Monday, 12 December 2016

Australia proposes changes to improve debt-equity characterization rules

On 10 October 2016, the government released exposure draft (ED) legislation and an explanatory memorandum setting out proposed amendments to improve Australia’s debt-equity rules. The ED proposes a new integrity rule (the scheme aggregation rule) for establishing when two or more schemes should be aggregated and treated as a single scheme for tax purposes. The proposed changes were recommended by the Board of Taxation following a post-implementation review of Australia’s debt-equity rules. The board’s report found that the current integrity rules targeting multiple arrangements are broadly drafted and, therefore, create significant uncertainty for businesses. The proposed replacement rule (the scheme aggregation rule) is based on two tests: the interdependence test and the design test. These tests are aimed at ensuring that multiple schemes are aggregated only where such aggregation would accurately reflect the economic substance of the arrangement.
Source: Deloitte