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In the 2012-13 Budget, the Government announced that it will amend the definition of limited recourse debt in Division 243 ITAA 1997, to ensure that tax deductions are not available for capital expenditure on assets that have been financed by limited recourse debt, to the extent that the taxpayer is not effectively at risk for the expenditure and does not make an economic loss.

The proposed measure will affect the financing of projects where the borrower is a special purpose entity that has minimal or no other assets or income from other sources apart from the project assets.

Treasury has now released a discussion paper in relation to the proposed amendment.

Specifically, s 243-20 will be amended to define a limited recourse debt as including arrangements where at the beginning, the creditor’s rights against the debtor, in the event of default in payment of the debt, are limited wholly or predominantly (whether or not by contract) to certain rights in respect of the financed property or other property.

The closing date for submissions is Friday 10 August 2012.


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