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DB 47: Payments for remitted amounts
or “Tax deductions for payments on previously forgiven debts”
You could also call this:

“What happens if you break a promise not to work for someone else or share information”

If you agree not to work for someone else or share certain information, and you get paid for this promise, it’s called a restrictive covenant. You might have to pay money back if you break this promise.

If you break your promise and have to pay money to the person you made the promise to, you can take some of that money off your taxes. This is called a deduction.

The amount you can take off your taxes is the smaller of two things:

  1. The money you got paid for making the promise in the first place
  2. The amount you have to pay back, not including extra costs like interest or legal fees

You can only take this money off your taxes in the same year you pay it back.

This rule adds to the general permission for tax deductions and overrides the employment limitation. Other general limitations still apply.

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Next up: DB 49: Adjustment for opening values of trading stock, livestock, and excepted financial arrangements

or “Tax deductions for opening values of business assets and financial items”
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Part D Deductions
Specific rules for expenditure types

DB 48Restrictive covenant breached

  1. This section applies when an employee (person A) makes a payment to another person (person B) in the following circumstances:

  2. person A derives assessable income under section CE 9 (Restrictive covenants); and
    1. person A breaches a term of the undertaking they gave to person B; and
      1. person A is, consequently, required to make the payment to person B.

        1. Person A is allowed a deduction for the payment.

        2. The amount of the deduction is the lesser of the following:

        3. the assessable income that person A derives under section CE 9; and
          1. the payment that person A makes to person B, excluding interest, punitive damages, exemplary damages, and person B’s legal costs and other expenses.

            1. The deduction is allocated to the income year in which person A makes the payment to person B.

            2. This section supplements the general permission and overrides the employment limitation. The other general limitations still apply.

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