Private ruling: 'Interest' under subsection 128A(1AB) of the ITAA 1936
Published: August 2017

Ruling: Q1: Will Payment A paid by Entity X to Entity Y under Agreement Z fall within the expanded definition of 'interest' under Australian income tax laws, as either an amount in the nature of interest or an amount in substitution for interest under subsection 128A(1AB) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. Payment A paid by Entity X to Entity Y under Agreement Z will fall within the expanded definition of 'interest' under Australian income tax laws, as either an amount in the nature of interest or an amount in substitution for interest under subsection 128A(1AB) of the ITAA 1936. | Q2: Will Payment B paid by Entity X to Entity Y under Agreement Z fall within the expanded definition of 'interest' under Australian income tax laws, as either an amount in the nature of interest or an amount in substitution for interest under subsection 128A(1AB) of the ITAA 1936? | A2: Yes. Payment B paid by Entity X to Entity Y under Agreement Z will fall within the expanded definition of 'interest' under Australian income tax laws, as either an amount in the nature of interest or an amount in substitution for interest under subsection 128A(1AB) of the ITAA 1936. | Q3: Will Payment C paid by Entity X to Entity Y under Agreement Z fall within the expanded definition of 'interest' under Australian income tax laws, as either an amount in the nature of interest or an amount in substitution for interest under subsection 128A(1AB) of the ITAA 1936? | A3: Yes. Payment C paid by Entity X to Entity Y under Agreement Z will fall within the expanded definition of 'interest' under Australian income tax laws, as either an amount in the nature of interest or an amount in substitution for interest under subsection 128A(1AB) of the ITAA 1936. | Q4: For the purposes of section 12-245 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953), when does Entity X's requirement to withhold from Payment A and Payment B made to Entity Y arise? | A4: For the purposes of section 12-245 of Schedule 1 to the TAA 1953, Entity X's requirement to withhold from Payment A and Payment B arises when those payments are 'taken to have been paid' to Entity Y for the purposes of subsection 11-5(1) of the TAA 1953. | Q5: Is Agreement Z a debt interest under Division 974 of the Income Tax assessment Act 1997 (ITAA 1997)? Answer: Yes. Agreement Z is a debt interest for the purposes of subsection 974-20(1) of the ITAA 1997


Relevant legislative provisions: Division 11A: Income Tax Assessment Act 1936 | Subsection 128A(1AB): Income Tax Assessment Act 1936. | Subparagraph 128B(2)(b)(i) : Income Tax Assessment Act 1936 Subsection 128B(5): Income Tax Assessment Act 1936 | Subsection 974-20(1): Income Tax Assessment Act 1997 | Subsection 974-135(1): Income Tax Assessment Act 1997 | Subsection 974-160: Income Tax Assessment Act 1997 | Paragraph 230-45(1)(c): Income Tax Assessment Act 1997 Section 11-5: Schedule 1 to the Taxation Administration Act 1953 | Section 12-245: Schedule 1 to the Taxation Administration Act 1953

Reasons for decision: Detailed Reasoning - General liability to interest withholding tax: Broadly, under Division 11A of Part III of the ITAA 1936, interest income derived by a non-resident that is paid by a resident, is subject to withholding tax under subparagraph 128B(2)(b)(i) of the ITAA 1936. Thus, pursuant to subsection 128B(5) of the ITAA 1936, the non-resident becomes liable to pay Australian income tax by way of interest withholding tax. In the context of interest withholding tax, which is relevant to the present circumstances, the question therefore arises as to whether Payment A, Payment B and Payment C paid by Entity X, an Australian resident, to Entity Y, a non-resident for Australian income tax purposes, constitute amounts of interest under Agreement Z. | Detailed Reasoning - Ordinary meaning of 'interest': 'Interest' is not otherwise defined by the Income Tax Act and has been variously described at common law as: The return, consideration or compensation for the use or retention by one person of a sum of money belonging to, or owed to, another, that must be referable to a principal: (Full Federal Court in Federal Commissioner of Taxation v. Century Yuasa Batteries Pty Ltd (1998) 82 FCR 288; 38 ATR 442; 98 ATC 4380) Compensation