ATO Interpretative Decision
ATO ID 2003/1042 (Withdrawn)
Income Tax
Debt/Equity: whether short term trade finance gives rise to debt interest under Division 974 - Commissioner's discretionFOI status: may be released
-
This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Where a trade finance borrowing fails to meet the exception to the debt test in section 974-25 of the Income Tax Assessment Act 1997 (ITAA 1997), can the Commissioner make a determination to allow that borrowing to meet the exception to the debt test?
Decision
No. The Commissioner cannot make a determination to treat the trade finance borrowings as having met the exception to the debt test.
Facts
The taxpayer's main business activity consists of importing and exporting commodities. The taxpayer buys and on-sells these commodities. Commonly, there is a timing mismatch between the time of purchase and sale. The contracts for the acquisition and sale of commodities are financed by a short-term trade finance facility. The trade finance borrowing under the trade finance facility is classified as a debt interest.
The trade finance facility between the taxpayer and financier limits the term of the borrowing to no more than 180 days. Typically borrowed funds under the facility are repaid within 100 days.
Reasons for Decision
The Commissioner's discretion in relation to the debt and equity provisions is restricted to particular sections within Division 974 of the ITAA 1997 as listed in section 974-112 of the ITAA 1997. Section 974-112 of the ITAA 1997 provides that the Commissioner can only make a determination in respect of the following provisions:
- 1.
- subsection 974-15(4)
- 2.
- subsection 974-60(3), 974-60(4) or 974-60(5)
- 3.
- section 974-65
- 4.
- subsection 974-70(4)
- 5.
- subsection 974-150(2).
Hence, since sections 974-20 and 974-25 of the ITAA 1997 are not listed within section 974-112 of the ITAA 1997, the Commissioner has no power to exercise his discretion in this situation.
Date of decision: 20 October 2003Year of income: 31 December 2002
Legislative References:
Income Tax Assessment Act 1997
section 974-20
section 974-25
section 974-112
ATO ID 2003/1040
ATO ID 2003/1041
Keywords
Debt equity borderline
Debt test
Short term schemes
ISSN: 1445-2782
| Date: | Version: | |
| 20 October 2003 | Original statement | |
| You are here | 6 July 2012 | Archived |