Document ID: chunk:federal_register_of_legislation:C2025C00029:section:3:p33
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 3 (pt 33/35)
Character Range: 3290802–3293443

out cases where the Commissioner may disallow some or all of a deduction for a debt (or part of a debt) that is owed to a company and is written off as bad in the income year.
 (2) However, the Commissioner cannot disallow any of the deduction if the company:
 (a) fails to meet a condition in section 165‑123 (about the company maintaining the same owners) in respect of the *first continuity period or the *second continuity period; but
 (b) meets the condition in section 165‑126 by satisfying the *business continuity test under section 165‑210.

175‑85  First case: income or capital gain injected into company because of available bad debt
 (1) The Commissioner may disallow some or all of the deduction if the company would not have had some or all (the injected amount) of its assessable income or *capital gains for the income year if:
 (a) the debt had not been incurred; and
 (b) the debt (or the relevant part of the debt) had not been written off (or able to be written off) as bad.
 (2) However, the Commissioner cannot disallow any of the deduction if the *continuing shareholders will benefit from the company having the injected amount to an extent that the Commissioner thinks fair and reasonable having regard to their respective rights and interests in the company.
Note: Section 175‑100 allows the Commissioner to disallow some or all of a deduction of an insolvent company.
 (3) The continuing shareholders are:
 (a) all of the persons who had *more than 50% of the voting power in the company throughout the *first continuity period and the *second continuity period; and
 (b) all of the persons who had rights to *more than 50% of the company's dividends throughout the *first continuity period and the *second continuity period; and
 (c) all of the persons who had rights to *more than 50% of the company's capital distributions throughout the *first continuity period and the *second continuity period.
To find out who they were, apply whichever tests are applied in order to determine whether the company can deduct the debt (or the relevant part of the debt) in the first place.
Note 1: See section 165‑123 (about the company maintaining the same owners).
Note 2: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

175‑90  Second case: someone else obtains a tax benefit because of bad debt deduction available to company
 (1) The Commissioner may disallow some or all of the deduction if:
 (a) a person has obtained or will obtain a tax benefit in connection with a *scheme; and