INCOME TAX (TRANSITIONAL PROVISIONS) ACT 1997 (ARCHIVE)

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Application of the thin capitalisation rules  

SECTION 820-35 (ARCHIVE)   Transitional provision - transitional debt interests  

820-35(1)    
This section applies to an interest for the period starting from 1 July 2001 and ending immediately before 1 July 2004 (the transitional period ) if:

(a) the interest was issued before 1 July 2001; and

(b) disregarding the debt and equity test amendments (within the meaning of Part 4 of Schedule 1 to the New Business Tax System (Debt and Equity) Act 2001 ), the interest would be:

(i) an asset of an entity comprised by equity issued by another entity; or

(ii) equity issued by an entity to another entity; and

(c) the interest is a debt interest that remains on issue.

What happens if there is no election

820-35(2)    
If:

(a) the issuer of the interest does not elect under paragraph 118(6)(b) of Schedule 1 to the New Business Tax System (Debt and Equity) Act 2001 to have that paragraph apply to the interest; and

(b) at any time during the transitional period, Division 820 of the Income Tax Assessment Act 1997 applies to an entity that is the issuer or the holder of the interest;

the interest must be treated as an equity interest for the purposes of applying that Division to that entity at that time.

What happens if there is an election

820-35(3)    
Subsections (4) to (6) apply if the issuer of the interest elects under paragraph 118(6)(b) of Schedule 1 to the New Business Tax System (Debt and Equity) Act 2001 to have that paragraph apply to the interest.

820-35(4)    
For the purposes of applying Division 820 of the Income Tax Assessment Act 1997 at any time during the transitional period to an entity that is the issuer of the interest at that time, the interest must be treated as a debt interest at that time.

820-35(5)    
Except as provided by subsection (6), for the purposes of applying that Division at any time during the transitional period to an entity that is the holder of the interest at that time, the interest must be treated as an equity interest at that time.

820-35(6)    
Despite subsection (5), the interest must be treated as a debt interest at that time for the purposes of applying that Division to that holder at that time if:

(a) apart from this section, the interest would be included in the associate entity debt of that holder at that time for those purposes; and

(b) at that time, the issuer of the interest is not an Australian controlled foreign entity for which that holder is an Australian controller.