Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-95 - VALUE SHIFTING  

Division 727 - Indirect value shifting affecting interests in companies and trusts, and arising from non-arm ' s length dealings  

Subdivision 727-C - Exclusions  

Indirect value shifts involving services

SECTION 727-245   How to work out certain amounts for the purposes of sections 727-230 and 727-235  

727-245(1)    
The costs mentioned in paragraph 727-230(b) or 727-235(1)(b) are to be worked out:

(a)    in accordance with generally accepted accounting practices; and

(b)    to the extent that the services are to be provided in the future, on the basis of a reasonable estimate of those costs.

727-245(2)    
To avoid doubt, the direct cost or indirect cost mentioned in paragraph 727-230(b) or 727-235(1)(b) does not include:

(a)    to the extent that the services consist of or include lending money or providing any other form of financial accommodation - the amount of the loan or other accommodation; or

(b)    to the extent that the services consist of or include leasing, renting, hiring, or allowing the use of, any asset:

(i) the cost of acquiring the asset; or

(ii) the cost of acquiring an interest in, or right in respect of, the asset in order to provide the services.

Example:

Acme Ltd is the holding company of Group Financier Pty Ltd. Group Financier Pty Ltd borrows $20 million at 7% per annum, and on lends it to other subsidiaries of Acme Ltd at 8% per annum.

The $20 million does not form part of Group Financier Pty Ltd ' s direct cost of the services it provides to the other subsidiaries in the form of the on lending. However, the 7% interest that Group Financier Pty Ltd pays on the $20 million does form part of that direct cost.

727-245(3)    
The present values mentioned in paragraph 727-230(b) or 727-235(1)(b) are to be worked out using a discount rate equal to the rate that, for the purposes of section 109N of Income Tax Assessment Act 1936 , is the benchmark interest rate for the income year in which the ^* IVS time occurs.

Note:

That section is about distributions to entities connected with a private company.