ATO Interpretative Decision

ATO ID 2003/445

Income Tax

Infrastructure borrowings: Direct infrastructure borrowing - anti-avoidance - certain recouped expenditure
FOI status: may be released
Status of this decision: Decision Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 82KL 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 82KL 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 82KL of the ITAA 1936 operates to deny a deduction or part of a deduction otherwise allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

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 (which could be 'eligible relevant expenditure' under subsection 82KL(1) of the ITAA 1936).

As, subsection 159GZZZZE(1) of the ITAA 1936 operates to deny a deduction for the DIB interest payable by the taxpayer, section 82KL of the ITAA 1936 cannot apply as there is no additional benefit in relation to an amount of eligible relevant expenditure incurred by the taxpayer or expected tax saving in relation to that amount of eligible relevant expenditure equal to or greater than the amount of the eligible relevant expenditure.

Date of decision:  31 March 2003

Year of income:  Year ended 31 December 2002

Legislative References:
Income Tax Assessment Act 1936
   section 82KL
   subsection 159GZZZZE(1)

Income Tax Assessment Act 1997
   Section 8-1

Keywords
Tax benefits under tax avoidance schemes

Siebel/TDMS Reference Number:  3413196

Business Line:  Public Groups and International

Date of publication:  13 June 2003

ISSN: 1445-2782

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