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  • Product rulings and participant finance

    If schemes include finance provided by a related-party financier or preferred financier, we seek to rule on the tax benefits of those finance arrangements. We also provide product rulings on schemes where participants pay the initial period fees to the manager under a terms agreements ('terms payments'). This helps give certainty to participants on the tax benefits available under the arrangement.

    We have had concerns about some finance arrangements and have looked at these in detail. Some finance arrangements are structured in such a way that Part IVA of the ITAA 1936 may apply. This issue was considered by the General Anti-Avoidance Rules Panel (GAAR Panel), which includes a number of external members, and the GAAR Panel strongly agreed with our concerns.

    To help promoters structure their arrangement so that it is acceptable to us for participants to claim tax benefits, we have issued financing principles that reduce the likelihood of Part IVA applying. We will issue a product ruling on a tax effective scheme where the financing arrangements described are consistent with these financing principles.

    Those financing arrangements that are inconsistent with the financing principles will be subject to a comprehensive consideration of finance terms, which may include a referral to the GAAR Panel. Alternately, those wanting to invest in a scheme with finance terms that are inconsistent with these principles may apply for a private ruling.

    See also:


    We will not issue a product ruling for an arrangement involving non-recourse or limited recourse financing.

    Included within the notion of non-recourse or limited recourse financing is any arrangement where, viewed as a whole, the participant is put in a position where they are not personally at risk of having to repay the loan in full.

    Financing features that may call into question the potential application of an anti-avoidance tax law include:

    • mechanisms to reduce or eliminate the borrower's liabilities to the lender, whether or not legally enforceable
    • if repayment of principal and payment of interest is linked to deriving income from the scheme
    • 'round-robin' transactions, or equivalent, that do not appear to provide the responsible entity with sufficient funds to be able to carry out its obligations.

    It is not sufficient to assert that an arm's-length financier is being used. It is possible to arrange limited-recourse financing from an arm's-length provider by the use of significant security deposits, or other back-to-back arrangements. We will generally need to be satisfied that no such elements are present before we can issue a ruling.

      Last modified: 24 Oct 2016QC 17801