ATO ID 2003/444: Infrastructure borrowings: Direct infrastructure borrowings - anti-avoidance - deferral of deduction for payment to associate
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 82KK 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 82KK 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 82KK of the ITAA 1936 applies where there is a timing mismatch in payments to associates so that income is recognised in a later year than the matching deduction. 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. As a consequence, the anti-avoidance provision of section 82KK of the ITAA 1936 cannot apply to the non-deductible DIB interest payable by the taxpayer.

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