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Trading one uncertainty for another? Ten years’ experience with the debt-equity rules


The debt-equity rules in Div 974 of the Income Tax Assessment Act 1997 have now been in operation for more than 10 years. This article presents results from a survey, conducted by the authors, to gather and collate the views of tax professionals in industry and private practice. The particular focus of this article is on “the user experience”: how have the professionals and the institutions which have to work with these rules found them to operate in practice? The authors conclude that the debt-equity rules have not proved to be an unqualified success.

There are many problematic areas in the text of the law, it has not proved to be a robust and reliable test that is easily grasped and applied, and the search for the single organising principle has not been completely successful. However, there appears to be no appetite for major repeal; legislative tinkering and ongoing support by administrative guidance are seen to be preferable.

Author profiles:

Author Photo - Graeme Cooper CTA
Prof Graeme Cooper CTA
Graeme is Professor of Taxation Law at the University of Sydney and a consultant to Greenwoods & Herbert Smith Freehills. He is a former New South Wales State Council Chairman of The Tax Institute and currently a member of the National Council. He has worked as a consultant to the ATO, Treasury, Board of Taxation, United Nations, OECD, World Bank and International Monetary Fund. He was admitted to legal practice in New South Wales (1980) and Victoria (1999), and practised commercial law and tax in Sydney before entering teaching. He has taught tax in law schools in Australia, Europe and the United States, and holds degrees from the University of Sydney, University of Illinois and Columbia University, New York. Current at 11 January 2016 Click here to expand/collapse more articles by Graeme COOPER.
Anthony Frost CTA
Tony is the Managing Director of Greenwoods & Freehills. With more than 25 years experience in tax, Tony has a focus on financial services and financial transactions. Tony has advised clients on a wide range of tax matters, including innovative financial products, mergers and acquisitions, cross-border dealings, transfer pricing, tax audits and negotiations with the Australian Taxation Office. Tony has also advised clients on various OBU matters over many years, and is part of the consultation group set up by Treasury to discuss changes to the OBU rules announced in the previous government’s 2013-14 Budget. Current at 18 October 2013 Click here to expand/collapse more articles by Tony FROST.
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