Inserts for
Tax Laws Amendment (2012 Measures No. 6) Bill 2012: limited recourse debt

EXPOSURE DRAFT

Commencement information	
Column 1	Column 2	Column 3	
Provision(s)	Commencement	Date/Details	
1.  			
2.  Schedule ??	The day this Act receives the Royal Assent.		
3.  			
Schedule ??—Limited recourse debt
  
Income Tax Assessment Act 1997
1  Subsection 243‑20(2)
Repeal the subsection, substitute:
	(2)	An obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) is also a limited recourse debt if it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest:
	(a)	are capable of being limited in the way mentioned in subsection (1); or
	(b)	are in substance or effect limited wholly or predominantly to rights (including the right to money payable) in relation to any or all of the following:
	(i)	the *debt property or the use of the debt property;
	(ii)	goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property;
	(iii)	the loss or disposal of the whole or a part of the debt property or of the debtor’s interest in the debt property.
Note:	Paragraph (b) could apply to a special purpose entity. For example, an entity’s only asset is one that it financed by way of a bank loan. The bank’s rights to recover the debt (if the entity defaults) are not contractually limited, however they are in effect limited to rights in relation to the asset.
2  Subsection 243‑20(3)
Omit the second sentence.
3  After subsection 243‑20(3)
Insert:
	(3A)	In reaching a conclusion for the purposes of subsection (2) or (3), have regard to the following:
	(a)	the debtor’s assets (other than assets that are indemnities or guarantees provided in relation to the debt);
	(b)	any *arrangement to which the debtor is a party;
	(c)	except for the purposes of paragraph (2)(b)—whether all of the debtor’s assets would be available for the purpose of discharging the debt (other than assets that are security for other debts of the debtor or any other entity);
	(d)	whether the debtor and creditor are dealing at *arm’s length in relation to the debt.
4  Application of amendments
The amendments made by this Schedule apply in relation to debt arrangements terminated at or after 7.30 pm, by legal time in the Australian Capital Territory, on 8 May 2012.