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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

Prof Graeme Cooper FTI
Photo of author, Graeme COOPER Prof. Graeme Cooper, FTI, is Professor of Taxation Law at the University of Sydney and a consultant to Greenwoods & Herbert Smith Freehills. He is a former Chair of the New South Wales State Council of The Tax Institute and former member of the National Council. He has worked as a consultant to the ATO, Treasury, Board of Taxation, United Nations, OECD, World Bank, the International Monetary Fund and several foreign governments. He was admitted to legal practice in New South Wales and Victoria, and practised commercial law and tax in Sydney before entering teaching. He has taught 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 31 October 2019
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Anthony Frost CTA
Photo of author, Tony FROST Tony Frost, CTA, Greenwoods & Herbert Smith Freehills’ Managing Director, is a tax lawyer and Chartered Accountant, with a career spanning more than three decades. During this time, he has advised clients on a wide range of matters, including financial transactions, ATO audits and disputes, and the tax aspects of mergers, acquisitions and transfer pricing. Tony has been closely involved in many successful and unsuccessful tax reform projects over the last 30 years or so, including in his role as a key adviser to the Australian Banking Association, and also as an occasional adviser/consultant to the Treasury, ATO and the Board of Taxation. Before joining Greenwoods in 2003, Tony was a partner in a global chartered accounting firm and held a senior position in a leading Australian bank. Tony is a prolific author of tax articles and seminar papers and is regularly invited to speak at industry events and conferences. He spent 15 years as a lecturer in the Master of Laws program at the University of Sydney. Tony is a Chartered Tax Adviser of The Tax Institute, a member of the Law Society of NSW and Chartered Accountants Australia and New Zealand, and a member of the International Fiscal Association. - Current at 01 November 2018
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