Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision D - Payments and loans that are not treated as dividends  

SECTION 109R   SOME PAYMENTS RELATING TO LOANS NOT TAKEN INTO ACCOUNT  

109R(1)   [Some payments not considered]  

This section provides for some payments to a private company in relation to a loan the private company made to an entity not to be taken into account for the purpose of working out:

(a) how much of the loan has been repaid for the purposes of sections 109D and 109E (which treat amounts of loans that have not been repaid as dividends); or

(b) the minimum yearly repayment for the loan under subsection 109E(5) .

109R(2)   [Intention to obtain loan]  

A payment must not be taken into account if:

(a) a reasonable person would conclude (having regard to all the circumstances) that, when the payment was made, the entity intended to obtain a loan or loans from the private company of a total amount similar to, or larger than, the payment; or

(b) both of the following subparagraphs apply:

(i) the entity obtained, before the payment was made, a loan or loans from the private company of a total amount similar to, or larger than, the amount of the payment;

(ii) a reasonable person would conclude (having regard to all the circumstances) that the entity obtained the loan or loans in order to make the payment.

109R(3)   [Set offs]  

Subsection (2) does not apply to a payment made by setting off against an amount payable in relation to the loan:

(a) a dividend payable by the private company to the entity; or

(b) work and income support related withholding payments and benefits payable by the private company to the entity; or

(ba) payments covered by section 12-55 in Schedule 1 to the Taxation Administration Act 1953 ; or

(c) if the entity has transferred property to the private company - an amount equalling the difference between:

(i) the amount that a party at arm's length from the entity would have paid for the transfer of the property to the party; and

(ii) the amount that the private company has already paid the entity (by way of set-off or otherwise) for the transfer.

109R(4)   [Payments made on behalf of borrower]  

Nor does subsection (2) apply to a payment made on behalf of the entity (the borrower ) by another entity paying to the private company an amount that:

(a) is payable by the other entity to the borrower; and

(b) is assessable income of the borrower for the year of income in which the payment was made or an earlier year of income.

109R(5)   [ Subordination of loan]  

Subsection (2) does not apply to a payment if:

(a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan ); and

(b) the entity to which the old loan was made has another loan (the primary loan) from another entity; and

(c) the old loan becomes subordinated to the primary loan; and

(d) the refinancing of the old loan mentioned in paragraph (a) took place in connection with that subordination; and

(e) that subordination arose as a result of circumstances beyond the control of the entity to which the old loan was made; and

(f) the entity to which the old loan was made and the other entity dealt with each other at arm's length in relation to that subordination; and

(g) the private company and the other entity dealt with each other at arm's length in relation to that subordination.

109R(6)   [ Refinancing of loan to maximum of 25 years]  

Subsection (2) does not apply to a payment if:

(a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan ); and

(b) the refinancing results in another loan (the new loan ); and

(c) the maximum term of the old loan under subsection 109N(3) was 7 years; and

(d) the maximum term of the new loan under subsection 109N(3) is 25 years (reduced in accordance with subsection 109N(3B) ).

109R(7)   [ Refinancing of loan to maximum of 7 years]  

Subsection (2) does not apply to a payment if:

(a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan ); and

(b) the refinancing results in another loan (the new loan ); and

(c) the maximum term of the old loan under subsection 109N(3) was 25 years; and

(d) the maximum term of the new loan under subsection 109N(3) is:

(i) unless subparagraph (ii) applies - 7 years; or

(ii) if subsection 109N(3D) applies - 7 years reduced in accordance with that subsection.