to a lender for being kept out of the use and enjoyment of the principal sum ( Federal Commissioner of Taxation v. The Myer Emporium Ltd (1987) 163 CLR 199; (1987) 18 ATR 693; (1987) 87 ATC 4363) An amount that is calculated by reference to a principal sum and by reference to time ( Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24 at 28. Expanded definition of 'interest' Subsection 128A(1AB) of the ITAA 1936 provides an expanded definition of 'interest' for the purposes of Division 11A of the ITAA as follows: 'Interest' includes an amount: (a) That is in the nature of interest; or (b) To the extent that it could reasonably be regarded as having been converted into a form that is in substitution for interest; or But does not include an amount to the extent to which it is a return on an equity interest in a company. Paragraph 128A(1AB)(a) provides that interest includes an amount that is in the nature of interest. In the context of Division 11A the purpose of the phrase 'in the nature of' is to give an appropriate extension to the concept of 'interest' which as previously stated is critical to one of the heads of withholding tax liability. In Century Yuasa Batteries Pty Ltd v. Federal Commissioner of Taxation (1997) 73 FCR 528; 35 ATR 394; 97 ATC 4299 (at FCR 548), Cooper J said in relation to the precursor to paragraph 128A(1AB)(a): In my view, for a payment to fall within the extended definition under s 128A(1) in the context of the withholding tax provisions of ITAA it must have the character of a return or profit to the lender for the use of money advanced to the borrower howsoever calculated or ascertained... The Full Court expressly agreed with this view on appeal. Thus, in the present circumstances, for the Payment A, Payment B and Payment C amounts ('Payments') to be regarded as interest, the following requirements must be satisfied: (a) There must be a sum of money by reference to which the Payments are to be ascertained (which might loosely be called the principal sum or the principal debt); (b) That sum must be a sum which is due to the person entitled to the Payments, and (c) The Payments must be calculated by reference to the principal sum and by reference to time | Summary: Agreement Z is a loan agreement and the Facility M Funds represent a principal sum of debt under the Agreement. The entity that is owed the principal debt under Agreement Z, being Entity Y, is also the entity that is entitled to Payment A. Payment A, although not characterised as 'interest' under Agreement Z, is a charge for the use or enjoyment of a principal sum, the Facility M Funds, for a fixed and limited period of 36 months. Accordingly, for the purposes of 128A(1AB) of the ITAA 1936, Payment A is an amount in the 'nature of interest' or alternatively, an amount paid 'in substitution for interest'. | Detailed Reasoning - Is there a principal debt under agreement Z?: A debt is moneys outstanding to be repaid at a fixed or determinable time or on demand : 'Chitty on Contracts', 27th ed. 1994, para 36-202. In FC of T v. Radilo Enterprises Pty Ltd 97 ATC 4151 at 4161; (1997) 34 ATR 635 at 646 the joint judgment of Lehane and Sackville JJ refers to Dr Pannam's description of a loan of money: 'A loan of money may be defined, in general terms, as a simple contract whereby one person ('the lender') pays or agrees to pay a sum of money in consideration of a promise by another person ('the borrower') to repay the money upon demand or at a fixed date (emphasis added) . The promise of repayment may or may not be coupled with a promise to pay interest on the money so paid. The essence of the transaction is the promise of repayment.' ATO Interpretative Decision 2006/292 defines a 'loan' in terms similar to those expressed in the above judgment. Pursuant to Agreement Z, Entity Y provides the Facility M funds to Entity X for investment in the Project. In consideration of Entity Y providing the Facility M Funds, Entity X is to repay the Facility M Funds to Entity Y following a fixed period from the first utilisation of the funds. The Facility M Funds are invested in the Project and the source of repayment of the funds is the sales proceeds generated by the Project That Agreement Z does not use terms associated with a loan such as 'moneys owing', 'principal' etc. does not detract from the essential character of the