Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 208 - Exempting entities and former exempting entities  

Subdivision 208-A - What are exempting entities and former exempting entities?  

SECTION 208-30   Accountable membership interests  

208-30(1)  
The purpose of this section is to identify which *membership interests in an entity are relevant in determining whether the entity is effectively owned by prescribed persons.

208-30(2)  
A *membership interest in an entity is an accountable membership interest if it is not an excluded membership interest.

208-30(3)  
A *membership interest in an entity is an excluded membership interest if, having regard to:


(a) the purposes for which the membership interest was issued; and


(b) any special or limited rights connected with, arising from, or attached to:


(i) the membership interest; or

(ii) other membership interests in the entity held by the holder of the membership interest; or

(iii) membership interests in the entity held by persons other than the holder of the membership interest; or

(iv) interests in any of the above;
including rights that are conferred or exercisable only if the holder of the membership interest or interests concerned is, or is not, a prescribed person; and


(c) the extent to which any such special or limited rights are similar to or differ from the rights that are normally attached to the ownership of *ordinary membership interests in *corporate tax entities; and


(d) the relationship between the value of the membership interest and the value of the entity; and


(e) any relationship or connection (whether of a personal or business nature) between holders of membership interests in the entity of which the entity is aware; and


(f) any *arrangement in respect of membership interests (including unissued membership interests) in the entity, or interests in membership interests in the entity, of which the entity is aware;

it would be reasonable to conclude that the membership interest is not relevant in determining whether the entity is effectively owned by prescribed persons because holding the membership interest does not involve the holder bearing the risks, or result in the accrual to the holder of the opportunities, of ownership of the entity that ordinarily arise from, or are ordinarily attached to, the holding of ordinary membership interests in an entity.

208-30(4)  
In applying subsection (3), the fact that a person is a trustee is to be disregarded.

208-30(5)  
Without limiting subsection (3), a *membership interest in an entity held by a person who is not a prescribed person is an excluded membership interest if:


(a) it is a finance membership interest; or


(b) it is a distribution access membership interest; or


(c) it does not carry the right to receive distributions; or


(d) it was issued, transferred or acquired for a purpose (other than an incidental purpose) of ensuring that the entity is not effectively owned by prescribed persons.

208-30(6)  
A *membership interest is a finance membership interest if:


(a) the membership interest is a *non-equity share in the entity; or


(b) having regard to the rights attached to the membership interest and to any *arrangement with respect to the membership interest of which the entity is aware, the membership interest is equivalent to a debt owed by the entity to the holder of the membership interest.

208-30(7)  
A *membership interest to which subsection (6) does not apply is a finance membership interest if:


(a) the manner in which the *distributions payable in respect of the membership interest are calculated, and the conditions applying to the payment of such distributions, indicate that the distributions paid are equivalent to the receipt by the person to whom they are paid of interest or an amount in the nature of or similar to interest; or


(b) the capital invested by the holder of the membership interest will be redeemed or, because of an *arrangement between the holder and the entity or an *associate of the entity, it is reasonable for the holder to expect that the capital will be redeemed, for an amount that is not less than, or for property (including other membership interests in the entity) the value of which is not less than, the amount paid for the membership interest; or


(c) the membership interest is redeemable by the entity by payment of a lump sum or by the transfer of property, or the membership interest has a preferred right to a repayment of capital on a winding up, where the amount of the lump sum or the value of the property, or the amount of the capital to be repaid, as the case may be, is to be calculated by reference to an implicit interest rate.

208-30(8)  
A *membership interest in an entity is a distribution access membership interest if, having regard to:


(a) the terms of the issue of the membership interest, including any guarantee of payment of distributions; and


(b) the amounts of the *distributions paid on the membership interest relative to the issue price of the membership interest; and


(c) whether there is any guaranteed rate at which *franked distributions are to be paid on the membership interest; and


(d) the duration of the period within which the membership interest was issued; and


(e) the rights attached to other membership interests in the entity; and


(f) any other relevant matters;

it could be concluded that the membership interest was issued only for the purpose of paying distributions to the holder of the membership interest.


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