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Edited version of your written advice
Authorisation Number: 1051307583327
Date of advice: 18 October 2018
Ruling
Subject: Application of section 974-80 of the Income Tax Assessment Act 1997
Question
Does paragraph 974-80(1)(d) of the ITAA 1997 apply in respect of a loan from the Trustee of Operating Trust to Operating Company?
Answer
No
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
The scheme commences:
In the income year ended 30 June 20XX
Relevant facts and circumstances
Operating Company is Australian resident company. It borrowed money from a related entity, the Trustee of Operating Trust, to fund its investment in a business project.
In order to provide the loan to Operating Company, the Trustee of Operating Trust borrowed funds from FinCo, a related company.
FinCo borrowed those funds from external lenders.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 974
Income Tax Assessment Act 1997 section 974-80
Income Tax Assessment Act 1997 paragraph 974-80(1)(d)
Reasons for decision
Subsection 974-80(1) of the ITAA 1997 states:
This section deals with the situation in which:
(a) an interest carries a right to a variable or fixed return from a company; and
(b) the interest is held by a *connected entity of the company; and
(c) apart from this section, the interest would not be an *equity interest in the company; and
(ca) the *scheme that gives rise to the interest is a *financing arrangement for the company; and
(d) there is a scheme, or a series of schemes, designed to operate so that the return to the connected entity is to be used to fund (directly or indirectly) a return to another person (the ultimate recipient).
Considering the facts and circumstances of this case, the Commissioner is of the view that the requirements of paragraph 974-80(1)(d) are not satisfied.