Section 230-50 financial arrangements
Under subsection 230-50(1), an entity has a financial arrangement where it has an equity interest. The equity interest constitutes the financial arrangement.
For a company, equity interest is defined in Subdivision 974-C (debt and equity rules). For trusts and partnerships, equity interest is defined in section 820-930 (thin capitalisation rules).
Where an arrangement satisfies the definition of a financial arrangement under both section 230-45 and subsection 230-50(1), section 230-50 will take precedence (refer to Taxation Determination TD 2011/12).
Under subsection 230-50(2), an entity also has a financial arrangement if both of the following apply:
- it has under an arrangement a legal or equitable right to receive or obligation to provide an equity interest or a combination of such rights and obligations
- the right, obligation or combination of such rights and obligations does not constitute or form part of a financial arrangement under section 230-45.
TOFA will only apply to a financial arrangement that satisfies the definition in section 230-50 where the entity has made one of the following elections, and the election applies to the financial arrangement:
- a fair value election
- a reliance on financial reports election
- in limited circumstances, a hedging financial arrangements election.