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 109W   PRIVATE COMPANY'S LOAN TO TARGET ENTITY THROUGH ONE OR MORE INTERPOSED ENTITIES  

109W(1)   Private company taken to lend if target entity receives loan.  

If the target entity is lent an amount by the interposed entity, this Division operates as if the private company had made a loan (the notional loan ) of the amount (if any) determined by the Commissioner to the target entity when the interposed entity made the loan to the target entity.

Note:

Subsection 109D(4) specifies the time at which a loan is made.

109W(2)   How big is the notional loan?  

In determining the amount of the notional loan, the Commissioner must take account of:

(a) the amount the interposed entity lent the target entity; and

(b) how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by the private company or any of the interposed entities for anything (assuming that the consideration payable equals that for similar transactions at arm's length).

109W(3)   Notional repayments of notional loan.  

When working out whether the private company is taken under section 109D to pay a dividend as a result of the notional loan, and the amount of any such dividend, assume that the target entity repays an amount of the notional loan equal to the amount worked out using the formula:

Repayment made by target entity to lender

×

Amount of notional loan                   Amount actually lent to target entity

where:

amount actually lent to target entity
is the amount the interposed entity lent to the target entity.

repayment made by target entity to lender
is the amount of any repayment made by the target entity of the loan the interposed entity made to the target entity.