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  • Debt/equity rules to restrict the application of an integrity provision

    In the 2011-12 Budget the government announced that it will amend the debt/equity rules to restrict the application of an integrity provision, contained in Division 974 of the Income Tax Assessment Act 1997 that considers an interest from an arrangement that funds a return through connected entities to be an equity interest under certain circumstances. The changes will ensure that the law operates as intended and will ensure that this provision will only apply to arrangements where the investor has an equity interest in the issuer company.

    The integrity measure will not apply where the Commissioner considers that it would be unreasonable for the provision to apply.

    The amendments will apply from 1 July 2001.

    Latest information

    On 14 December 2013, the Government announced that the 2011-12 Budget measure would proceed and that the design of the measure would be considered by the Board of Taxation as part of its review of the debt-equity rules.

    In December 2014, the Board of Taxation finalised its Review of the Debt and Equity Tax Rules –the Related Scheme and Equity Override Integrity Provisions (the Review). The Review recommended that, to address the uncertainty around the operation of the existing provisions, both section 974-80 and the existing related scheme rules be repealed and replaced with a new scheme aggregation rule.

    On 2 April 2015, the Government announced that it would proceed with the recommendations in the Board of Taxation’s Review.

    Legislation and supporting material

    This change is not yet law and is subject to the normal parliamentary process

    For more information, refer to:

      Last modified: 01 Feb 2021QC 24388