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Edited version of your written advice
Authorisation Number: 1051349033653
Date of advice: 19 March 2018
Ruling
Subject: Debt/equity classification of financial instruments
Question 1
Will the amendment to the terms of Instrument 1 with Lender 1, result in a change to the existing income tax treatment of the receipts for the purposes of subsection 974-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Question 2
Will the redeemable preference shares issued under Instrument 2 with Lender 1 give rise to an equity interest pursuant to subsection 974-70(1) of the ITAA 1997?
Answer
Yes.
Question 3
Will the payments made under Instrument 3 with Lender 1 give rise to an equity interest pursuant to subsection 974-70(1) of the ITAA 1997?
Answer
No.
Question 4
Will the payments made under Instrument 3 with Lender 1 be subject to Division 230 of the ITAA 1997?
Answer
Yes.
Question 5
Will the receipts under Instrument 4 with Lender 2 give rise to a debt interest pursuant to subsection 974-15(1) of the ITAA 1997?
Answer
Yes.
Question 6
Will the non-redeemable preference shares issued under Instrument 5 with Lender 2 give rise to an equity interest pursuant to subsection 974-70(1) of the ITAA 1997?
Answer
Yes.
Question 7
Will the following schemes constitute a single scheme for the purposes of section 974-150 of the ITAA 1997?
– Receipts under Instrument 1 with Lender 1;
– Redeemable preference shares issued under Instrument 2 with Lender 1;
– Payments under Instrument 3 with Lender 1;
– Receipts under Instrument 4 with Lender 2; and
– Non-redeemable preference shares issued under Instrument 5 with Lender 2.
Answer
No.
Question 8
Will the following schemes constitute related schemes for the purposes of section 974-155 of the ITAA 1997?
– Receipts under Instrument 1 with Lender 1;
– Redeemable preference shares issued under Instrument 2 with Lender 1;
– Payments under Instrument 3 with Lender 1;
– Receipts under Instrument 4 with Lender 2; and
– Non-redeemable preference shares issued under Instrument 5 with Lender 2.
Answer
Yes.
Question 9
If the response to Question 8 is yes, will the related schemes when taken together give rise to a debt interest pursuant to subsection 974-15(2) of the ITAA 1997?
Answer
No.
Question 10
If the response to Question 9 is yes, will the Commissioner determine that it would be unreasonable to apply subsection 974-15(2) of the ITAA 1997 pursuant to subsection 974-15(4) of the ITAA 1997?
Answer
Opinion not required, given the answer to Question 9 is in the negative.
Question 11
If the response to Question 8 is yes, will the related schemes when taken together give rise to an equity interest pursuant to subsection 974-70(2) of the ITAA 1997?
Answer
No.
Question 12
If the response to Question 11 is yes, will the Commissioner determine that it would be unreasonable to apply subsection 974-70(2) of the ITAA 1997 pursuant to subsection 974-70(4) of the ITAA 1997?
Answer
Opinion not required, given the answer to Question 11 is in the negative.
This ruling applies for the following periods:
Income year ended 31 December 20XY to
Income year ending 31 December 20XZ
The scheme commences on:
31 December 20XX
Relevant facts and circumstances
The taxpayer, the head company of a tax consolidated group, applied for a private ruling in relation to a debt restructure. As part of this restructure, three instruments were entered into with Lender 1 and two instruments were entered into with Lender 2.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 230
Income Tax Assessment Act 1997 Division 974