Section DB 31 — Income Tax Act 2007: Bad debts

DB 31 Bad debts No deduction (with exception) (1) A person is denied a deduction in an income year for a bad debt, except to the extent to which— (a) the debt is written off as bad in the income year; and (b) in the case of the bad debts described in subsections (2) to (5), the requirements of the relevant subsection are met. Deduction: financial arrangement debt: amount of income (2) A person who derives assessable income from a financial arrangement to which the financial arrangements rules apply is allowed a deduction for an amount owing under the financial arrangement, but only to the extent to which— (a) the amount is a bad debt and the requirement of subsection (1)(a) is met; and (b) the amount is attributable to the income; and (c) subsection (5) does not limit the deduction. Deduction: financial arrangement debt: dealers in arrangements (3) A person is allowed a deduction for an amount owing under a financial arrangement to which the financial arrangements rules apply, but only to the extent to which— (a) the amount is a bad debt and the requirement of subsection (1)(a) is met; and (b) the person carries on a business for the purpose of deriving assessable income that includes dealing in or holding financial arrangements that are the same as, or similar to, the financial arrangement; and (c) the person is not associated with the person owing the amount written off; and (d) subsection (5) does not limit the deduction. Deduction: financial arrangement debt: dealers in property or services sold (4) A person is allowed a deduction for an amount owing under a financial arrangement to which the financial arrangements rules apply, but only to the extent to which— (a) the amount is a bad debt and the requirement of subsection (1)(a) is met; and (b) the financial arrangement is an agreement for the sale and purchase of property or services; and (c) the person carries on a business of dealing in the property or services that are the subject of the agreement; and (d) the person carries on the business for the purpose of deriving assessable income; and (e) subsection (5) does not limit the deduction. Deduction: bad debt representing loss already offset (5) A person is allowed a deduction for a bad debt only to the extent to which it is more than the total of the amounts offset under section IC 1 (Company A making tax loss available to company B) that are described in paragraphs (e) and (f) if— (a) the person writing off the amount of debt is a company ( company A ); and (b) the debt is owed to it by another company ( company B ); and (c) company B— (i) itself uses the amount giving rise to the debt; or (ii) uses it to fund directly or indirectly another company ( company C ) that uses the amount; and (d) company B or company C has a tax loss, in the calculation of which the amount used is taken into account; and (e) company A, or a company that is part of the same group of companies as company A at any time in the income year in which company B or company C has the tax loss, offsets an amount for the tax loss under section IC 1 ; and (f) the offset is in a tax year before the tax year that corresponds to the income year in which company A writes off the amount of debt, but not before the 1993–94 tax year. Link with subpart DA (6) The link between this section and subpart DA (General rules) is as follows: (a) subsection (1) overrides the general permission; and (b) for subsections (2) to (5),— (i) they supplement the general permission, to the extent to which they allow a deduction that is denied under the general permission; and (ii) they override the general permission, to the extent to which they deny a deduction that is allowed under the general permission; and (iii) the other general limitations still apply. Defined in this Act: agreement for the sale and purchase of property or services , amount , assessable income , associated person , business , company , deduction , financial arrangement , financial arrangements rules , general limitation , general permission , group of companies , income year , supplement , tax loss , tax year , Compare: 2004 No 35 s DB 23