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Draft Taxation Determination

TD 93/D188

Income tax: does Division 13 of the Income Tax Assessment Act 1936 apply to impute interest income to an Australian company which makes an interest-free loan to a non-resident subsidiary to enable this subsidiary to guarantee a third party loan to another non-resident subsidiary?

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FOI status:

draft only - for comment

Preamble

Draft Taxation Determinations (TDs) present the preliminary, though considered, views of the ATO. Draft TDs may not be relied on; only final TDs are authoritative statements of the ATO.

1. Yes. When a company confers a benefit on another company for non-arm's length consideration, section 136AD would apply (Taxation Ruling IT 92/11).

2. The existence of a business purpose for the transaction is not in itself sufficient to preclude the making of an adjustment under Division 13.

Example:

An Australian parent company lends money interest-free to an off-shore subsidiary ( the first subsidiary). This subsidiary acts as guarantor for a second off-shore subsidiary. The first subsidiary invests the money in an off-shore market and repays the loan to the Australian company when the guarantee is released.
Division 13 will apply to impute an arm's length interest rate to the parent company.

Commissioner of Taxation
29/7/93

References


BO BRI 0019

ISSN 1038 - 8982

Related Rulings/Determinations:

TD 93/D188W
IT 92/11

Subject References:
foreign source income
foreign subsidiary
foreign loan
credit guarantees
Division 13

Legislative References:
ITAA 136AD


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