Product Ruling

PR 2007/91A1 - Addendum

Income tax: deductibility of interest incurred on borrowings in relation to the Macquarie Fusion Funds - November 2007 Offer

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Addendum

This Addendum is a public ruling for the purposes of the Taxation Administration Act 1953. It amends Product Ruling PR 2007/91 to:

•: incorporate amendment to Division 247 of the Income Tax Assessment Act 1997 (ITAA 1997) and Division 247 of the Income Tax (Transitional Provisions) Act 1997 relating to capital protected borrowings; and
•: reflect the ATO view with respect to the application of Division 247 of the ITAA 1997 to interest incurred on the Interest Loan, as set out in Taxation Determination TD 2013/1.

PR 2007/91 is amended as follows:

1. Paragraph 16

(a)

Omit subparagraph 16(a); substitute:

(a)

an amount equal to the interest incurred on the Investment Loan, in an income year, reduced by an amount reasonably attributable to the cost of capital protection worked out under step 3 of the method statement in subsection 247-75(1) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) will be deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997);

Under subsection 247-75(1) of the IT(TP)A 1997, the amount reasonably attributable to the cost of capital protection under Division 247 of the IT(TP)A 1997, in an income year, is the amount by which the interest incurred on the Investment Loan exceeds an amount representing the interest that would have been incurred for the income year on the Investment Loan if the following interest rates applied:

•: where the interest rate incurred on the Investment Loan is at a fixed rate for all or part of the term of the loan and that fixed rate is applicable to the loan for all or part of the income year - the relevant rate is the Reserve Bank of Australia's Indicator Lending Rate for Personal Unsecured Loans - Variable Rate (the 'personal unsecured loan rate') at the first time an interest amount is incurred during the term of the loan, or the relevant part of the term of the loan (subsection 247-75(2) of the IT(TP)A 1997); and
•: where the interest rate incurred on the Investment Loan is at a variable rate for all or part of the term of the loan and a variable rate is applicable to the loan for all or part of the income year - the relevant rate is the average of the personal unsecured loan rates published by the Reserve Bank of Australia during the relevant part of the income year (subsection 247-75(3) of the IT(TP)A 1997);

(b)

Omit subparagraph 16(b); substitute:

(b): the amount reasonably attributable to the cost of capital protection under Division 247 of the IT(TP)A 1997 (the Excess Amount), as worked out under paragraph 16(a) of this Ruling, is treated as if it were incurred only for a notional put option under subsection 247-20(6) of the ITAA 1997 (Division 247 Put Option). The Excess Amount (if any) is not deductible under section 8-1 of the ITAA 1997;
: (ba) Division 247 of the ITAA 1997 and IT(TP)A 1997 will not apply to the Interest Loan. An amount equal to the interest incurred on the Interest Loan will be deductible under section 8-1 of the ITAA 1997;

2. Paragraph 21

Omit subparagraph 21(i); substitute:

(i): the Investors will not choose to repay the Investment Loan or the Interest Loan prior to their maturity or terminate the scheme early.

3. Paragraph 24