transaction which involves a debtor-creditor relationship underpinned by an obligation of repayment of a sum of money. Agreement Z is a loan agreement and the Facility M Funds represent a principal sum of debt under the Agreement. | Detailed Reasoning - Is the principal debt under Agreement Z owed to the entity that is entitled to Payment A?: Payment A is payable by Entity X to Entity Y under Agreement Z. Accordingly, the entity that is owed the principal debt under agreement Z, being Entity Y, is also the entity that is entitled to Payment A. | Detailed Reasoning - Is Payment A calculated by reference to the principal debt and by reference to time?: Payment A is paid by Entity X under Agreement Z in consideration of the provision of the Facility M Funds by Entity Y. Payment A amounts are payable on the last day of each Quarterly Period commencing from the first utilisation date of the Facility M Funds. Each Payment A payable by Entity X to Entity Y is calculated as: Principal Outstanding * (E) * (N/365) where, Principal Outstanding = Outstanding Facility M Funds; E = the 3-month AUD Bank Bill Swap Interest Rate (BBSW) plus Margin of 2.5% (250 basis points); and N = the number of days in the quarter. In summary, the Payment A is calculated: By reference to the principal debt under Agreement Z, being the Facility M Funds; and By reference to the period during which an amount of the Facility M Funds is outstanding, i.e. the Quarterly Period That Payment A is not characterised as 'interest' does not detract from the nature of the payment. The courts have consistently held that the description of an item used in an agreement is not conclusive of its character (refer Cliffs International Inc. v. FC of T (1979) 142 CLR 140 at 148; 79 ATC 4059 at 4064;(Cliffs International Inc.) 9 ATR 507 at 512 per Barwick CJ). In Cliffs International Inc., the High Court held that the description in that case of ' deferred payments' in respect of recurrent sums made following the purchase of a capital asset, did not constitute part of the purchase price of the capital asset but were outgoings necessarily incurred in the gaining of the taxpayer's income. Murphy J clarified at 79 ATC 4079, 'the acquisition of the asset did not depend upon the payment of any 'deferred payment'. Payment A in the present circumstances is similarly not a payment made towards the costs of the Project involving the construction of various apartments ('the capital asset'). Payment A, although not characterised as 'interest' in Agreement Z, is a charge for the use or enjoyment of a principal sum, the Facility M Funds, for a fixed and limited period of N months. In conclusion, for the purposes of 128A(1AB) of the ITAA 1936, payment A is an amount in the 'nature of interest' or alternatively, an amount paid 'in substitution for interest'. | Summary: Payment B represents the difference between an amount calculated at P% per annum of the Facility M Funds drawdown for the term of Agreement Z ('Amount E'), less the aggregate of Payment A amounts paid over the term of the Agreement. It was established in the response to Question 1 above that the Facility M Funds are an amount of loan provided by Entity Y to Entity X under Agreement Z and repayable by Entity X to Entity Y after a fixed term of N years following the first utilisation of funds. Payment E, although paid from the sales proceeds of the Project, is not a distribution of the 'ultimate profits' of a relevant income year. It is considered that Amount E, although not characterised in agreement Z as 'interest', is an amount payable for the use and enjoyment of a principal sum of debt for a limited period of time and is therefore an amount in the nature of interest. Therefore, Payment B, which is the excess of Amount E over the aggregate of Payment A amounts that are amounts in the nature of interest, is also an amount in the nature of interest for the purposes of 128A(1AB) of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: Payment B is payable by entity X under Agreement Z in consideration of the provision of the Facility M Funds by entity Y in the following manner. Agreement Z provides that once the Facility M Funds are repaid at Maturity, Entity X must pay 'Amount E' less the aggregate of Payment A amounts payable under Agreement Z. The resulting amount is Payment B. The principal amount of the