Taxation Determination
TD 92/138
Income tax: can the Commissioner provide examples of circumstances in a company group structure where the acquisition of property is regarded as being indirectly financed by non-recourse debt in terms of subsection 51AD(8) of the Income Tax Assessment Act 1936?
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FOI status:
may be releasedFOI number: I 1213081| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953, is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, the Determination applies to transactions entered into both before and after its date of issue. |
1. Subsection 51AD(8) specifies that section 51AD does not apply unless the whole or a predominant part of the cost of acquisition of the property is financed directly or indirectly by non-recourse debt.
2. The following is an example where, in a company group structure, the acquisition of property is considered to be financed indirectly by non-recourse debt:
- (a)
- X Co, a company with substantial assets, borrows money on a non-recourse basis and then applies the borrowed funds to capitalise a wholly owned subsidiary company, Y Co.
- (b)
- The funds are in turn used by Y Co to acquire property to which, if the non-recourse financing conditions of subsection 51AD(8) are satisfied, section 51AD would apply.
3. In Y Co's hands the cost of acquisition of the property is financed indirectly through non-recourse debt, and accordingly section 51AD applies.
4. The following is an example where the aquisition of property is not considered to be financed by non-recourse debt:
- (a)
- X Co, a company with substantial assets, borrows on a full-recourse basis and then on-lends those funds to a wholly owned subsidiary company, Y Co.
- (b)
- The funds are then used by Y CO to acquire property to which, if the non-recourse financing conditions of subsection 51AD(8) are satisfied, section 51AD would apply.
5. In terms of paragraph 51AD(8)(b), the intermediate intra group loan technically is a non-recourse debt because Y Co is a special purpose company with no assets other than the property. Because the company group comprising X Co and Y Co is at risk for all of its substantial assets, the cost of acquisition of the property by Y CO is not considered to be financed by non-recourse debt.
6. Accordingly, subsection 51AD(8) does not apply to this arrangement.
Commissioner of Taxation
20/08/92
References
ATO references:
NO Public Infrastructure Unit; PIU DTD 92/02
Related Rulings/Determinations:
TD 92/137
TD 92/141
Subject References:
finance arrangements
group companies
non-recourse debt
Legislative References:
ITAA 51AD(8)
| Date: | Version: | Change: | |
| You are here → | 20 August 1992 | Original ruling | |
| 31 July 1996 | Withdrawn |