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

4   At the end of Division 57 in Schedule 2D

Add:

Subdivision 57-P - Balancing adjustment on ceasing to have a Division 230 financial arrangement

57-135 Balancing adjustment on ceasing to have a Division 230 financial arrangement referred to in section 57-32

(1) This section applies if:

(a) section 57-32 was applied to work out the market value of an asset (the subject asset ); and

(b) the transition taxpayer is a party to the Division 230 financial arrangement (the financial arrangement ) to which the subject asset, or the corresponding liability for the subject asset, is or is part of; and

(c) a balancing adjustment is made under Subdivision 230-G of the Income Tax Assessment Act 1997, after the transition time, in relation to the financial arrangement.

(2) For the purposes of making the balancing adjustment under Subdivision 230-G of the Income Tax Assessment Act 1997 in relation to the financial arrangement, adjust the amount worked out using the method statement (the method statement ) in subsection 230-445(1) of that Act by:

(a) if the transition taxpayer is the holder of the subject asset - increasing any gain or reducing any loss by the amount worked out under subsection (4) of this section; or

(b) if the transition taxpayer is the holder of the corresponding liability for the subject asset - reducing any gain or increasing any loss by the amount worked out under subsection (4) of this section.

(3) Despite subsection (2):

(a) if the amount worked out under subsection (4) exceeds the amount of the loss to be reduced under paragraph (2)(a) - the transition taxpayer is taken, for the purposes of making the balancing adjustment, to have made a gain equal to the amount of the excess; or

(b) if the amount worked out under subsection (4) exceeds the amount of the gain to be reduced under paragraph (2)(b) - the transition taxpayer is taken, for the purposes of making the balancing adjustment, to have made a loss equal to the amount of the excess; or

(c) if when applying the method statement no balancing adjustment is made in relation to the financial arrangement - the transition taxpayer is taken, for the purposes of making the balancing adjustment, to have:

(i) if the transition taxpayer is the holder of the subject asset - made a gain equal to the amount worked out under subsection (4); or

(ii) if the transition taxpayer is the holder of the corresponding liability for the subject asset - made a loss equal to the amount worked out under subsection (4).

(4) For the purposes of subsections (2) and (3), the amount is the difference between:

(a) the amount that the transition taxpayer would need to receive or pay under the financial arrangement without an amount being assessable income of, or deductible to, the transition taxpayer if the subject asset, or the corresponding liability for the subject asset, were disposed of at the time the balancing adjustment is made; and

(b) the amount that the transition taxpayer would need to receive or pay under the financial arrangement without an amount being assessable income of, or deductible to, the transition taxpayer if:

(i) the subject asset, or the corresponding liability for the subject asset, were disposed of at the time the balancing adjustment is made; and

(ii) the assumptions in subsection (5) were made.

(5) The assumptions referred to in subparagraph (4)(b)(ii) are that, when the financial arrangement was entered into:

(a) the parties to the arrangement were dealing with each other at arm's length (within the meaning of the Income Tax Assessment Act 1997) in relation to the arrangement; and

(b) if the arrangement 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 equal to the benchmark rate of return (within the meaning of the Income Tax Assessment Act 1997) for the interest.

(6) This section applies despite section 230-510 of the Income Tax Assessment Act 1997.