Australia proposes new debt-equity tax rules

The Australian government has released draft legislation for public comment that would amend the country’s debt-equity tax rules.

The exposure draft, released October 5, introduces a new rule for determining when arrangements should be aggregated purposes of the debt-equity rules. The revisions are designed to ensure that multiple schemes are treated as a single scheme only when this accurately reflects the economic substance of the schemes.

The new rules state that it is necessary to consider an interdependence test, namely, whether the pricing, terms, and conditions of arrangements are interdependent in a way that would change their debt or equity treatment under Division 974, and a design test, which considers whether it could be concluded that the schemes were designed to operate to produce their combined economic effect.

A link that is either accidental or present, without any element of design, is not sufficient to cause the schemes to be aggregated, the guidance states.

The new scheme aggregation rule would replace the existing related scheme rules in subsections 974-15(2) and 974-70(2), and the equity override integrity provision in section 974‑80.

Comments on the draft are requested by November 21.

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