Facility M Funds and the Cumulative Profit are both payable from the sales proceeds generated by the Project. The Facility M Funds are an amount of loan provided by Entity Y to Entity X under Agreement Z and are repayable by the Entity X to entity Y after a fixed term of N years following the first utilisation of the funds. | Detailed Reasoning - What is the character of the Amount E?: In determining deductibility of payments incurred on moneys raised through the issue of perpetual notes, TR 2002/15 provides at paragraph 40 that the determination requires consideration of the principle that a distinction is made between ( payments that are ) expenses of deriving income, such as interest , and ( payments that are ) an application of income derived, such as a distribution of profits (emphasis added). At paragraph 46, following from various court decisions, TR 2002/15 concludes, that a payment to a note holder that is merely contingent on net profits of the paying entity is an expense of deriving assessable income, depending on the relevant terms and conditions of the notes. In this regard, the ruling explains further at paragraph 65 that a critical question is whether there is a debt in existence prior to the happening of the contingencies, or whether the obligation to repay moneys owing is merely contingent. In the present circumstances, pursuant to the Agreement Z: There is a debt in existence, being the Facility M Funds, which is to be repaid on a fixed maturity date Amount E is an amount that is the total of P% per annum of the Facility M Funds drawdown at the end of each year for the term of the agreement The sales proceeds out of which Amount E is paid are not the 'ultimate profits' in terms of profits for distribution to the beneficial owners of the Project It is considered that amount E has the character of an amount payable for the use and enjoyment of a principal sum of debt for a limited period of time and is therefore an amount in the nature of 'interest'. | Detailed Reasoning - Aggregate of Quarterly Payments: The aggregate of Payment A amounts at Maturity Date is the total of all Payment A amounts paid during the term of Agreement Z. As concluded previously in this report, each Payment A is an amount in the nature of 'interest'. Therefore, Payment B, which is the excess of Amount E over the aggregate of Payment A amounts, is also an amount in the nature of interest. Payment B serves to compensate Entity Y in the event the aggregate of the Payment A amounts payable under Agreement Z falls below an amount of P% of the Facility M Funds for the term of the Agreement. Accordingly, Payment B payable by Entity X upon maturity of Agreement Z, is an amount that is in the 'nature of interest or alternatively, an amount paid 'in substitution for interest' for the purposes of subsection 128A(1AB) of the ITAA 1936. | Summary: Payment C is an amount that is a percentage per unit of time calculated by reference to a sum of money, being an unpaid amount payable under Agreement Z. Therefore, Payment C is a charge for keeping entity Y out of the use and enjoyment of an amount payable on a specified date under the terms of the Agreement. Consequently, Payment C is in substance an amount of interest for the purposes of the expanded definition of interest in paragraphs 128A(1AB)(a) and (b) of the ITAA 1936 so that it is an amount 'in the nature of interest' or an amount paid in 'substitution for interest'. | Detailed Reasoning - Detailed Reasoning: A Payment C amount is payable by entity X to entity Y in respect of any payment under Agreement Z that remains unpaid on the relevant due date. Payment C will accrue on a daily basis. In respect of the late payment of an overdue amount before the Maturity Date, Payment C is calculated at a rate of Q% per annum of the unpaid amount for each day the amount remains unpaid, or any other method approved by the Country D banks. In respect of the late payment of an overdue amount after the earlier of the Maturity Date or date of final judgement, Payment C is calculated at the prevailing overnight Country D Interbank Money Market rate or any other method approved by the Country D banks. Payment C is a percentage per unit of time calculated by reference to a sum of money, being the overdue payments under Agreement Z. Payment C is therefore payable as consideration or compensation