Draft Taxation Determination

TD 1999/D14

Income tax: interest withholding tax exemption under section 128F of the Income Tax Assessment Act 1936 - when is a company taken to have the requisite knowledge or suspicion that interest was paid to an associate for the purposes of subsection 128F(6)?

Please note that the PDF version is the authorised version of this draft ruling.

This document has been finalised by TD 1999/21.

FOI status:

draft only - for comment

Preamble

Draft Taxation Determinations (DTDs) present the preliminary, though considered, views of the Australian Taxation Office. DTDs should not be relied on; only final Taxation Determinations represent authoritative statements by the Australian Taxation Office.

1. Subsection 128F(6) disallows the exemption from interest withholding tax in section 128F in circumstances where the interest paid by the company is paid to an associate of the company and the company knows or has reasonable grounds to suspect such a person is an associate.

2. Whether or not a person is an 'associate' of the company (a defined term) is a question of fact, to be determined in light of the individual facts and circumstances of each case. In the case of registered debentures, the presence of an associate's name on the register on which the interests in the debentures are recorded (as at the date on which entitlement to interest is determined) would generally be considered as sufficient grounds for subsection 128F(6) to apply. However, in the case of bearer debentures it is accepted a company would generally not know who the holder is unless officers of the company knew or had reasonable grounds to suspect interest was paid to an associate of the company.

3. As set out in the explanatory memorandum accompanying the legislation, it would be prudent for companies issuing debentures, to '... direct related parties not to acquire the company's debentures'.

Your comments

4. If you wish to comment on this draft Determination, please send your comments promptly by Friday 26 February 1999 to:

Contact officer details have been removed following publication of the final ruling.

Commissioner of Taxation
27 January 1999

References

ATO references:
NO 97/6464-0; 99/658-1

ISSN 1038 - 8982

Legislative References:
ITAA 128F
ITAA 128F(6)

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