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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-C - Equity interests in companies  

SECTION 974-70  Meaning of equity interest in a company  

 View history reference

Scheme giving rise to equity interest

974-70(1)  

A *scheme gives rise to an equity interest in a company if, when the scheme comes into existence:


(a) the scheme satisfies the equity test in subsection 974-75(1) in relation to the company because of the existence of an interest; and


(b) the interest is not characterised as, and does not form part of a larger interest that is characterised as, a *debt interest in the company, or a *connected entity of the company, under Subdivision 974-B.

Note 1:

An equity interest can also arise under subsection (2) if a notional scheme with the combined effect of a number of related schemes would give rise to an equity interest under this subsection. To do this, the notional scheme would need to satisfy paragraph (b). This means that the related schemes will not give rise to an equity interest if the notional scheme would be characterised as (or form part of a larger interest that would be characterised as) a debt interest in the company or a connected entity.

Note 2:

An equity interest can also arise under section 974-80 (arrangements for funding return through connected entities).

Note 3:

Section 974-95 defines various aspects of the equity interest that arises.

Related schemes giving rise to equity interest

974-70(2)  

Two or more *related schemes (the constituent schemes) are taken together to give rise to an equity interest in a company if:


(a) the company enters into, participates in or causes another entity to enter into or participate in the constituent schemes; and


(b) a scheme with the combined effect or operation of the constituent schemes (the notional scheme) would give rise to an *equity interest in the company under subsection (1) if the notional scheme came into existence when the last of the constituent schemes came into existence; and


(c) it is reasonable to conclude that the company intended, or knew that a party to the scheme or one of the schemes intended, the combined economic effects of the constituent schemes to be the same as, or similar to, the economic effects of an equity interest.

This is so whether or not the constituent schemes come into existence at the same time and even if none of the constituent schemes would individually give rise to that or any other equity interest.

Note:

Section 974-105 explains the effect, for tax purposes, of actions taken under the schemes.

974-70(3)  

Subsection (2) does not apply if each of the constituent *schemes individually gives rise to an *equity interest in the company.

974-70(4)  

Two or more related *schemes do not give rise to an *equity interest in a company under subsection (2) if the Commissioner determines that it would be unreasonable to apply that subsection to those schemes.

974-70(5)  

Without limiting subsection 974-10(5), the Commissioner must, in exercising the power to make a determination under subsection (4), have regard to the following:


(a) the purpose of the *schemes (considered both individually and in combination);


(b) the effects of the schemes (considered both individually and in combination);


(c) the rights and obligations of the parties to the schemes (considered both individually and in combination);


(d) whether the schemes (when considered either individually or in combination) provide the basis for, or underpin, an interest issued to investors with the expectation that the interest can be assigned to other investors;


(e) whether the schemes (when considered either individually or in combination) comprise a set of rights and obligations issued to investors with the expectation that it can be assigned to other investors;


(f) any other relevant circumstances.


 



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