EL 20Allocation of deductions related to bright-line disposals of residential land

1. This section applies for an income year when a person—

2. derives income under section CB 6A or CZ 39 (which relate to the bright-line test for residential land); and
3. is allowed a deduction under section DB 23 (Cost of revenue account property) in relation to the land.

4. The amount of the deduction that may be allocated to the income year must be no more than the amount calculated using the formula—

   $bright-line\; income\; +\; net\; income\; from\; land.$

   Where:

5. In the formula,—

6. bright-line income is the amount of income that the person derives for the income year under section CB 6A or CZ 39:
7. net income from land is the amount of net income that the person would have for the corresponding tax year if their only income were income under sections CB 6 to CB 14 (which relate to amounts derived from the disposals of land).

8. To the extent to which the amount of the person’s deduction is more than the amount calculated under subsection (2), the excess amount is—

9. suspended as a deduction for the income year; and
10. carried forward to a later income year in which the person derives—
    1. income referred to in subsection (1)(a):
    2. income under sections CB 6 to CB 14; and
11. added to the amount of the deduction referred to in subsection (1)(b) for the later income year.

12. Subsections (6) and (7) apply when a person disposes of land described in subsection (1)(a) to an associated person.

13. Despite subsection (2), the amount of the person’s deduction for the income year of the disposal must be no more than the amount of the bright-line income referred to in subsection (3)(a) that they derive from the disposal.

14. To the extent to which the amount of the person’s deduction under subsection (6) is more than the bright-line income derived by the person, the excess amount is treated as expenditure of the associated person incurred in acquiring the land.