ATO ID 2003/848: Division 16E: appropriate method to calculate 'accrual amounts'
Date of decision: 17 February 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Can the Commissioner exercise a discretion to allow an alternative method to the one specified in Division 16E of the Income Tax Assessment Act 1936 (ITAA 1936) for calculating the 'accrual amount'?

Decision
No. Division 16E of the ITAA 1936 does not provide for the exercise of a Commissioner's discretion in relation to the use of a formula or method for calculating accrual amounts under Division 16E that differs from the formula specified in the legislation.

Facts
The taxpayer receives income under arrangements which fall within the application of Division 16E of the ITAA 1936. The taxpayer uses a commercially available software package to work out the principal and interest components of the payments received or to be received. The taxpayer claims that the use of this financial model does not result in any material difference to the amounts that should be brought to account under the formula set out in subsection 159GQB(1) in Division 16E.

Reasons for decision
Summary: Division 16E of the ITAA 1936 sets out the timing of taxation consequences for holders and issuers of certain securities. It contains a formula for working out the amount to be included in assessable income of the holder and the amount to be allowed as a deduction to the issuer. Subsection 159GQ(1) of the ITAA 1936 requires the holder to work out the accrual amount for each accrual period as determined by the operation of sections 159GQB and 159GQA respectively. Subsection 159GQB(1) sets out a formula to be used in complying with section 159GQ. There is no discretion available to the Commissioner to sanction the use of a different formula for calculating the 'accrual amount' required by section 159GQB of the ITAA 1936. Accordingly, approval to use the alternative method cannot be given.

Legislative references: Income Tax Assessment Act 1936 section 159GQ section 159GQA section 159GQB
Subject references: Securities Securities valuation Securities transactions