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Income tax: where invoices for the cost of goods and/or services include offset amounts of a capital nature, is the deduction under subsection 51(1) of the Income Tax Assessment Act 1936 for the cost of the goods and/or services limited to the net amount payable under the invoices?

No. The total cost of the goods and/or services is a liability incurred for the purposes of subsection 51(1). Offsets arising from any arrangements on capital account between the parties do not operate to reduce the amount of the liability incurred. Example : X lends Y $2000 (capital loan) to be repaid over a number of years. X purchases trading stock from Y to the value of $5000. Y issues an invoice to X offsetting a $500 part-repayment of the loan against the $5000 sales, thereby requiring a net payment of $4500. X is entitled to claim a deduction of $5000 under subsection 51(1) for the acquisition of trading stock.

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