Inbound interest-free loans: Part 1
Source: Taxation In Australia Journal Article
Published Date: 1 Apr 2021
Interest-free loans are typically drafted as debt interests for the purposes of Div 974 of the Income Tax Assessment Act 1997 (Cth) but are not included in the borrower's thin capitalisation calculations due to there being no interest expense. While interest-free loans are a common funding instrument and appear to be simple, many complexities in relation to their tax treatment can arise. The debt/equity characterisation is often more complex than anticipated due to the breadth of the related scheme provisions, as well as the reconstruction provisions in the transfer pricing rules. Further, the treatment of an interest-free loan for thin capitalisation has been thrown into doubt due to the ATO's conclusion in TD 2019/12 that a wide variety of costs can be debt deductions "if any of these costs are attributable to an interest-free loan, the loan can be included in the borrower's adjusted average debt.
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- Published By: Ellen Thomas ATI
- Published On:1 Apr 2021
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