• Service: Tax, Corporate Tax
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 23/04/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Peter Mallyon

Peter Mallyon
Director, Tax

+61 2 9335 7562

Tax Board injects commonsense into debt/equity debate 

by Peter Mallyon, Financial Services Specialist

On 25 March 2014, the Board of Taxation released a discussion paper relating to its review into the debt and equity provisions. The discussion paper is a response to a request from Treasury in May 2013 for the Board to undertake a post-implementation review of the debt and equity rules including whether there can be improved arrangements within the Australian tax system to address any inconsistencies between Australia’s and other jurisdictions’ debt and equity rules that could give rise to tax arbitrage opportunities.

An important aspect of the review will be in relation to section 974-80, which is an integrity provision that can recast what would otherwise be a debt instrument (upon which distributions would prima facie be deductible) as equity.


Promisingly, the Board has noted that the review will address 'problems arising with the integrity provision in section 974-80' and 'concerns raised by stakeholders… with the application of section 974-80 to financier trust stapled arrangements.'


Over the past few years, the Australian Taxation Office (ATO) has initiated a number of audits and risk reviews in relation to cross-staple arrangements (in particular, cross-staple redeemable preference shares), some of which have resulted in the issuance of amended assessments. These types of arrangements have been common in the financing of large infrastructure projects.


Helpfully, the Board has noted that stapled structures in the infrastructure sector are a commercial reality and that uncertainties around the potential application of section 974-80 should be removed. The application of section 974-80 should be limited and 'carefully targeted at genuine cases of mischief'.


The Board has sought comment from stakeholders and has questioned whether a specific integrity measure is required in the debt / equity provisions given the potential overriding application of the general anti-avoidance provisions in Part IVA. Any amendments that provide certainty and reflect the commercial necessity for stapled structures (particularly in the infrastructure sector) will be welcomed.


Submissions on the Board’s discussion paper are due by 23 May 2014.


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