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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

Division 26 - Some amounts you cannot deduct, or cannot deduct in full    View history reference

Operative provisions  

SECTION 26-35  Reducing deductions for amounts paid to related entities  

 View history reference

You can only deduct reasonable amounts paid to related entities

26-35(1)  

 ITAA 36
If, under another provision of this Act, you can deduct an amount for a payment you make, or for a liability you incur, to a *related entity, then you can only deduct so much of the amount as the Commissioner considers reasonable.

Note:

This section has a special operation if the payment is made, or the liability is incurred, by a partnership in which a private company is a partner: see section 65 (Payments to associated persons and relatives) of the Income Tax Assessment Act 1936.

Meaning of related entity

26-35(2)  

 ITAA 36
A related entity is any of the following:


(a) your *relative; or


(b) a partnership in which your relative is a partner.

26-35(3)  

 ITAA 36
In the case of a partnership, a related entity is any of the following:


(a) a *relative of a partner in the partnership;


(b) an individual who is or has been a director of a company that is a partner in the partnership and is a *private company for the income year;


(c) an entity that is or has been a shareholder in a company of that kind;


(d) a *relative of an individual who is or has been a director or shareholder of a company of that kind;


(e) a beneficiary of a trust if the trustee is a partner in the partnership;


(f) a *relative of a beneficiary of a trust if the trustee is a partner in the partnership;


(g) another partnership, if a partner in the other partnership is a *relative of a partner in the first partnership.

However, a partner in a partnership is not a related entity of the partnership.

If you can't deduct, then related entity doesn't include amount as income

26-35(4)  

 ITAA 36
To the extent that subsection (1) stops you deducting an amount, the amount is neither assessable income, nor exempt income, of the *related entity.

26-35(5)  

(Repealed by No 75 of 2010)


 



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