ATO ID 2014/34: Section 82KK: anti-avoidance - supply of goods or provision of services by an associate
Date of decision: 22 October 2014
Business line: Private Groups and High Wealth Individuals

Issue
Does the anti-avoidance provision of subsection 82KK(2) of the Income Tax Assessment Act 1936 (ITAA 1936) have application to a loss or outgoing that the taxpayer incurs in respect of the provision of legal services by an associate?

Decision
Yes. Subsection 82KK(2) of the ITAA 1936 applies to a loss or outgoing that a taxpayer incurs in respect of the provision of legal services by the associate.

Facts
During the 2014 income year an associate of the taxpayer provided legal services to the taxpayer. The associate issued an invoice for their services to the taxpayer in the same income year. The taxpayer is on accruals basis of accounting. The associate is on a cash basis, and will accordingly return the income in the income year received. The preconditions in subsections 82KK(1) and 82KK(5) of the ITAA 1936 as well as other preconditions in subsection 82KK(2) of the ITAA 1936 are satisfied.

Reasons for decision
Summary: Subsection 82KK(2) of the ITAA 1936 has application in relation to the supply of goods or services where the supply of goods or the provision of services to which the loss or outgoing applies occurs in the same income year. Subsection 82KK(2) of the ITAA 1936 excludes losses or outgoings where the loss or outgoing is in respect of the supply of goods or the provision of services at a time that occurs after, or during a period that occurs after or extends beyond, the end of the relevant year of income. Paragraph 82KK(2)(a) of the ITAA 1936 does not exclude the application of subsection 82KK(2) to the 'supply of goods or the provision of services' altogether. In this case: Therefore, the anti-avoidance provision of subsection 82KK(2) of the ITAA 1936 applies to the taxpayer.

Legislative references: Income Tax Assessment Act 1936 subsection 82KK(1) subsection 82KK(2) subsection 82KK(5) paragraph 82KK(2)(a)
Subject references: Anti avoidance Legal services Associate