CHAPTER 6
-
THE DICTIONARY
PART 6-1
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CONCEPTS AND TOPICS
Division 974
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Debt and equity interests
History
Division 974 inserted by No 163 of 2001, s 3 and Sch 1 item 34.
Act
No 136 of 2010
, s 3 and Sch 3 item 135, contains the following provision, effective 7 December 2010:
Extension of debt and equity transitional arrangements for Upper Tier 2 capital instruments
Definitions
(1)
In this item:
CGT amendments
has the same meaning as in item 118 of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001
.
debt and equity test amendments
means the amendments made by Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001
(other than the CGT amendments), as amended from time to time.
Upper Tier 2 capital instruments
(2)
This item applies to an interest:
(a)
that is issued before 1 July 2001; and
(b)
that is an instrument known as an Upper Tier 2 capital instrument; and
(c)
to which an election under paragraph 118(6)(b) of the
New Business Tax System (Debt and Equity) Act 2001
does not apply.
(3)
For the purposes of subitem (2), an interest is taken to be issued on or after 1 July 2001 if:
(a)
the interest is issued on or after that date; or
(b)
the interest is issued before that date, and:
(i)
the terms of the interest are altered on or after that date; or
(ii)
the interest is rolled over on or after that date; or
(iii)
the original term of the interest is extended on or after that date.
In applying subparagraph (b)(i), disregard:
(c)
minor alterations that do not affect rights and obligations in relation to the interest; and
(d)
alterations that permit or require any deferred payments under the interest to accumulate.
Application of debt and equity test amendments
(4)
Despite paragraph 118(6)(a) of the
New Business Tax System (Debt and Equity) Act 2001
, the debt and equity test amendments apply only to transactions that take place in relation to the interest on or after 1 July 2010 if the issuer of the interest does not make an election under paragraph 118(6)(b) of that Act.
(5)
If subitem (4) applies to an interest:
(a)
the interest is disregarded for the purposes of paragraph
164-10(1)(b)
and subsection
164-15(3)
of the
Income Tax Assessment Act 1997
; and
(b)
section
164-15
of the
Income Tax Assessment Act 1997
applies to the interest as if references in paragraph
164-15(3)(b)
and subsection
164-15(4)
to 1 July 2001 were references to 1 July 2010.
(6)
A reference in this item to a
transaction
includes a reference to:
(a)
making a return; and
(b)
paying a dividend or unit trust dividend; and
(c)
making a distribution in relation to a unit trust; and
(d)
paying, crediting or lending an amount; and
(e)
making a non-share distribution; and
(f)
forgiving a debt; and
(g)
redeeming, cancelling or buying back an interest; and
(h)
converting an interest.
Act No 163 of 2001, s 3 and Sch 1 item 118 (as amended by No 162 of 2005, s 3 and Sch 6 items 26 and 27), contained the following application provisions:
(1)
Definitions.
In this item:
CGT amendments
means the amendments made by items 7 to 32 of this Schedule.
debt and equity test amendments
means the amendments made by this Schedule (other than the CGT amendments).
(2)
Application of debt and equity test amendments.
The debt and equity test amendments apply to transactions that take place on or after 1 July 2001. This is so whether the interest in relation to which the transaction takes place was issued before, or is issued on or after, that date. This subitem has effect subject to subitem (6).
History
Subitem 118(2) amended by No 162 of 2005.
(3)
Application of the CGT amendments.
The amendments made by items 7 to 11 of this Schedule apply to:
(a)
equity interests issued or allotted; and
(b)
options granted;
on or after 1 July 2001.
(4)
The amendments made by items 12 to 32 of this Schedule apply to the conversion of a convertible interest, or the exercise of a right, on or after 1 July 2001.
(5)
Section 130-40 of the
Income Tax Assessment Act 1997
applies to all convertible notes acquired before 20 September 1985 as if they were convertible interests.
(6)
Application of debt and equity test amendments to interests issued before 1 July 2001.
If an interest was issued before 1 July 2001, the debt and equity test amendments:
(a)
apply only to transactions that take place in relation to the interest on or after 1 July 2004 if the issuer of the interest does not make an election under paragraph (b); and
(b)
apply to transactions that take place in relation to the interest on or after 1 July 2001 if the issuer elects to have this paragraph apply to the interest.
(7)
For the purposes of subitem (6), an interest is taken to be issued on or after 1 July 2001 if:
(a)
the interest is issued on or after that date; or
(b)
the interest is issued before that date; and:
(i)
the terms of the interest are altered on or after that date; or
(ii)
the interest is rolled over on or after that date; or
(iii)
the original term of the interest is extended on or after that date.
In applying subparagraph (b)(i), disregard minor alterations that do not affect rights and obligations in relation to the interest.
