INCOME TAX ASSESSMENT ACT 1997

CHAPTER 6 - THE DICTIONARY  

PART 6-1 - CONCEPTS AND TOPICS  

Division 974 - Debt and equity interests  

Subdivision 974-A - General  

SECTION 974-5   Overview of Division  

Test for distinguishing debt and equity interests

974-5(1)  
The test for distinguishing between debt interests and equity interests focuses on economic substance rather than mere legal form (see subsection 974-10(2) ). The test is designed to assess the economic substance of an interest in terms of its impact on the issuer's position. Debt interests

974-5(2)  
Subdivision 974-B tells you when an interest is a debt interest in an entity. The basic test is in section 974-20 . Equity interests

974-5(3)  
Subdivision 974-C tells you when an interest is an equity interest in a company. The basic test is in section 974-75 . Tie breaker between debt and equity

974-5(4)  
If an interest satisfies both the debt test and the equity test, it is treated as a debt interest and not an equity interest. Distributions in relation to equity interests that are not shares

974-5(5)  
If you have an equity interest in a company that is not a share, Subdivision 974-E tells you what will count as a non-share distribution, a non-share dividend and a non-share capital return in relation to the interest. Concepts used in the debt and equity tests

974-5(6)  
Subdivision 974-F defines a number of concepts that are used in the debt and equity tests (financing arrangement, effectively non-contingent obligation, benchmark rate of return and converting interest).


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