ATO Interpretative Decision
ATO ID 2003/794
Income Tax
Infrastructure borrowings: direct infrastructure borrowings - anti-avoidance - deductible expense in respect of certain pre-paid outgoingsFOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will the anti-avoidance provision section 82KJ of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the taxpayer in relation to the interest paid under a Direct Infrastructure Borrowing (DIB)?
Decision
No. As the interest paid by the taxpayer under the DIB will not be deductible because of the operation of subsection 159GZZZZE(1) of the ITAA 1936, the interest will not be subject to section 82KJ of the ITAA 1936.
Facts
The taxpayer currently holds a certificate from the Development Allowance Authority (DAA) permitting it to issue DIBs with which it financed construction of an infrastructure project. In turn, Finance Co holds a corresponding certificate from the DAA permitting it to issue indirect infrastructure bonds (IIBs) to fund the subscription for the DIBs issued by the taxpayer.
Reasons for Decision
Section 82KJ of the ITAA 1936 applies where a taxpayer prepays a deductible expense with the aim of reducing the non-deductible capital amount payable for the acquisition of property.
The taxpayer has paid for the construction of the project property with infrastructure borrowings. Subsection 159GZZZZE(1) of the ITAA 1936 provides for non-assessability and non-deductibility of interest paid under an infrastructure borrowing.
Section 82KJ of the ITAA 1936 will not apply to this arrangement as the interest payable by the taxpayer under the DIB is non-deductible because of the operation of subsection 159GZZZZE(1) of the ITAA 1936.
Date of decision: 31 March 2003Year of income: Year ended 31 December 2002
Legislative References:
Income Tax Assessment Act 1936
section 82KJ
subsection 159GZZZZE(1)
ATO ID 2003/444
ATO ID 2003/445
Keywords
Tax benefits under tax avoidance schemes
ISSN: 1445-2782