Private ruling: Debt/equity classification of financial instruments
Date of advice: 19 March 2018
Published: June 2018
Ruling period: Income year ended 31 December 20XY to | Income year ending 31 December 20XZ
Date scheme commenced: 31 December 20XX

Ruling: Q1: Will the amendment to the terms of Instrument 1 with Lender 1, result in a change to the existing income tax treatment of the receipts for the purposes of subsection 974-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will the redeemable preference shares issued under Instrument 2 with Lender 1 give rise to an equity interest pursuant to subsection 974-70(1) of the ITAA 1997? | A2: Yes. | Q3: Will the payments made under Instrument 3 with Lender 1 give rise to an equity interest pursuant to subsection 974-70(1) of the ITAA 1997? | A3: No. | Q4: Will the payments made under Instrument 3 with Lender 1 be subject to Division 230 of the ITAA 1997? | A4: Yes. | Q5: Will the receipts under Instrument 4 with Lender 2 give rise to a debt interest pursuant to subsection 974-15(1) of the ITAA 1997? | A5: Yes. | Q6: Will the non-redeemable preference shares issued under Instrument 5 with Lender 2 give rise to an equity interest pursuant to subsection 974-70(1) of the ITAA 1997? | A6: Yes. | Q7: Will the following schemes constitute a single scheme for the purposes of section 974-150 of the ITAA 1997? – Receipts under Instrument 1 with Lender 1; – Redeemable preference shares issued under Instrument 2 with Lender 1; – Payments under Instrument 3 with Lender 1; – Receipts under Instrument 4 with Lender 2; and – Non-redeemable preference shares issued under Instrument 5 with Lender 2. | A7: No. | Q8: Will the following schemes constitute related schemes for the purposes of section 974-155 of the ITAA 1997? – Receipts under Instrument 1 with Lender 1; – Redeemable preference shares issued under Instrument 2 with Lender 1; – Payments under Instrument 3 with Lender 1; – Receipts under Instrument 4 with Lender 2; and – Non-redeemable preference shares issued under Instrument 5 with Lender 2. | A8: Yes. | Q9: If the response to Question 8 is yes, will the related schemes when taken together give rise to a debt interest pursuant to subsection 974-15(2) of the ITAA 1997? | A9: No. | Q10: If the response to Question 9 is yes, will the Commissioner determine that it would be unreasonable to apply subsection 974-15(2) of the ITAA 1997 pursuant to subsection 974-15(4) of the ITAA 1997? | A10: Opinion not required, given the answer to Question 9 is in the negative. | Q11: If the response to Question 8 is yes, will the related schemes when taken together give rise to an equity interest pursuant to subsection 974-70(2) of the ITAA 1997? | A11: No. | Q12: If the response to Question 11 is yes, will the Commissioner determine that it would be unreasonable to apply subsection 974-70(2) of the ITAA 1997 pursuant to subsection 974-70(4) of the ITAA 1997? | A12: Opinion not required, given the answer to Question 11 is in the negative.

Relevant facts and circumstances: The taxpayer, the head company of a tax consolidated group, applied for a private ruling in relation to a debt restructure. As part of this restructure, three instruments were entered into with Lender 1 and two instruments were entered into with Lender 2.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 230 | Income Tax Assessment Act 1997 Division 974