Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 26.35

You can only deduct reasonable amounts paid to related entities

  (1)   If, under another provision of this Act, you can deduct an amount for a payment you make, or for a liability you incur, to a * related entity, then you can only deduct so much of the amount as the Commissioner considers reasonable.

Note:   This section has a special operation if the payment is made, or the liability is incurred, by a partnership in which a private company is a partner: see section   65 (Payments to associated persons and relatives) of the Income Tax Assessment Act 1936 .

Meaning of related entity

  (2)   A related entity is any of the following:

  (a)   your * relative; or

  (b)   a partnership in which your relative is a partner.

  (3)   In the case of a partnership, a related entity is any of the following:

  (a)   a * relative of a partner in the partnership;

  (b)   an individual who is or has been a director of a company that is a partner in the partnership and is a * private company for the income year;

  (c)   an entity that is or has been a shareholder in a company of that kind;

  (d)   a * relative of an individual who is or has been a director or shareholder of a company of that kind;

  (e)   a beneficiary of a trust if the trustee is a partner in the partnership;

  (f)   a * relative of a beneficiary of a trust if the trustee is a partner in the partnership;

  (g)   another partnership, if a partner in the other partnership is a * relative of a partner in the first partnership.

However, a partner in a partnership is not a related entity of the partnership.

If you can't deduct, then related entity doesn't include amount as income

  (4)   To the extent that subsection   (1) stops you deducting an amount, the amount is neither assessable income, nor exempt income, of the * related entity.