Thin capitalisation: eroding asset values and increasing debt ... - PwC

TaxTalk – Electronic Bulletin of Australian Tax Developments
an investment in, a related party of the
fund, an investment in a related trust of
the fund, or an asset of the fund subject
to a lease or lease arrangement between
a trustee of the fund and a related party
of the fund …” The Draft Ruling states
that this part of the definition contains
terms defined in the SISA which require
further consideration, being:
•
•
•
•
•
asset
loan
investment in
lease, and
lease arrangement.
The Commissioner’s views as to what
each of these terms is defined to
mean are set out in the Draft Ruling,
together with a number of examples.
In relation to the meaning of ‘loan’, the
Draft Ruling states that the definition in
the SISA is substantially wider than the
traditional meaning of a ‘loan’ which
involves a payment and repayment
of an amount of money, and extends
the scope of arrangements covered
to include arrangements that are in
substance financing arrangements
deferring the payment of an amount.
Such arrangements would include
(but are not limited to):
•
•
•
the loan of money
sale of goods or land on credit
instalment payment arrangements, and
• arrangements for the deferral of
payment of debts or entitlements.
SMSF trustees will need to consider the
activities of the relevant fund in the light
of the Commissioner’s views and take
appropriate action to ensure that the
‘in‐house asset’ rule is not breached.
According to the Commissioner, the
formality and the legal enforceability of
the arrangement does not affect whether
it is a ‘loan’ under the definition in the
SISA. The Commissioner believes that
‘loan’ also encompasses arrangements
where there is no objective purpose
of gaining interest, income, profit or
gain, such as an interest-free loan.
The Commissioner however accepts that
not every situation where a payment is
deferred necessarily amounts to a ‘loan’
under the definition, such as the payment
for goods on normal commercial terms.
Comments can be made on the Draft
Ruling up until 19 December 2008.
Once finalised, the Ruling will apply
both before and after its date of issue.
Superannuation guarantee
Draft Superannuation Guarantee Ruling
SGR 2008/D2, issued on 5 November
2008, sets out the Commissioner’s
preliminary views on:
• what constitutes ‘ordinary time
earnings’ (OTE) for the purpose of
calculating the minimum level of
superannuation support required
for individual employees, and
• the meaning of ‘salary or
wages’, which is relevant to
employers in calculating the
superannuation guarantee shortfall
of individual employees where
an employer has not provided
the required minimum level of
superannuation support.
It is proposed that when the final Ruling
is issued, it will replace Superannuation
Guarantee Rulings SGR 94/4 and
SGR 94/5. An important observation
with respect to SGR 2008/D2 is that the
Commissioner’s preliminary view is that
payments specifically excluded from OTE
are not necessarily excluded from ‘salary
or wages’. On this point, SGR 2008/D2
cites a lump sum payment in lieu of
unused annual leave, and unused long
service leave made to the employee on
termination of employment as examples
of payments falling into this category.
That not having a proper understanding
of these definitions can result in
adverse implications for an employer
was highlighted in the Administrative
Appeals Tribunal decision (Prushka
Fast Debt Recovery Pty Ltd v Federal
Commissioner of Taxation [2008]
AATA 762), which we reported in
our October 2008 edition of TaxTalk.
Once finalised, the Ruling will apply
both before and after its date of issue.
For further information, please contact your
usual PricewaterhouseCoopers adviser, or:
Mike Forsdick, Partner
(02) 8266 5767
mike.forsdick@au.pwc.com
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