for amounts in relation to which a liability to repay exists and which Entity Y can require to be paid on demand. Furthermore, the Payment C is a charge for keeping entity Y out of the use and enjoyment of an amount payable on a specified date under the terms of the Agreement. Accordingly, a Payment C amount is in substance an amount of interest for the purposes of the expanded definition of interest in paragraphs 128A(1AB)(a) and (b) of the ITAA 1936 so that it is an amount 'in the nature of interest' or an amount paid in 'substitution for interest'. | Detailed Reasoning - When does the requirement to withhold from Payment A amounts and Payments B amounts paid by Entity X, arise?: Section 12-245 of Schedule 1 to the TAA 1953 requires a person to withhold from payments of interest to a non-resident. Subsection 11-5(1) of Schedule 1 to the TAA 1953 deems an amount to have been paid when the paying entity applies or deals with the amount in any way on the payee's behalf or as the payee directs (Refer Taxation Determination TD 93/146 and TD 93/146A, the addendum to TD 93/146). In the present circumstances, Payment A amounts and Payment B amounts are considered to be amounts of interest for the purposes of subsection 128A(1AB) of the ITAA 1936. Further, Payment A and Payment B amounts are paid to Entity Y, a resident of country D for income tax purposes. Entity X has therefore an obligation to withhold from each Payment A and Payment B amount at the time those amounts are taken to have been paid to Entity Y. Under subsection 11-5 (1) of Schedule 1 to the TAA 1953, entity Y is taken to have paid a Payment A or Payment B amount to entity Y if Entity X applies or deals with a Payment A or Payment B amount in any way on behalf of or as directed by Entity Y. The amount to be withheld by Entity X is governed by the Double Tax Agreement between Australia and Country D. | Summary: Agreement Z satisfies the debt tests in paragraphs (a), (b), (c), (d) and (e) of subsection 974-20(1) of the ITAA 1997. Agreement Z is therefore a debt interest for the purposes of Division 974 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: In respect of a scheme that was entered into on or after 1 July 2001, Division 974 of the Income Tax Assessment Act 1997 (ITAA 1997) governs the classification of debt and equity interests for instruments issued under the scheme. | Detailed Reasoning - Debt test: The debt test is contained in subsection 974-20(1) of Subdivision 974-B of the ITAA 1997. A scheme satisfies the debt test in subsection 974-20(1) of the ITAA 1997 in relation to an entity if: (a) The scheme is a financing arrangement for the entity; and (b) The entity, or a connected entity of the entity, receives, or will receive, a financial benefit or benefits under the scheme; and (c) The entity has, or the entity and a connected entity of the entity each has, an effectively non-contingent obligation under the scheme to provide a financial benefit or benefits to one or more entities after the time when: i. The financial benefit referred to in paragraph (b) is received if there is only one; or ii. The first of the financial benefits referred to in paragraph (b) is received if there are more than one; and (a) It is substantially more than likely than not that the value provided (worked out under subsection (2)) will be at least equal to the value received (worked out under subsection (3)); and (b) The value provided (worked out under subsection (2)) and the value received (worked out under subsection (3)) are not both nil. Agreement Z is a 'financing arrangement' in relation to Entity X Pursuant to Agreement Z, entity Y provides the Facility M Funds to Entity X to fund the Project. Agreement Z constitutes a 'financing arrangement' in relation to Entity X under paragraph 974-20(1)(a) of the ITAA 1997. Entity X receives a 'financial benefit' under Agreement Z' Subsection 974-160(1) of the ITAA 1997 provides that financial benefit: (a) Means anything of economic value; and (b) Includes property and services; and (c) Includes anything that regulations made for the purposes of subsection 974-160(3) provide is a financial benefit Even if the transaction that confers the benefit on an entity also imposes an obligation on that entity. Entity X will receive an amount of $F under Agreement Z. The amount received is a 'financial benefit' as