Amending the 'limited recourse debt' definition

On 8 May 2012, the government announced it will clarify that limited recourse debt includes arrangements where the creditor's right to recover the debt is effectively limited to the financed asset or security provided.

The measure will ensure tax deductions are not available for capital expenditure on assets that have been financed by limited recourse debt, to the extent that the taxpayer is not effectively at risk for the expenditure and does not make an economic loss.

This measure will take effect from 7.30pm (AEST) on 8 May 2012.

Legislation and supporting material

Tax Laws Amendment (2012 Measures No. 6) Bill 2012 and Explanatory Memorandum were introduced into parliament on 29 November 2012.

Administrative treatment

The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. Any assessments issued since the date of announcement will not be reviewed in relation to this proposal until the outcome of the proposed amendment is known.

After the new law is enacted, taxpayers will need to review their positions back to the 2011-12 income year. Those taxpayers who:

• lodged in accordance with the changes do not need to do anything more
• did not lodge in accordance with the changes should seek amendments and if
• a reduction in liability results, interest on overpayment will be paid where applicable
• an increase in liability results, no tax shortfall penalties will be applied and any interest accrued will be remitted to the base interest rate up to the date of enactment of the law change. In addition, any interest in excess of the base rate accruing after the date of enactment will be remitted where taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.

If a decision is made by government not to proceed with the announcement the ATO will publicly advise taxpayers, explaining the circumstances of the particular issue and outlining that relevant amendment requests should be lodged.

More information 2012-13 Budget - Budget paper No.2 (PDF 1.33MB) - page 32. Consultation paper Limited Recourse Debt - Amended Definition, issued 16 July 2012. Draft legislation and Explanatory Memorandum released by Treasury on 25 October 2012.