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.