(9)
If paragraph (6)(a) applies to an interest:
(a)
paragraph
164-10(1)(b)
of the
Income Tax Assessment Act 1997
applies to the interest as if the second reference in that paragraph to
"
1 July 2001
"
were instead a reference to
"
1 July 2004
"
; and
(b)
section
164-15
of the
Income Tax Assessment Act 1997
applies to the interest as if the following references were instead references to
"
1 July 2004
"
:
(i)
the first reference in subsection
164-15(3)
to
"
1 July 2001
"
;
(ii)
the reference in subsection
164-15(3)
to
"
that day
"
;
(iii)
the references in paragraph
164-15(3)(b)
and subsection
164-15(4)
to
"
1 July 2001
"
.
History
Subitem 118(9) substituted by No 162 of 2005.
(10)
An election in relation to an interest is effective for the purposes of paragraph (6)(b) only if:
(a)
the election is lodged with the Commissioner within:
(i)
90 days after the day on which this Act receives the Royal Assent; or
(ii)
such further time as the Commissioner allows; and
(b)
an election under paragraph (6)(b) is made in relation to all other interests that:
(i)
were issued by the issuer before 1 July 2001; and
(ii)
are substantially similar to that interest and in relation to which an election under that subitem can be made; and
(c)
the election contains the following information:
(i)
the name of the issuer;
(ii)
the tax file number of the issuer;
(iii)
the legal form of the interest;
(iv)
ASX code or other stock exchange listing code allotted to the issue (if applicable);
(v)
the date of the issue;
(vi)
the face value of the issue;
(vii)
the number of interests of that kind on issue when the election is made;
(viii)
coupon/dividend rates and terms including contingencies;
(ix)
maturity details;
(x)
redemption details and terms including contingencies;
(xi)
conversion/exercise details.
An election under paragraph (6)(b) cannot be revoked.
(11)
The Commissioner may allow further time under subparagraph (10)(a)(ii) if he or she:
(a)
is satisfied that the issuer would otherwise not have sufficient opportunity to make the election; or
(b)
otherwise considers it reasonable to do so.
(12)
If:
(a)
paragraph (6)(a) applies to an interest; and
(b)
on or after 1 July 2001 and before 1 July 2004:
(i)
the terms of the interest are altered; or
(ii)
the interest is rolled over; or
(iii)
the original term of the interest is extended;
then:
(c)
the debt and equity test amendments apply to the transactions in relation to the interest that take place after the event referred to in paragraph (b) occurs; and
(d)
subitem (9) applies to the interest as if references in that subitem to 1 July 2004 were references to the time when that event occurs.
In applying subparagraph (b)(i), disregard minor alterations that do not affect rights and obligations in relation to the interest.
(13)
A reference in this item to a
transaction
includes a reference to:
(a)
making a return; and
(b)
paying a dividend or unit trust dividend; and
(c)
making a distribution in relation to a unit trust; and
(d)
paying, crediting or lending an amount; and
(e)
making a non-share distribution; and
(f)
forgiving a debt; and
(g)
redeeming, cancelling or buying back an interest; and
(h)
converting an interest.
Subdivision 974-D
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Common provisions
History
Subdivision 974-D inserted by No 163 of 2001. For application provisions, see note under Div 974 heading.
SECTION 974-110
Effect of material change
Change to existing scheme
-
general rule
974-110(1)
If:
(a)
a *scheme or schemes give rise to a *debt interest (or an *equity interest) in a company; and
(b)
the scheme, or one or more of the schemes, are subsequently changed, including where one or more (but not all) of the schemes cease to exist; and
(c)
the scheme or schemes as they exist immediately after the change would give rise to an equity interest (or a debt interest) in the company if they came into existence when the change occurred; and
(d)
subsection (1A) does not apply to the change;
this Division applies after the change as if the scheme or schemes as they exist immediately after the change came into existence when the change occurred.
Note 1:
This will mean that the characterisation of the interest will change at that time.
Note 2:
This section can apply to an interest a number of times so that, for example, an interest that is equity when issued may change to debt because of one subsequent change and then back to equity because of a later change.
Note 3:
There will be an adjustment to the company
'
s non-share capital account when the change occurs (see subsections
164-15(2)
and
164-20(3)
).
History
S 974-110(1) amended by No 56 of 2010, s 3 and Sch 6 item 148, by inserting
"
, including where one or more (but not all) of the schemes cease to exist
"
after
"
subsequently changed
"
in para (b), applicable in relation to changes occurring on or after 3 June 2010.
S 974-110(1) amended by No 162 of 2005, s 3 and Sch 6 item 24, by substituting
"
164-20(3)
"
for
"
164-20(4)
"
in Note 3, applicable in accordance with item 118 of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001
, as though those amendments were
debt and equity test amendments
within the meaning of item 118 of that Schedule.
S 974-110(1) amended by No 162 of 2005, s 3 and Sch 6 item 10, by inserting para (d), applicable to:
(a) schemes entered into on or after 1 July 2005; and
(b) schemes entered into before 1 July 2005, in so far as they continue to exist on and after 1 July 2005.
