Section 82KK of the ITAA36 is one of those section that I knew existed once but have not thought about for years. This section applies where there is a timing mismatch in payments to associates so that income is recognised in a later year than the matching deduction. When this section applies the deduction is deferred to the later year.
Well this section has raised its head again in ATOID 2014/34.
In this decision, an associate legal services to a taxpayer. And due to the way the two entities return income (one on cash and one on accruals) there was a deduction and income offset.
But the decision reminds us that for this section to apply there needs to be an agreement to make this mismatch occur. So remember, if the mismatch is more than just coincidence, the deduction will be deferred.