Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 230.190

When re - estimation necessary

  (1)   You re - estimate a gain or loss from a * financial arrangement under subsection   (5) if:

  (a)   the accruals method applies to the gain or loss; and

  (b)   circumstances arise that materially affect:

  (i)   the amount or value; or

  (ii)   the timing;

    of * financial benefits that were taken into account in working out the amount of the gain or loss; and

  (c)   the circumstances do not give rise to a re - estimation under section   230 - 200.

  (2)   You must re - estimate the gain or loss as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph   (1)(b), if subsection   (1) applies.

  (3)   Without limiting subsection   (1), the following are circumstances of the kind referred to in paragraph   (1)(b):

  (a)   a material change in market conditions that are relevant to the amount or value of the * financial benefits to be received or provided under the * financial arrangement;

  (b)   cash flows that were previously estimated becoming known and the difference between the cash flows that become known and the cash flows that were previously estimates is not insignificant;

  (c)   a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt;

  (d)   you have made a reassessment under section   230 - 185 in relation to gains or losses under the arrangement and you have determined on the reassessment under that section that the accruals method should continue to apply to those gains or losses.

  (3A)   You also re - estimate a gain or loss from a * financial arrangement under subsection   (5) if:

  (a)   the gain or loss is spread using the method referred to in paragraph   230 - 135(2)(b) in accordance with section   230 - 140 (effective interest method); and

  (b)   you recalculate the effective interest rate in accordance with that method; and

  (c)   the terms and conditions of the arrangement provide for reset dates to occur no more than 12 months apart; and

  (d)   the maximum life of the arrangement (as determined under the terms and conditions of the arrangement) is more than 12 months.

  (3B)   You must re - estimate the gain or loss at the relevant reset date if subsection   (3A) applies.

  (4)   You do not re - estimate the gain or loss from a * financial arrangement under subsection   (5) merely because of a change in the credit rating, or the creditworthiness, of a party or parties to the arrangement.

Nature of re - estimation

  (5)   Making a re - estimation in relation to a gain or loss under this subsection involves:

  (a)   a fresh determination of the amount of the gain or loss; and

  (b)   a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of the redetermined gain or loss that has not already been allocated to intervals ending before the re - estimation is made to intervals ending after the re - estimation is made.

Basis for re - estimation

  (6)   You may make the fresh allocation of the gain or loss under subsection   (5) on these bases:

  (a)   if you satisfy subsection   (7) in relation to the * financial arrangement--by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return;

  (b)   in any case--by adjusting the rate of return and maintaining the amount to which the adjusted rate of return is to be applied.

The object to be achieved by both bases is to allow you to bring the remainder of the gain or loss based on the new estimates properly to account over the remainder of the period over which you spread the gain or loss.

Note:   The amount referred to in paragraph   (b) is the amount to which the previous rate of return was being applied immediately before the re - estimation.

  (7)   You satisfy this subsection in relation to a * financial arrangement if every re - estimation you make under subsection   (5) in relation to a gain or loss from the arrangement is made in accordance with:

  (a)   financial reports of the kind referred to in paragraph   230 - 395(2)(a) that are audited as referred to in paragraph   230 - 395(2)(b) (regardless of whether Subdivision   230 - F (reliance on financial reports method) is to apply to a particular financial arrangement); and

  (b)   * accounting standard AASB 139 (or another accounting standard prescribed by the regulations for the purposes of this paragraph).