Taxation Determination
TD 93/212
Income tax: Offshore Banking Units (OBU) - are salaries and other operating expenses that are paid from non-OB money taken into account for purposes of the 'purity test' in section 121EH where the expenses are incurred in undertaking OB activities?
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This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the
Taxation Administration Act 1953
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is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).
Note: This is a consolidated version of this document. Refer to the Legal Database (www.ato.gov.au/law) to check its currency and to view the details of all changes. |
1. No. The purity test which provides for the loss of the concessional tax treatment where more than 10% of an OBU's[1] assessable OB income is derived from the use of non-OB money is only applicable where the use of non-OB money is in respect of OB activities of the OBU as set out in section 121D of the Income Tax Assessment Act 1936.
2. It is clear that the words 'money lent, invested or otherwise used in carrying on the activities ...' in subsection 121EE(2) and the words 'lending, investing or other use ...' in section 121EH both refer to OB activities undertaken with the purpose of deriving assessable income.
3. The expenses incurred in undertaking OB activities, would of course, be 'allowable OB deductions' and be subject to possible apportionment in terms of section 121EF.
Example
An OBU which has just been established has derived fee income of $100 000 for advisory activities in terms of subsection 121D(7). The OBU did not receive a capital injection and it has not borrowed any funds from an offshore person. Accordingly all of its working capital is non-OB money.
The OBU incurred operating expenses of $20 000 which exclusively related to the OB activity.
The whole of the $100 000 is assessable OB income in terms of subsection 121EE(2) and none of the money that has been expended has been lent, invested or otherwise used in carrying on the activities of the OBU. The OBU must treat the expenses, however, as an exclusive OB deduction of $20 000 from its assessable OB income.
Assuming no other activities have taken place at this point of time the OBU has what is, essentially OB money of $100 000 - that is, none of this money is non-OB money.
Commissioner of Taxation
28/10/93
Footnotes
The OBU regime is closed to new entrants from 14 September 2021. The concessional tax treatment for existing OBUs in respect of offshore activities will be removed effective from the 2023-24 income year. Interest payments paid on or after 1 January 2024 on offshore borrowings by OBUs will no longer be exempt from withholding tax.
Previously issued as Draft TD 93/D207
References
ATO references:
NO NAT 93/3707-5
Subject References:
Offshore banking,
OBUs,
purity test
Legislative References:
ITAA Pt III Div 9A;
ITAA 121EH
| Date: | Version: | Change: | |
| 28 October 1993 | Original ruling | ||
| You are here | 13 October 2021 | Consolidated ruling | Addendum |