The Government on Thur 25.10.2012 released Exposure Draft – Tax Laws Amendment (2012 Measures No 6) Bill 2012 proposing to amend the limited recourse debt provisions in Div 243 of the ITAA 1997. The draft legislation seeks to give effect to the Government’s 2012-13 Budget measure to ensure that the limited recourse debt tax provisions are not circumvented through the use of other arrangements which have the same commercial effect as contractually limited recourse debts.
The Draft Bill will clarify that the definition of “limited recourse debt” (s 243-20(2)) includes debt arrangements where it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default are effectively limited to the financed or secured property. That is, the definition will be amended to include arrangements where, in substance or effect, the debtor is not fully at risk in relation to the debt. In working out whether it is “reasonable to conclude” that the creditor’s rights against the debtor in the event of default in payment of the debt (or interest) are limited in substance or effect, regard must be given to the debtor’s assets, any arrangement to which the debtor is a party, and whether the debtor and the creditor are dealing at arm’s length.
DATE OF EFFECT: The amendments will apply in relation to debt arrangements terminated at or after 7.30 pm (AEST) on 8 May 2012.
SUBMISSIONS are due by 12 November 2012.
[LTN 207, 25/10]