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Income Tax Assessment Act 1997

CHAPTER 6 - THE DICTIONARY  

PART 6-1 - CONCEPTS AND TOPICS  

Division 974 - Debt and equity interests    View history reference

Subdivision 974-D - Common provisions  

SECTION 974-110  Effect of material change  

 View history reference

Change to existing scheme - general rule

974-110(1)  

If:


(a) a *scheme or schemes give rise to a *debt interest (or an *equity interest) in a company; and


(b) the scheme, or one or more of the schemes, are subsequently changed, including where one or more (but not all) of the schemes cease to exist; and
 View history reference


(c) the scheme or schemes as they exist immediately after the change would give rise to an equity interest (or a debt interest) in the company if they came into existence when the change occurred; and


(d) subsection (1A) does not apply to the change;
 View history reference

this Division applies after the change as if the scheme or schemes as they exist immediately after the change came into existence when the change occurred.

Note 1:

This will mean that the characterisation of the interest will change at that time.

Note 2:

This section can apply to an interest a number of times so that, for example, an interest that is equity when issued may change to debt because of one subsequent change and then back to equity because of a later change.

Note 3:

There will be an adjustment to the company ' s non-share capital account when the change occurs (see subsections 164-15(2) and 164-20(3) ).

Change to existing scheme - special rule for changing a related party at call etc. loan to a private company from equity to debt

974-110(1A)  

 View history reference
If:


(a) a *scheme takes the form of a loan that satisfies paragraphs 974-75(4)(a), (b) and (c) ; and


(b) the scheme gives rise to an *equity interest (disregarding the effect this subsection has on the characterisation of the interest because of the change referred to in paragraph (c) of this subsection); and


(c) the scheme is subsequently changed; and


(d) the change occurs in the period starting immediately after the end of a particular income year (the year of effect ) and ending at the end of the earlier of the following days:

(i) the due date for lodgment of the company ' s *income tax return for the year of effect;

(ii) the date of lodgment of the company ' s income tax return for the year of effect; and
 View history reference


(e) the scheme, as it exists immediately after the change, would give rise to a *debt interest in the company if the interest came into existence when the change occurred; and


(f) the company is a *private company in relation to the year of effect; and


(g) subsection 974-75(6) does not apply in relation to the loan and the year of effect; and


(h) the company elects that this subsection is to apply to the change;

this Division applies as if the scheme, as it exists immediately after the change, had come into existence at the start of the year of effect, and as if no other change of a kind referred to in subsection (1) had occurred in relation to the interest in the period commencing at the start of the year of effect and ending when the first-mentioned change was made.

Note 1:

This will mean that:

(a) the characterisation of the interest will change, with effect back to the start of the year of effect; and
(b) that characterisation will not be affected by other changes that occurred after the start of the year of effect and before the change to which this subsection applies.
Note 2:

This section can apply to an interest a number of times so that, for example, an interest that is an equity interest when issued may change to debt because of one subsequent change and then back to equity because of a later change.

Note 3:

An adjustment to the company ' s non-share capital account will be taken to have occurred at the start of the year of effect (see subsection 164-20(3) ).

974-110(1B)  

 View history reference
An election for the purposes of paragraph (1A)(h):


(a) must be in writing; and


(b) can only be made in the period referred to in paragraph (1A)(d); and


(c) cannot be revoked.

Entering into a new related scheme

974-110(2)  

If:


(a) a *scheme or schemes give rise to a *debt interest (or an *equity interest) in a company; and


(b) the company subsequently enters into, participates in or causes another entity to enter into or participate in a new *related scheme; and


(c) the scheme or schemes, together with:


(i) the new related scheme; and

(ii) any other related scheme that the entity (or company) enters into, participates in or causes another entity to enter into or participate in before the new related scheme is entered into;
would give rise to an equity interest (or a debt interest) in the company if they all came into existence when the new related scheme is entered into;

this Division applies after the new related scheme is entered into as if all the schemes referred to in paragraph (c) had come into existence when the new related scheme is entered into.

Note 1:

This will mean that the characterisation of the interest will change at that time.

Note 2:

This section can apply to an interest a number of times so that, for example, an interest that is equity when issued may change to debt because of one subsequent change and then back to equity because of a later change.

Note 3:

There will be an adjustment to the company ' s non-share capital account when the change occurs (see subsections 164-15(2) and 164-20(3) ).

All prior changes to be taken into account

974-110(3)  

 View history reference
In applying paragraphs (1)(c), (1A)(e) and (2)(c) to the *scheme or schemes, take into account:


(a) all changes to the scheme or schemes that occur before the change or before the new related scheme is entered into; and


(b) all *related schemes entered into before the change or before the new related scheme is entered into; and


(c) all changes to related schemes referred to in paragraph (b) that occur before the change or before the new related scheme is entered into.


 



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