ATO ID 2003/445: Infrastructure borrowings: Direct infrastructure borrowing - anti-avoidance - certain recouped expenditure
Date of decision: 31 March 2003
Year of income: Year ended 31 December 2002
Business line: Public Groups and International

Issue
Will the anti-avoidance provision section 82KL of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the taxpayer in relation to the interest paid under a Direct Infrastructure Borrowing (DIB)?

Decision
No. As the interest paid by the taxpayer under the DIB will not be deductible because of the operation of subsection 159GZZZZE(1) of the ITAA 1936, the interest will not be subject to section 82KL of the ITAA 1936.

Facts
The taxpayer currently holds a certificate from the Development Allowance Authority (DAA) permitting it to issue DIBs with which it financed construction of an infrastructure project. In turn, Finance Co holds a corresponding certificate from the DAA permitting it to issue Indirect Infrastructure Bonds (IIBs) to fund the subscription for the DIBs issued by the taxpayer.

Reasons for decision
Summary: Section 82KL of the ITAA 1936 operates to deny a deduction or part of a deduction otherwise allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The taxpayer has paid for the construction of the project property with infrastructure borrowings. Subsection 159GZZZZE(1) of the ITAA 1936 provides for non-assessability and non-deductibility of interest paid under an infrastructure borrowing (which could be 'eligible relevant expenditure' under subsection 82KL(1) of the ITAA 1936). As, subsection 159GZZZZE(1) of the ITAA 1936 operates to deny a deduction for the DIB interest payable by the taxpayer, section 82KL of the ITAA 1936 cannot apply as there is no additional benefit in relation to an amount of eligible relevant expenditure incurred by the taxpayer or expected tax saving in relation to that amount of eligible relevant expenditure equal to or greater than the amount of the eligible relevant expenditure.

Legislative references: Income Tax Assessment Act 1936 section 82KL subsection 159GZZZZE(1)
Subject references: Tax benefits under tax avoidance schemes