The debt deduction creation rules (DDCR) include a specific anti-avoidance rule in section 820-423D of the Income Tax Assessment Act 1997 (ITAA 1997).
Under this rule, the Commissioner of Taxation may determine that Type 1 DDCR or Type 2 DDCR applies to relevant debt deductions if the Commissioner is satisfied that it is reasonable to conclude that one or more entities ('participants') entered into or carried out a scheme for the principal purpose of, or for more than one principal purpose that included the purpose of, achieving the result that either
- Type 1: Acquisition case does not apply in relation to a debt deduction
- Type 2: Payment or distribution case does not apply in relation to a debt deduction.
This is the case whether or not:
- the debt deduction is a debt deduction of any of the participants of the scheme
- any of the participants carried out the scheme or any part of the scheme
- the scheme has been or is entered into or carried out in Australia or outside Australia, or partly in Australia and partly outside Australia.
This means that if the Commissioner is satisfied that a principal purpose of one of the participants in the scheme was to avoid the application of the DDCR, it does not matter where the scheme was entered into or carried out.
If an entity is dissatisfied with the Commissioner's determination in relation to the application of this anti-avoidance rule, they can request a review under Part IVC of the Taxation Administration Act 1953.