Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-J - Equity interest in a trust or partnership  

SECTION 820-930   Equity interest in a trust or partnership  

Application of provisions

820-930(1)    

For the purposes of this Division and Division 230 , an equity interest in an entity that is a trust or partnership has the meaning given by the provisions in Division 974 that are applied with the following modifications:

Modifications of Division 974
Item	Provisions	Modifications
1	Subdivisions 974-C and 974-D	A reference in those provisions to a company is taken to be a reference to an entity that is a trust or a partnership
2	Subdivisions 974-C and 974-D	A reference in those provisions to the equity test in subsection 974-75(1) is taken to be a reference to the equity test in subsection (2) of this section
3	Section 974-75	The section does not apply and subsections (2) to (4) of this section apply instead
4	Section 974-80	The example does not apply
5	Section 974-95	A reference in those provisions to the table in subsection 974-75(1) is taken to be a reference to the table in subsection (2) of this section
6	Subsection 974-95(4)	The subsection does not apply
7	Subdivision 974-F	The Subdivision applies for the purposes of this section
8	Subdivisions 974-C, 974-D and 974-F	A reference in those provisions to the regulations is taken to be a reference to the regulations made under the provisions applied by this subsection

Note:

An interest that satisfies both the equity test and the debt test set out in Subdivision 974-B is treated as a debt interest and not an equity interest (see that Subdivision in conjunction with the provisions applied by subsection (1)).

Equity tests

820-930(2)    

A *scheme satisfies the equity test in this subsection in relation to an entity that is a trust or partnership if the scheme gives rise to an interest set out in the following table:

Equity interests
Item	Interest
1	In the case of a trust, an interest as a beneficiary of the trust
	In the case of a partnership, an interest as a partner in the partnership
2	An interest that carries a right to a variable or fixed return from the entity if either the right itself, or the amount of the return, is in substance or effect *contingent on aspects of the economic performance (whether past, current or future) of:
	(a)	the entity; or
	(b)	a part of the entity ' s activities; or
	(c)	an *associate of the entity or a part of the activities of an associate of the entity
	The return may be a return of an amount invested in the interest
3	An interest that carries a right to a variable or fixed return from the entity if either the right itself, or the amount of the return, is at the discretion of:
	(a)	the entity; or
	(b)	an *associate of the entity
	The return may be a return of an amount invested in the interest
4	An *interest issued by the entity that:
	(a)	gives its holder (or an *associate of the holder) a right to be issued with an *equity interest in the entity or an associate of the entity; or
	(b)	is an interest that will, or may, convert into an equity interest in the entity or an associate of the entity

This subsection has effect subject to subsection (3) (requirement for financing arrangement).

Note:

Section 974-90 as applied by subsection (1) allows regulations to be made clarifying when a right or return is taken to be at the discretion of an entity or an associate.

Financing arrangement

820-930(3)    
A *scheme that would otherwise give rise to an *equity interest in an entity that is a trust or partnership because of an item in the table in subsection (2) (other than item 1) does not give rise to an equity interest in the entity unless the scheme is a *financing arrangement (see section 974-130 as applied by this section) for the trust or partnership.

Form interest may take

820-930(4)    
The interest referred to in item 2, 3 or 4 in the table in subsection (2) may take the form of a proprietary right, a chose in action or any other form.

Regulations

820-930(5)    
Subject to regulations made under subsection (6), the regulations made under Subdivisions 974-C , 974-D and 974-F are applied for the purposes of this section as if they were regulations made under the provisions applied by subsection (1).

820-930(6)    
Regulations may be made under the provisions applied by subsection (1) specifically in relation to:

(a) an *equity interest in a trust; or

(b) an equity interest in a partnership.