Guide to the debt and equity tests

This guide provides comprehensive information on the debt and equity tests used to determine whether an interest is a debt interest or an equity interest.

• Part A: Explaining the tests for debt and equity interests
• Part B: Applying the tests for debt and equity interests

This guide outlines the broad operation of the debt/equity rules in Division 974 of the Income Tax Assessment Act 1997. The debt/equity rules determine whether an interest is a debt interest or an equity interest.

The guide is divided into two parts:

Part A – Explains the debt and equity tests, including how to work out if an interest is to be treated as debt or equity, how to use the debt test to identify debt for thin capitalisation purposes and how the transitional rules operate.

Part B – Provides examples of how to apply the tests in various situations.

Some of the terms used in the guide may be new to you. They are explained in paragraphs throughout the guide when first used.