Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-EAB - Third party debt concepts  

Operative provisions

SECTION 820-427C   Conduit financing conditions  

820-427C(1)    
If, in relation to an income year:

(a)    an entity (the conduit financer ) issues a *debt interest (the ultimate debt interest ) to an entity (the ultimate lender ) that is not an *associate entity (see section 820-427D ) of the conduit financer; and

(b)    an entity (the borrower ) that is an associate entity of the conduit financer issues another debt interest (the relevant debt interest ) to:

(i) the conduit financer; or

(ii) another entity (the conduit borrower ) that is an associate entity of the conduit financer and the borrower; and

(c)    the amount loaned under the relevant debt interest:

(i) if subparagraph (b)(i) applies - was financed by the conduit financer only with proceeds from the ultimate debt interest; or

(ii) if subparagraph (b)(ii) applies - was financed by the conduit borrower only with proceeds from another debt interest that is also a debt interest that satisfies the conditions in this subsection in relation to the ultimate debt interest because of a previous operation of this subsection; and

(d)    the terms of the relevant debt interest, to the extent that those terms relate to costs incurred by the borrower in relation to the relevant debt interest, are the same as the terms of the ultimate debt interest, to the extent that those terms relate to such costs incurred by the conduit financer in relation to the ultimate debt interest; and

(e)    the conduit financer, the borrower and each conduit borrower (if any) are *Australian entities (see section 820-427E ); and

(f)    it is not the case that subparagraph 820-46(1)(b)(i) or (ii) applies (fixed ratio test or group ratio test applies) to the conduit financer, the borrower or any conduit borrowers;

then the relevant debt interest satisfies the conditions in this subsection in relation to the income year.

820-427C(2)    
For the purposes of paragraph (1)(d) :

(a)    disregard the terms of a * debt interest that is:

(i) a relevant debt interest; or

(ii) the ultimate debt interest;

to the extent that those terms relate to the amount of the debt to which the debt interest relates; and

(b)    disregard the terms (if any) of the ultimate debt interest that have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of reasonable administrative costs that relate directly to the ultimate debt interest; and

(c)    disregard the terms (if any) of a relevant debt interest issued to the conduit financer that have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of reasonable administrative costs of the conduit financer that relate directly to the relevant debt interest; and

(d)    disregard the terms (if any) of a relevant debt interest, to the extent that those terms have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of costs of the conduit financer that:

(i) are a * debt deduction for the income year of the conduit financer; and

(ii) are a debt deduction that is treated as being attributable to the ultimate debt interest under subsection 820-427A(2) because it is directly associated with hedging or managing the interest rate risk in respect of the ultimate debt interest; and

(e)    disregard the terms (if any) of a relevant debt interest, to the extent that those terms have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of costs of a borrower that:

(i) are a debt deduction for the income year of the borrower; and

(ii) are a debt deduction that is treated as being attributable to another debt interest under subsection 820-427A(2) because it is directly associated with hedging or managing the interest rate risk in respect of that other debt interest.