defined in subsection 974-160(1) in respect of Entity X for the purposes of paragraph 974-20(1)(b) of the ITAA 1997. This is despite that Agreement Z also imposes an obligation on Entity X to repay an amount of $F to Entity Y. Entity X has an effectively non-contingent obligation under Agreement Z to provide a financial benefit 'Effectively non-contingent obligation' is defined at section 974-135, and provides as follows: Subsection 974-135(1) of the ITAA 1997: 'There is an effectively non-contingent obligation to take an action under a scheme if, having regard to the pricing, terms and conditions of the scheme, there is in substance or effect a non-contingent obligation (see subsections (3), (4) and (6)) to take that action'. Subsection 974-135(3) of the ITAA 1997: 'An obligation is non-contingent if it is not contingent on any event, condition or situation (including the economic performance of the entity having the obligation or connected entity of that entity), other than the ability or willingness of that entity or connected entity to meet the obligation Subsections 974-135(4) and 974-135(6) have no relevance in the present circumstances. Presently, the terms of Agreement Z provide for: Payment of a principal sum of debt, the Facility M Funds; and Payment of amounts in the nature of interest For these financial benefits to be taken into account it needs to be determined whether they are financial benefits that Entity X is under an effectively non-contingent obligation to provide (paragraph 974-20(1)(c) of the ITAA 1997). Agreement Z provides that in consideration of Entity Y providing the Facility M Funds and entering into the Agreement, Entity X is to pay the Facility M Funds to Entity Y by the Maturity Date. Pursuant to Agreement Z, Entity X is required to pay an amount in the nature of interest to Entity Y at quarterly intervals for the term of agreement Z and until the Maturity Date. Therefore, the repayment of the principal debt and payment of amounts in the nature of interest by Entity X under Agreement Z are not at the discretion of Entity X. Accordingly, Entity X has an effectively non-contingent obligation to provide a financial benefit to Entity Y pursuant to agreement Z for the purposes of paragraph 974-20(1)(c) of the ITAA 1997. Value of benefit provided under agreement Z will be at least equal to the value received The value of financial benefits provided by Entity Y under Agreement Z is $F. The terms of Agreement Z require that Entity Y receives a financial benefit equal to $F plus payment of amounts in the nature of interest on the Maturity Date. Therefore, it is substantially more likely than not that the value of the financial benefit provided by Entity Y to Entity X under Agreement Z will be at least equal to the value of the financial benefit received by Entity Y from Entity X. Value of benefit provided and the value received are not both nil. Neither the benefit provided by Entity Y nor the benefit received by entity Y, under Agreement Z, have a nil value. As Agreement Z has a term of less than 10 years, the value of the benefit provided and received by Entity Y is worked out in nominal terms for the purposes of subparagraph 974-35(1)(a)(i). Accordingly, the value of the benefit provided by Entity Y is $F, and the value received by Entity Y is $F plus interest for the term of the Agreement. | Detailed Reasoning - Other related issues: Do the Taxation of Financial Arrangements (TOFA) rules apply to Agreement Z? Where a contract of loan of money is also a 'financial arrangement' for the purposes of Division 230 of the ITAA 1997, the gains or losses on the loan are brought to account or allowable as a deduction under Division 230 of the ITAA 1997.; see Explanatory Memorandum to Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 at paragraph 11.30 of Chapter 11 'Interaction and consequential amendments (other than consolidation) ( Explanatory Memorandum ). Agreement Z, is a 'financial arrangement' in terms of paragraph 230-45(1)(c) of the ITAA 1997 as it is a combination of purely,(a) a cash settlable legal or equitable right to receive a financial benefit, and (b) a cash settlable legal or equitable obligation to provide a financial benefit. However, as stated in paragraph 11.32 of the Explanatory Memorandum: 'Where a financial arrangement is held (as an asset) by a foreign