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Ruling
Subject: Deductibility of interest
Question 1
Will the securities be equity interests under section 974-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Question 2
Will the taxpayer be entitled to deductions under section 230-15(2) of the ITAA 1997 for interest payable on the securities?
Answer
Yes.
Relevant facts and circumstances
The taxpayer is seeking to make an institutional and retail offer of a form of debt instrument (securities). The securities will be issued in accordance with specified Terms and Conditions. During the term of the securities, the taxpayer will make interest payments quarterly in arrears. Upon maturity and/or redemption of the securities, the principal amount will also be repaid by the taxpayer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 230-B
Income Tax Assessment Act 1997 subsection 230-15(2)
Income Tax Assessment Act 1997 section 230-45
Income Tax Assessment Act 1997 subsection 230-50(1)
Income Tax Assessment Act 1997 section 230-115
Income Tax Assessment Act 1997 section 230-175
Income Tax Assessment Act 1997 subsection 974-70(1)
Income Tax Assessment Act 1997 section 974-75
Income Tax Assessment Act 1997 subsection 995-1(1)
Reasons for decision
Question 1
Will the securities be equity interests under section 974-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
The taxpayer did not satisfy any of the required items in the equity interest table under subsection 974-75(1) of the ITAA 1997. Therefore, the securities were not classified as an equity interest under subsection 974-70(1) of the ITAA 1997.
Question 2
Will the taxpayer be entitled to deductions under section 230-15(2) of the ITAA 1997 for interest payable on the securities?
Answer
As the taxpayer has satisfied all of the requirements of subsection 230-15(2) of the ITAA 1997, the taxpayer will be entitled to claim losses from the financial arrangement under this provision.