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Edited version of private advice
Authorisation Number: 1051620042023
Date of advice: 7 January 2020
Ruling
Subject: Limited Recourse Loan
Question 1
Will the Limited Recourse Loan Agreement between Company X and Company Y give rise to a debt interest under subsection 974-15(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Will the Limited Recourse Loan Agreement between Company X and Company Y give rise to an equity interest under section 974-80 of the ITAA 1997?
Answer
No.
Question 3
Will the Limited Recourse Loan Agreement between Company X and Company Y constitute a financial arrangement under subsection 230-45(1) of the ITAA 1997?
Answer
Yes.
Question 4
Will Company Z, as the head company of the consolidated group pursuant to Division 701 of the ITAA 1997, be entitled to claim a deduction under subsection 230-15(2) of the ITAA 1997 for any loss incurred from interest paid pursuant to the Limited Recourse Loan Agreement between Company X and Company Y?
Answer
Yes.
Question 5
Will Company X be required to withhold an amount from interest paid or due and payable (having regard to section 12-300 of Schedule 1 to the Taxation Administration Act 1953 and subsections 128B(2) and subsection 128A(2) of the Income Tax Assessment Act 1936) to Company Y pursuant to the Limited Recourse Loan Agreement under section 12-245 of Schedule 1 to the Taxation Administration Act 1953 on the last day of each Interest Payment Period?
Answer
Yes.
Relevant facts and circumstances
Company X entered a Limited Recourse Loan Agreement with Company Y (a non-resident entity with an address outside Australia). Company Y is not an associate of Company X, nor is it a member of the same wholly owned group as Company X. The purpose of the loan was for Company X to transfer a portion of its residual value risk (in regards to certain assets leased to another entity) to Company Y.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 230-15(2)
Income Tax Assessment Act 1997 subsection 230-45(1)
Income Tax Assessment Act 1997 subsection 974-15(1)
Income Tax Assessment Act 1997 subsection 974-80
Taxation Administration Act 1953 section 12-245 of Schedule 1