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Taxation Determination

TD 98/D18

Income tax: is a cash collateralisation arrangement acceptable for parties entering into a Land Transport Facilities borrowings agreement?

  • Please note that the PDF version is the authorised version of this draft ruling.
    This document has been finalised by TD 1999/32.

FOI status:

draft only - for comment

Preamble

Draft Taxation Determinations (DTDs) present the preliminary, though considered, views of the Australian Taxation Office. DTDs should not be relied on; only final Taxation Determinations represent authoritative statements by the Australian Taxation Office.

1. No, when coupled with above-market interest rates and captive loan arrangements with investors.

2. The Land Transport Facilities borrowings tax offset is available on the borrowings quantified and on the conditions specified in the agreement. Those borrowings must be spent on construction of the approved land transport facilities. 'Cash collateralisation' requires the borrower to raise a matching amount of funds to be provided as a cash deposit security to the lender.

3. 'Cash collateralisation' is one example of so-called dual funding structures. Others include 'economic defeasance' and 'forward purchase arrangements'.

4. This type of structure facilitates:

•
circular flows of funds;
•
captive loan arrangements coupled to above-market interest rates; and
•
significant cost to revenue.

5. The presence of any such arrangement is indicative of a scheme that would require an examination of the dominant purpose of the parties involved and may attract the application of Part IVA of the Income Tax Assessment Act 1936.

6. Pursuant to subsection 396-75(2) of the Income Tax Assessment Act 1997, the Commissioner is obliged to advise the Minister for Transport and Regional Services in relation to the application of the Income Tax Assessment Acts.

7. Depending on the facts of a particular case, the Commissioner may include advice on the possible application of Part IVA where dual funding structures are proposed.

Your comments

8. If you wish to comment on this draft Determination, please send your comments by 15 January 1999 to:

Contact officer details have been removed following publication of the final determination.

Commissioner of Taxation
25 November 1998

References

ATO references:
NO NAT 98/11494-8

ISSN 1038 - 8982

Subject References:
financing
land transport facilities tax offset
tax avoidance

Legislative References:
ITAA97 Pt 3-45 Div 396
ITAA97 396-75(2)
ITAA36 Pt IVA


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