Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision E - Payments and loans through interposed entities  

SECTION 109U   PAYMENTS AND LOANS THROUGH INTERPOSED ENTITIES RELYING ON GUARANTEES  

109U(1)   [Operation of Division]  

This Division operates as if a private company makes a payment to an entity (the target entity ) as described in section 109V if:

(a) during a year of income the private company guarantees a loan made by another entity (the first interposed entity ); and

(b) a reasonable person would conclude (having regard to all the circumstances) that the private company gave the guarantee solely or mainly as part of an arrangement involving a payment or loan to the target entity; and

(c) either:

(i) the first interposed entity that is a private company makes a loan to the target entity; or

(ii) another entity that is a private company interposed between the private company and the target entity makes a payment or loan to the target entity; and

(d) the amount of the payment or the loan is greater than the amount worked out using the formula:

Distributable surplus   −   Subsection 109Y(3) amount

109U(2)   [Calculation of reduction]  

The amount of the payment from the private company to the target entity (as worked out under section 109V ) is to be reduced by the amount worked out using the formula:

Distributable surplus   −   Subsection 109Y(3) amount

109U(3)   [Definitions]  

In the formulas in paragraph (1)(d) and subsection (2):

distributable surplus
means the distributable surplus (worked out under subsection 109Y(2) ) for the interposed entity that made the payment or loan to the target entity for the year of income.

subsection 109Y(3) amount
means the total of any amounts calculated under subsection 109Y(3) in relation to that interposed entity for the year of income (apart from as a result of the operation of this section).

109U(4)   This section operates regardless of certain factors.  

For the purposes of this section, it does not matter:

(a) whether the interposed entity made the payment or loan to the target entity before, after or at the same time as the first interposed entity received the guarantee from the private company; or

(b) whether or not the interposed entity paid or lent the target entity the same amount as the private company guaranteed.