Change to existing scheme
-
special rule for changing a related party at call etc. loan to a private company from equity to debt
974-110(1A)
If:
(a)
a *scheme takes the form of a loan that satisfies paragraphs
974-75(4)(a), (b) and (c)
; and
(b)
the scheme gives rise to an *equity interest (disregarding the effect this subsection has on the characterisation of the interest because of the change referred to in paragraph (c) of this subsection); and
(c)
the scheme is subsequently changed; and
(d)
the change occurs in the period starting immediately after the end of a particular income year (the
year of effect
) and ending at the end of the earlier of the following days:
(i)
the due date for lodgment of the company
'
s *income tax return for the year of effect;
(ii)
the date of lodgment of the company
'
s income tax return for the year of effect; and
(e)
the scheme, as it exists immediately after the change, would give rise to a *debt interest in the company if the interest came into existence when the change occurred; and
(f)
the company is a *private company in relation to the year of effect; and
(g)
subsection
974-75(6)
does not apply in relation to the loan and the year of effect; and
(h)
the company elects that this subsection is to apply to the change;
this Division applies as if the scheme, as it exists immediately after the change, had come into existence at the start of the year of effect, and as if no other change of a kind referred to in subsection (1) had occurred in relation to the interest in the period commencing at the start of the year of effect and ending when the first-mentioned change was made.
Note 1:
This will mean that:
(a) the characterisation of the interest will change, with effect back to the start of the year of effect; and
(b) that characterisation will not be affected by other changes that occurred after the start of the year of effect and before the change to which this subsection applies.
Note 2:
This section can apply to an interest a number of times so that, for example, an interest that is an equity interest when issued may change to debt because of one subsequent change and then back to equity because of a later change.
Note 3:
An adjustment to the company
'
s non-share capital account will be taken to have occurred at the start of the year of effect (see subsection
164-20(3)
).
History
S 974-110(1A) amended by
No 97 of 2008
, s 3 and Sch 3 items 161 and 162, by substituting
"
*income tax return
"
for
"
return of income
"
in para (d)(i) and substituting
"
income tax return
"
for
"
return of income
"
in para (d)(ii), effective 3 October 2008.
S 974-110(1A) inserted by No 162 of 2005, s 3 and Sch 6 item 11, applicable to:
(a) schemes entered into on or after 1 July 2005; and
(b) schemes entered into before 1 July 2005, in so far as they continue to exist on and after 1 July 2005.
974-110(1B)
An election for the purposes of paragraph (1A)(h):
(a)
must be in writing; and
(b)
can only be made in the period referred to in paragraph (1A)(d); and
(c)
cannot be revoked.
History
S 974-110(1B) inserted by No 162 of 2005, s 3 and Sch 6 item 11, applicable to:
(a) schemes entered into on or after 1 July 2005; and
(b) schemes entered into before 1 July 2005, in so far as they continue to exist on and after 1 July 2005.
Entering into a new related scheme
974-110(2)
If:
(a)
a *scheme or schemes give rise to a *debt interest (or an *equity interest) in a company; and
(b)
the company subsequently enters into, participates in or causes another entity to enter into or participate in a new *related scheme; and
(c)
the scheme or schemes, together with:
(i)
the new related scheme; and
(ii)
any other related scheme that the entity (or company) enters into, participates in or causes another entity to enter into or participate in before the new related scheme is entered into;
would give rise to an equity interest (or a debt interest) in the company if they all came into existence when the new related scheme is entered into;
this Division applies after the new related scheme is entered into as if all the schemes referred to in paragraph (c) had come into existence when the new related scheme is entered into.
Note 1:
This will mean that the characterisation of the interest will change at that time.
Note 2:
This section can apply to an interest a number of times so that, for example, an interest that is equity when issued may change to debt because of one subsequent change and then back to equity because of a later change.
Note 3:
There will be an adjustment to the company
'
s non-share capital account when the change occurs (see subsections
164-15(2)
and
164-20(3)
).
History
S 974-110(2) amended by No 162 of 2005, s 3 and Sch 6 item 24, by substituting
"
164-20(3)
"
for
"
164-20(4)
"
in Note 3, applicable in accordance with item 118 of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001
, as though those amendments were
debt and equity test amendments
within the meaning of item 118 of that Schedule.
All prior changes to be taken into account
974-110(3)
In applying paragraphs (1)(c), (1A)(e) and (2)(c) to the *scheme or schemes, take into account:
(a)
all changes to the scheme or schemes that occur before the change or before the new related scheme is entered into; and
(b)
all *related schemes entered into before the change or before the new related scheme is entered into; and
(c)
all changes to related schemes referred to in paragraph (b) that occur before the change or before the new related scheme is entered into.
History
S 974-110(3) amended by No 162 of 2005, s 3 and Sch 6 item 12, by substituting
"
, (1A)(e) and (2)(c)
"
for
"
and (2)(c)
"
, applicable to:
(a) schemes entered into on or after 1 July 2005; and
(b) schemes entered into before 1 July 2005, in so far as they continue to exist on and after 1 July 2005.
S 974-110 inserted by No 163 of 2001. For application provisions, see note under Div 974 heading.
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