-over relief available?
This Common rule applies in relation to the disposal of property in the 1997-98 income year or a later income year by one entity (the transferor) to another entity (the transferee) in the circumstances set out in section 41-20.
(1) Roll-over relief is available if:
(a) the transferor can deduct an amount for that income year, or has deducted or can deduct an amount for an earlier income year, in respect of the property under the rules for the *capital allowance; and
(b) if the transferor is not a partnership—section 160ZZM, 160ZZMA, 160ZZN or 160ZZO of the Income Tax Assessment Act 1936:
(i) applies to the disposal; or
(ii) if the property is a *motor vehicle covered by paragraph 82AF(2)(a) of that Act—would apply to the disposal if a reference in those sections to an asset included a reference to a motor vehicle of that kind; and
(c) if the transferor is a partnership—the property is partnership property and section 160ZZNA of the Income Tax Assessment Act 1936:
(i) applies to the disposal, by all of the partners, of their interests in the property; or
(ii) if the property is a *motor vehicle covered by paragraph 82AF(2)(a) of that Act—would apply to the disposal, by all of the partners, of their interests in the property if a reference in that section to an asset included a reference to a motor vehicle of that kind.
Note: If roll-over relief is available, there are certain record keeping requirements that arise out of the disposal: see section 262A of the Income Tax Assessment Act 1936.
(2) Roll-over relief is also available if the transferor and the transferee jointly elect for it under subsection 330-520(4).
Note 1: Section 330-520 is about partial changes of ownership.
Note 2: If the transferor and transferee do so elect, there are certain record keeping requirements that arise from the election: see section 262A of the Income Tax Assessment Act 1936.
41-25 How are the balancing adjustment provisions affected?
(1) There is no need for a balancing adjustment in relation to the disposal. Disregard any rule for the *capital allowance that requires one.
Note: If there is a later disposal of the property where roll-over relief is not available, section 41-40 tells you how the balancing adjustment is affected.
(2) If roll-over relief is available in relation to 2 or more disposals of the same property, this section is applied to each of the disposals in succession.
41-30 What is the effect of the roll-over on the transferor’s and transferee’s entitlement to a deduction?
Transferor loses entitlement to a deduction
(1) If, assuming the disposal had never happened, the rules for the *capital allowance would have entitled the transferor to a deduction of a particular amount in respect of capital expenditure in respect of the property for that income year or a later income year, then the transferor loses the entitlement.
Transferee gains entitlement to a deduction
(2) To gain the entitlement, the transferee must satisfy the rules for the *capital allowance in relation to the income year for which the transferee claims the deduction under those rules.
Note: For expenditure that is written off over a number of income years, the transferee is only entitled to a deduction of a particular amount in respect of the property for the balance of the transferor’s write off period.
(3) If roll-over relief is available in relation to 2 or more disposals of the same property, this section is applied to each of the disposals in succession.
41-35 Subsequent applications of this Common rule—relief available even if subsequent transferor got no deduction
If, apart from this section, this Common rule has applied to the disposal of the property to the transferee, then, in working out whether this Common rule applies to a subsequent disposal of the property by:
(a) the transferee; or
(b) one or more subsequent transferees;
this Common rule has effect as if paragraph 41-20(1)(a) (which deals with deductions) were omitted.
41-40 Subsequent disposal—modify the balancing adjustment accordingly
(1) If, after the disposal of the property to the transferee:
(a) the property is lost or destroyed; or
(b) the transferee disposes of the property in circumstances where this Common rule does not apply to the disposal; or
(c) the transferee stops using the property for purposes that qualify expenditure on the property for a deduction under the rules for the *capital allowance;
the balancing adjustment is affected in 2 ways.
Transferee taken to have inherited transferor’s deductions
(2) First:
(a) the total amounts deducted or deductible by the transferor, under the rules for the *capital allowance, in relation to the property; or
(b) if there have been 2 or more prior applications of this Common rule—the total amounts deducted or deductible by the prior transferors, under the rules for the *capital allowance, in relation to the property;
are taken to have been deducted or deductible by the transferee, under the rules for the capital allowance, in relation to the property.
Transferee taken to have incurred transferor’s total deductible capital expenditure
(3) Second:
(a) the total capital expenditure (of a kind that qualifies for a deduction under the rules for the *capital allowance) of the transferor in relation to the property; or
(b) if there have been 2 or more prior applications of this Common rule—the total capital expenditure (of a kind that qualifies for a deduction under the rules for the *capital allowance) of the prior transferors in relation to the property;
is taken to have been total capital expenditure (of a kind that qualifies for a deduction under the rules for the capital allowance) of the transferee in relation to the property.
41-45 Commissioner may amend assessment after recoupment despite section 170 of the Income Tax Assessment Act 1936
Section 170 of the Income Tax Assessment Act 1936 does not stop the Commissioner amending, at any time, an assessment of the transferee, if section 330-585 (which is about the recoupment of capital expenditure) has applied to:
(a) the transferor; or
(b) if there have been 2 or more prior applications of this Common rule—any of the prior transferors of the property.
Subdivision 41-B—Common rule 2 (Non-arm’s length transactions)
41-65 Non-arm’s length transactions
(1) If:
(a) a person incurs expenditure in connection with a transaction; and
(b) an amount is deductible in respect of the expenditure under the rules for the *capital allowance; and
(c) the parties to the transaction do not deal with each other at arm’s length; and
(d) 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.
(2) If:
(a) the parties to a transaction do not deal with each other at arm’s length; and
(b) the transaction is a disposal of property; and
(c) the party disposing of the property has incurred capital expenditure in respect of the property that qualified for a deduction under the rules for the *capital allowance; and
(d) that party receives an amount under the transaction that is less than the market value of what that amount is for;
that party is taken to have received that market value instead.
(3) In determining whether the parties dealt at arm’s length, consider any connection between them, as well as any other relevant circumstance.
Subdivision 41-C—Common rule 3 (Anti-avoidance provisions relating to the ownership of property)
41-85 You are taken to be owner of property for purposes of certain anti-avoidance provisions
(1) This section applies if:
(a) amounts are deductible by you in respect of property under the rules for the *capital allowance; and
(b) you are not the owner of the property for the purposes of an anti-avoidance provision listed in subsection (3).
(2) That anti-avoidance provision, to the extent that it relates to deductions under the rules for the *capital allowance, applies as if you were the owner of the property instead of any other person.
(3) The anti-avoidance provisions that subsection (1) refers to are the following:
(a) section 51AD (Deductions not allowable in respect of property under certain leveraged arrangements) of the Income Tax Assessment Act 1936;
(b) Division 16D (Certain arrangements relating to the use of property) of Part III of the Income Tax Assessment Act 1936.
[The next Division is Division 43.]
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