The definition of "revenue account property" in
the Income Tax Act 1994 (1994 Act) states:"revenue account
property" means . property in respect of which any amount
derived on disposition would be gross income of the person other
than under section EG 19:"
"Revenue account property" is defined in the Income Tax Act
2004 (2004 Act) as:
"revenue account property, for a person, means - .
(b) property that would produce income for the person if they
disposed of it (not including income under section EE 41 (Effect
of disposal or event)."
The definition of "revenue account property" in the Income
Tax Act 2007 (2007 Act) is similar to the 2004 Act definition.
The 2007 Act definition states:
"revenue account property, for a person, means - .
(b) property that would produce income for the person if they
disposed of it (not including income under section EE 41 (Effect
of disposal or event)."
The issue is that under the same scenario a property can be
revenue account property under one definition but not the other.
For example, a person purchased a product with the purpose of
selling them but subsequently the market for that particular
product collapses and the product becomes valueless.
Under the 1994 Act definition, a property is a revenue
account property if any amount derived on disposal would be
gross income of the person. In this example, the product would
be revenue account property on the basis that an amount would be
gross income when the product is sold.
Under the 2004 Act and 2007 Act definitions, revenue account
property is property that would produce income for the person if
they disposed of it. In this example, the product would not be
revenue account property as no income would be produced on the
disposal as the product has become valueless due to the collapse
of the market.
Therefore, in the above example, the product would be revenue
account property under the 1994 Act definition but not under the
definition in the 2004 and 2007 Act. Consequently, the person
would be allowed a deduction for the cost of the product under
section DJ 13 of the 1994 Act but a deduction is not allowed
under section DB 17 of the 2004 Act or section DB 23 of the 2007
as the product is not considered revenue account property.
We understand that the 1994 definition was replaced by the
2004 definition in the rewrite of the 1994 Act. It appears that
there is no commentary on the policy reason behind the change.
The change in the wording of the definition is not an identified
change in the legislation as it is not listed in Schedule 51 of
the 2007 Act or Schedule 22A of the 2004 Act.
We would like clarification on the policy reason for
replacing the 1994 Act definition with the 2004 Act definition
and whether it was an intended change.
