TA 2016/9 – Commissioner alerts taxpayers that, in his view, ‘debt interests’ treated as ‘equity’ for accounting purposes, can be valued as $nil for ‘thin capitalisation’ purposes

On 10 August 2016, the ATO issued TA 2016/9 (the 3rd of 3 on that day). It alerts taxpayers that the Commissioner does not agree with a construction of the ‘thin capitalisation’ provisions in Div 820 of the ITAA97, where a taxpayer issues a ‘debt interest’ that is treated by ‘accounting standards’ (AASB 132) as equity.

The Commissioner has become aware that some taxpayers are excluding the value of this debt interest, because it is treated as ‘equity’ (not ‘debt’) for accounting purposes.

The Commissioner’s position is that the law requires the taxpayer to calculate the value of that ‘debt interest’ under the accounting standards as the sum of the value attributed to the accounting equity component and the value attributed to any accounting liability component.

The Commissioner also warns taxpayers that s820-690 of the ITAA97 gives him a discretion to substitute a more appropriate value of debt capital.

Similarly, the Commissioner would consider applying the general anti-avoidance provisions in Part IVA of the ITAA36.

In this situation (too) taxpayers are encouraged to do something (take advice and change their approach)

[ATO website – TA 2016/9] [LTN 153, 10/8/16]