Part A: Explaining the tests for debt and equity interests
The debt and equity rules determine what is equity in a company and what is debt in an entity for taxation purposes, with effect from 1 July 2001.
The debt and equity rules improve certainty in the tax law by establishing tests that provide a clearer and more coherent distinction between equity and debt interests.
These rules implemented the general approach recommended by the Review of Business Taxation: A Tax System RedesignedExternal Link.
Regulations can be made to provide further guidance in applying the debt and equity rules.