Product Ruling

PR 2008/26A1 - Addendum

Income tax: deductibility of interest incurred on borrowings in relation to the Macquarie Fusion Funds - June 2008 Offer

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Addendum

This Addendum is a public ruling for the purposes of the Taxation Administration Act 1953. It amends Product Ruling PR 2008/26 to:

•: incorporate amendment to Division 247 of the Income Tax Assessment Act 1997 (ITAA 1997) and Division 247 of the Income Tax (Transitional Provisions) Act 1997 to adjust the benchmark interest rate used to determine the cost of capital protection on a capital protected borrowing from the Reserve Bank of Australia's (RBA's) Indicator Lending Rate for Personal Unsecured Loans to the RBA's Indicator Lending Rate for Standard Variable Housing Loans plus 100 basis points; and
•: reflect the ATO view with respect to the application of Division 247 of the ITAA 1997 to interest incurred on the Interest Loan, as set out in Taxation Determination TD 2013/1.

PR 2008/26 is amended as follows:

1. Paragraph 17

(a)

Omit subparagraph 17(a); substitute:

(a): an amount equal to the interest incurred on the Investment Loan, in an income year, reduced by an amount reasonably attributable to the cost of capital protection worked out under step 3 of the method statement in subsection 247-20(3) of the Income Tax Assessment Act 1997 (ITAA 1997) or subsection 247-75(1) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997), as applicable, will be deductible under section 8-1 of the ITAA 1997;

(b)

Omit subparagraph 17(b); substitute:

(b)

where the Investor enters into the Investment Loan on or after 1 May 2008 but at or before 7.30 pm by legal time in the Australian Capital Territory on 13 May 2008, under subsection 247-75(1) of the IT(TP)A 1997, the amount reasonably attributable to the cost of capital protection under Division 247 of the IT(TP)A 1997, in an income year, is the amount by which the interest incurred on the Investment Loan exceeds an amount representing the interest that would have been incurred for the income year on the Investment Loan if the following interest rates applied:

•: where the interest rate incurred on the Investment Loan is at a fixed rate for all or part of the term of the loan and that fixed rate is applicable to the loan for all or part of the income year - the relevant rate is the Reserve Bank of Australia's Indicator Lending Rate for Personal Unsecured Loans - Variable Rate (the 'personal unsecured loan rate') at the first time an interest amount is incurred during the term of the loan, or the relevant part of the term of the loan (subsection 247-75(2) of the IT(TP)A 1997); and
•: where the interest rate incurred on the Investment Loan is at a variable rate for all or part of the term of the loan and a variable rate is applicable to the loan for all or part of the income year - the relevant rate is the average of the personal unsecured loan rates published by the Reserve Bank of Australia during the relevant part of the income year (subsection 247-75(3) of the IT(TP)A 1997);

(ba)

where the Investor enters into the Investment Loan after 7.30 pm by legal time in the Australian Capital Territory on 13 May 2008 and on or before 30 June 2008, under subsection 247-20(3) of the ITAA 1997, the amount reasonably attributable to the cost of capital protection under Division 247 of the ITAA 1997, in an income year, is the amount by which the interest incurred on the Investment Loan exceeds an amount representing the interest that would have been incurred for the income year on the Investment Loan if the following interest rates applied:

•: where the interest rate incurred on the Investment Loan is at a fixed rate for all or part of the term of the loan and that fixed rate is applicable to the loan for all or part of the income year - the relevant rate is the sum of the Reserve Bank of Australia's Indicator Lending Rate for Standard Variable Housing Loans and 100 basis points (the 'adjusted loan rate') at the first time an interest amount is incurred during the term of the loan, or the relevant part of the term of the loan (subsections 247-20(4) and (5) of the ITAA 1997); and
•: where the interest rate incurred on the Investment Loan is at a variable rate for all or part of the term of the loan and a variable rate is applicable to the loan for all or part of the income year - the relevant rate is the average of the adjusted loan rates during the relevant part of the income year (subsections 247-20(5) and (5A) of the ITAA 1997);

(c)

Omit subparagraph 17(c); substitute:

(c): the amount reasonably attributable to the cost of capital protection under Division 247 of the ITAA 1997 or Division 247 of the IT(TP)A 1997 (the Excess Amount), as applicable and as worked out under paragraph 17(b) or 17(ba) of this Ruling, is treated as if it were incurred only for a notional put option under subsection 247-20(6) of the ITAA 1997 (Division 247 Put Option). The Excess Amount (if any) is not deductible under section 8-1 of the ITAA 1997;
(ca): Division 247 of the ITAA 1997 and IT(TP)A 1997 will not apply to the Interest Loan. An amount equal to the interest incurred on the Interest Loan will be deductible under section 8-1 of the ITAA 1997;

2. Paragraph 22

Omit subparagraph 22(i); substitute:

(i): the Investors will not choose to repay the Investment Loan or the Interest Loan prior to their maturity or terminate the scheme early.

3. Paragraph 25