resident, any gain or part thereof from the financial arrangement that is income (e.g. interest) to which section 128B of the ITAA 1936 applies is not to be assessable under Division 230. Those gains are to be subject to withholding tax as per Division 11A of Part III of the ITAA 1936'. In the present circumstances, the arrangement under Agreement Z will be reflected as an asset in the accounts of Entity Y, a Country D resident for income tax purposes. Therefore, any income from Agreement Z to which section 128B of the ITAA 1936 applies, is not subject to the TOFA rules in Division 230 of the ITAA 1997. As established above, the income derived under the Agreement, namely, Payment A and Payment B amounts are in substance amounts of interest to which the withholding tax provisions in Division 11A would apply, specifically sub sections 128B(2) and 128B(5) of the ITAA 1936. Therefore, income derived by Entity Y under Agreement Z is not subject to Division 230 of the ITAA 1997. | Detailed Reasoning - ATO View documents:: Taxation Ruling TR 2002/15 Taxation Determination TD 93/146 and TD96/146A - Addendum) ATO Interpretative Decision ATO ID 2006/292 | Detailed Reasoning - Other references (Non ATO view, such as court cases): Federal Commissioner of Taxation v. Century Yuasa Batteries Pty Ltd (1998) 82 FCR 288; 38 ATR 442; 98 ATC 4380 Federal Commissioner of Taxation v . The Myer Emporium Ltd (1987) 163 CLR 199; (1987) 18 ATR 693; (1987) 87 ATC 4363). Federal Wharf Co Ltd v. Deputy Commissioner of Taxation (1930) 44 CLR 24 at 28. Chitty on Contracts, 1989, 26th edition, at para 3574 FC of T v. Radilo Enterprises Pty Ltd 97 ATC 4151 at 4161; (1997) 34 ATR 635 at 646 Cliffs International Inc. v. FC of T (1979) 142 CLR 140 at 148; 79 ATC 4059 at 4064; 9 ATR 507 at 512 Australian National Hotels Limited v. FC of T 88 ATC 4627; (1988) 19 ATR 1575 at 1582). The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.

Disclaimer: You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. | The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. | Entity Y Group, Country D: Entity Y is incorporated in Country D and is wholly owned by an entity whose principal activities are property development and construction. | Entity X Group, Australia: Entity X forms part of a group also involved in the construction and development of property. | The Entity Y and Entity X group agreed to jointly commission the design, construction, development, financing, marketing and completion of residential apartments in Australia. | The Project is to be funded by a combination of debt and equity. The Project Land is held by Entity X. | Entity Y has provided funds to Entity X ('Facility M Funds') under the terms and conditions of Agreement Z. | The terms and conditions of Agreement Z provide that: | The Facility M Funds are only to be used to finance the development of the Project and finance Project costs | In consideration of Entity Y providing the Facility M Funds and entering into Agreement Z, Entity X is to pay the Facility M Funds to Entity Y on a specified Maturity Date at the end of N years, under Agreement Z | The Facility M Funds are invested in the Project and the source of repayment of the funds is the proceeds from the sale of the residential apartments constructed under the Project | Entity X must make a payment termed 'Payment A' to Entity Y at quarterly intervals of the term of Agreement Z until the Maturity Date | Payment A is calculated by applying a nominated AUD Bank Bill Swap Interest Rate to the Facility M Funds | At Maturity Date, Entity X must also pay an amount termed 'Payment B' to Entity Y | Payment B amounts to the difference between: | An amount calculated at P% per annum of the Facility M Funds for the term of N years of Agreement Z ('Amount E); and | The aggregate of all Payment A amounts payable during the term of Agreement Z | Further , Entity X must make a payment termed 'Payment C', on demand, to Entity Y, in respect of any amount payable under Agreement Z that remains outstanding | Payment C is determined by applying a rate that is approved by the Country D banks to each unpaid amount in question by reference to the period for which the unpaid amount is outstanding | On the Maturity Date under Agreement Z, Entity X will repay the Facility M Funds and Payment B from the sales proceeds generated by the Project.