INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 16G - Debt creation involving non-residents  

Subdivision C - Reduction of interest deductions  

SECTION 159GZZE   REDUCTION OR EXTINCTION OF INTEREST DEDUCTION IN CASE OF CERTAIN CREATED DEBT  

159GZZE(1)    
Where:

(a) apart from this Division and Division 16F, an amount of interest is allowable as a deduction from the assessable income of a taxpayer that:

(i) is a company; and

(ii) is not a taxpayer in the capacity of trustee;

(b) the interest is in respect of an amount owing in connection with the acquisition of an asset by the taxpayer, either alone or together with another person or persons, from another company (in this section called the ' eligible seller ' ), either alone or together with another person or persons; and

(c) any of the following subparagraphs applies in relation to the acquisition:

(i) the eligible seller:

(A) was a foreign controller of the taxpayer immediately after the acquisition; or

(B) later became a foreign controller of the taxpayer under a scheme of which the acquisition was a part;

(ii) the taxpayer:

(A) was a foreign controller of the eligible seller immediately before the acquisition; or

(B) earlier ceased to be a foreign controller of the eligible seller under a scheme of which the acquisition was a part;

(iii) in a case to which neither subparagraph (i) nor (ii) applies - the following conditions are satisfied in relation to a person (in this section called the ' common foreign controller ' ):

(A) the person was a foreign controller of the eligible seller immediately before the acquisition, or earlier ceased to be a foreign controller of the eligible seller under a scheme of which the acquisition was a part;

(B) the person was a foreign controller of the taxpayer immediately after the acquisition, or later became a foreign controller of the taxpayer under a scheme of which the acquisition was a part;

the deduction so allowable shall be reduced in accordance with this section.

159GZZE(2)    
If there are 2 or more eligible sellers in relation to the acquisition of the asset by the taxpayer, subsection (1) applies successively to each combination of the taxpayer and each of those eligible sellers.

159GZZE(3)    
Where:

(a) subsection (1) applies, because of subparagraph (1)(c)(iii), in relation to the taxpayer and a particular eligible seller; and

(b) there are 2 or more common foreign controllers in connection with that application of subsection (1);

the amount calculated for the purposes of that application of subsection (1) shall be the aggregate of the amounts that would be calculated in relation to each of those common foreign controllers.

159GZZE(4)    
In respect of each application of subsection (1) in relation to the same acquisition of an asset, the deduction shall be reduced by the amount calculated in accordance with the formula:

Deduction × Asset ownership factor × Capital entitlement factor

where:

Deduction is the amount of the deduction that would be allowable apart from this Division and Division 16F;

Asset ownership factor is the eligible seller ' s interest in the asset immediately before the acquisition, expressed as a proportion of the total interests in the asset;

Capital entitlement factor is:

(a) where subparagraph (1)(c)(i) applies - the capital entitlement factor of the eligible seller in respect of the taxpayer:

(i) if sub-subparagraph (1)(c)(i)(A) applies - immediately after the acquisition; or

(ii) if sub-subparagraph (1)(c)(i)(B) applies - immediately after the eligible seller became a foreign controller of the taxpayer;

(b) where subparagraph (1)(c)(ii) applies - the capital entitlement factor of the taxpayer in respect of the eligible seller:

(i) if sub-subparagraph (1)(c)(ii)(A) applies - immediately before the acquisition; or

(ii) if sub-subparagraph (1)(c)(ii)(B) applies - immediately before the taxpayer ceased to be a foreign controller of the eligible seller; or

(c) where subparagraph (1)(c)(iii) applies - the smaller of the following percentages:

(i) the capital entitlement factor of the common foreign controller in respect of the eligible seller:

(A) if the common foreign controller was a foreign controller of the eligible seller immediately before the acquisition - immediately before the acquisition; or

(B) if the common foreign controller earlier ceased to be a foreign controller of the eligible seller as mentioned in sub-subparagraph (1)(c)(iii)(A) - immediately before that occurred;

(ii) the capital entitlement factor of the common foreign controller in respect of the taxpayer:

(A) if the common foreign controller was a foreign controller of the taxpayer immediately after the acquisition - immediately after the acquisition; or

(B) if the common foreign controller later became a foreign controller of the taxpayer as mentioned in sub-subparagraph (1)(c)(iii)(B) - immediately after that occurred.

159GZZE(5)    
Where the interest is only partly in respect of the amount owing as mentioned in paragraph (1)(b), this section applies to the deduction to a corresponding extent.

159GZZE(6)    
In the application of this section to the acquisition of an asset, an entitlement to receive, directly or indirectly, a particular percentage of a distribution of capital of a company shall not be counted to the extent to which that entitlement has previously been counted in the application of this section to that acquisition.