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DG 16: Quarantined expenditure when asset activity negative
or “Restricted deductions for low-income generating business assets”
You could also call this:

“How to use previously set-aside money for tax deductions on assets”

This law explains how you can use money that was set aside (quarantined) in previous years because you couldn’t use it as a tax deduction. You can use this money if you earn more from an asset this year than you spend on it.

The amount you can use is the smaller of two numbers:

  1. The amount that was set aside before.
  2. The difference between what you earned from the asset and what you spent on it this year.

If you earn more from the asset than you spend, including the amount you’re now allowed to use, the extra is called an “outstanding profit balance”. You might be able to use this later.

If you spend more on the asset than you earn from it, you can’t use any of the set-aside money this year.

You can use money set aside for one asset on a different asset if:

  1. The first asset was damaged, destroyed, or lost, and you don’t have it anymore.
  2. You bought a second asset to replace the first one.
  3. The two assets are the same or very similar.

When figuring out how much you earned from the asset, don’t include any money that doesn’t get taxed.

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Next up: DG 18: Quarantined expenditure: group companies and shareholders

or “Rules for handling limited expenses in company groups and for shareholders”
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Part D Deductions
Expenditure related to use of certain assets

DG 17Allocation of amounts quarantined under section DG 16

  1. This section applies for an income year (the current year) when—

  2. a person has an amount of excess expenditure quarantined under section DG 16 in relation to an asset for an income year before the current year; and
    1. the person's income for the current year from the use of the asset is more than the amount of their deductions under sections DG 7, DG 8, and DG 11, as applicable.

      1. The amount of previously quarantined expenditure that the person is allowed as a deduction for the current year must not be more than the lesser of—

      2. the amount referred to in subsection (1)(a):
        1. the amount calculated using the formula—
            1. asset income − expenditure.

            Where:

            • In the formula,—

            • asset income is the total amount of income, other than an amount of exempt income, derived for the current year from the use of the asset:
              1. expenditure is the total amount of deductions that the person is allowed in relation to the asset for the current year under sections DG 7, DG 8, and DG 11, as applicable, and after any necessary apportionment.

                1. If the lesser amount in subsection (2) is the quarantined amount referred to in subsection (2)(a), an outstanding profit balance arises of an amount that is the difference between the amount of income for the current year and the amount of expenditure for the current year, including the quarantined amount allocated to the current year. The outstanding profit balance is available for use under section DG 19.

                2. For the purposes of the formula in subsection (2), if the amount of expenditure for the current year is greater than the amount of income for the current year, the result of the formula is treated as zero.

                3. For the purposes of subsection (1)(a), a quarantined amount that is related to an asset may be used in relation to another asset of the person if—

                4. the first asset is damaged, destroyed, or lost, and is no longer held by the person; and
                  1. a second asset is acquired to replace the first asset; and
                    1. the 2 assets are identical or substantially the same.

                      Notes
                      • Section DG 17: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on , by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                      • Section DG 17(3)(a): amended, on (applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), by section 57(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                      • Section DG 17 example: amended (with effect on 1 April 2013), on , by section 59 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).