What you need
If you obtain funding from an overseas related entity or associate for the purpose of acquiring or developing property, it is important that you have appropriate documents and other evidence to support your arrangement and tax positions.
Good contemporaneous record-keeping practices are desirable should we seek to verify information including the arm’s length nature of your funding arrangement. If we review your funding arrangements, we will seek to understand your particular facts and circumstances.
See Overview of record-keeping rules for business.
Details about the project
You need details about the property investment or development project. These include timeline, initial feasibility assessments, project plans, cash flow projections, project budgeting and valuations, pre-sales levels, and project financials including projected and actual profitability (or commercial reasons for losses).
Funding structure
You need evidence of the ongoing commercial nature of your funding structure. These include:
- the equity you have contributed
- internal and external debt funding
- source of the funds
- your consideration of the funding options realistically available to you throughout the investment or development lifecycle
- details of group funding practices including how you and your associates have funded other property investments or development projects.
Loan documentation
You need:
- related party and third-party loan agreements and terms sheets
- records of loan accounts, schedules and workpapers
- evidence of payments to international related parties and associates including interest and repayments of debt and equity capital.
For more information on documenting your related-party funding arrangement – see Documenting genuine loans from related overseas entities.
Transfer pricing analysis
You need transfer pricing analysis that you or your adviser have undertaken to support the arm’s length nature of your related-party funding arrangement. This includes how the terms and conditions of your related-party loan compare with your external debt or other relevant third-party arrangements that you or your associates are party to.
Include details such as the commencement date, loan amount, debt ranking, security, maturity, currency, timing of payment or capitalisation of interest, repayment terms, obligations, type of interest and interest rate.
For more information on transfer pricing documentation, see Taxation Ruling TR 2014/8 Income tax: transfer pricing documentation and Subdivision 284-E.
Risk assessment
Keep a record of the risk rating of your related-party financing arrangement in accordance with PCG 2017/4 including supporting analysis and explanations.
Simplified record-keeping options
If you are eligible to apply the low-level inbound loans option in accordance with Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record-keeping options, your record-keeping requirements will be minimised, but we may seek to verify your eligibility.