Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019 (95 of 2019)

Schedule 1   Tax treatment of concessional loans involving tax exempt entities

Income Tax Assessment Act 1936

3   After section 57-30 in Schedule 2D

Insert:

57-32 Division 230 financial arrangements - market value of assets and rights

(1) This section applies in relation to an asset (the subject asset ) held by an entity (the holder ) if:

(a) the subject asset is:

(i) covered by subsection 57-25(1); or

(ii) a right, or other asset, corresponding to a liability covered by subsection 57-30(1); and

(b) the subject asset, or the corresponding liability for the subject asset, is or is part of a Division 230 financial arrangement at the transition time; and

(c) when the arrangement was entered into:

(i) the parties to the arrangement were not dealing at arm's length (within the meaning of the Income Tax Assessment Act 1997) in relation to the subject asset; or

(ii) if the subject asset gives rise to an interest that is not an equity interest in an entity - the return on the interest would reasonably be expected to be less than the benchmark rate of return (within the meaning of that Act) for the interest.

(2) For the purposes mentioned in subsection (3), assume at the transition time that the market value of the subject asset is the total amount (the initial amount ) of the financial benefits (within the meaning of the Income Tax Assessment Act 1997) that the holder provided in relation to the subject asset before the transition time:

(a) reduced by:

(i) repayments of principal made in relation to the subject asset before the transition time; and

(ii) the amount of any impairment (within the meaning of the accounting principles (within the meaning of that Act)) of the subject asset at the transition time; and

(b) increased by the amount of the cumulative amortisation (worked out using the effective interest method recognised by the accounting principles (within the meaning of that Act)) of any difference at the transition time between:

(i) the initial amount; and

(ii) the amount payable on the maturity of the subject asset.

(3) Subsection (2) has effect for the purposes of working out the subject asset's adjusted market value under section 57-25 or 57-30 for use when applying Division 230 of the Income Tax Assessment Act 1997 to the subject asset or the corresponding liability for the subject asset.

57-33 Division 230 financial arrangements - transition taxpayer's right to receive or obligation to provide payment

(1) This section applies in relation to the following:

(a) an asset covered by subsection 57-25(1) to which section 57-32 applies;

(b) the corresponding liability for a right, or other asset, covered by subsection 57-30(1) to which section 57-32 applies.

Note: Section 57-32 applies if the asset or liability is or is part of a Division 230 financial arrangement.

(2) For the purposes of section 230-60 of the Income Tax Assessment Act 1997, assume the following:

(a) in the case of an asset - that the transition taxpayer acquired the asset at the transition time in return for the transition taxpayer starting to have an obligation to provide one or more financial benefits in relation to the Division 230 financial arrangement;

(b) in the case of a liability - that the transition taxpayer started to have the liability at the transition time in return for the transition taxpayer starting to have a right to receive one or more financial benefits under the Division 230 financial arrangement.