On 2 April 2015 the Government announced that it would implement recommendations made by the Board of Taxation to improve the debt and equity tax rules.
The debt and equity tax rules classify financing schemes as debt or equity according to their economic substance and contain integrity rules that are designed to prevent taxpayers from artificially splitting a single scheme into multiple schemes to achieve favourable tax outcomes. The exposure draft legislation gives effect to the Board of Taxation’s recommendations on how to address the uncertainty and compliance costs that result from the current rules, while still preserving the integrity of the debt equity tax rules. The Board also recommended that examples of the operation of the new integrity rules should be set out in a legislative instrument.
The Government has developed draft legislation to implement this measure and is now seeking comments on the proposed legislation (including the legislative instrument) and the accompanying explanatory memorandum.