Private ruling: Assessable recoupment
Date of advice: 23 July 2018
Published: September 2018
Ruling period: Income tax year ended 31 March 2018 | Income tax year ended 31 March 2019
Date scheme commenced: 01 April 2017

Ruling: Q1: Is the reimbursement by Company B to Company A for the costs of the Works an assessable recoupment to Company A pursuant to Subdivision 20-A of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. As the reimbursement payments are ordinary business income in the hands of Company A, they will not be assessable recoupments under Subdivision 20-A because of subsection 20-20(1) of the ITAA 1997. | Q2: Are the costs incurred by Company A to undertake the Works deductible pursuant to section 8-1 of the ITAA 1997? | A2: Yes. The costs incurred by Company A for the Realignment Works do not amount to improvements or change in character of its assets. The costs are not outgoings that are capital or of a capital nature and are therefore deductible under section 8-1 of the ITAA 1997.

Relevant facts and circumstances: Companies A and B are Australian tax resident companies. Company B, an entity unrelated to Company A, requested that Company A realign a portion of its assets (the Works). Company B will reimburse Company A in full for the costs incurred in delivering the Works. The Works will not improve or change the character of Company A’s assets.