Taxation Determination TD 93/136







[Note: This is a consolidated version of this document. Refer to the Legal Database ( www.ato.gov.au/law ) to check its currency and to view the details of all changes.] | 1. Yes, provided the loan contract is traded in accordance with subsection 121D(4) of the Income Tax Assessment Act 1936 (ITAA) and not merely transferred, or is a lending activity within the meaning given in subsection 121D(2). | 2. Subsection 121D(4) defines trading activity to include, amongst other things, trading with offshore persons in securities issued by non-residents and trading with offshore persons in non-resident company shares which are not denominated in Australian currency. The Explanatory Memorandum states that an OBU [1] may trade on its own behalf. | 3. Section 121EB of the ITAA treats the overseas permanent establishment as a separate person from the Australian part of the bank conducting offshore banking. Therefore, a loan contract may be traded in accordance with subsection 121D(4) provided any amounts payable under the loan contract are payable by non-residents and are not payable in Australian currency. | 4. Accordingly, all or part of a portfolio of offshore loans can be transferred provided the transfer takes the form of a sale. The sale could entail an assignment or novation of the loan for tax purposes. | 5. The definition of 'lend' in section 121C includes providing finance by the purchase of a security. It does not matter if it is on the secondary market. However, the person from whom the security was originally issued must have been an offshore person. If that person is a branch of an Australian company, the security must not be in Australian dollars. Therefore, where these criteria are met, the assignment of the loan will be an OB activity. | Example: An Australian OBU buys a portfolio of loans from its Singapore branch which is an ACU (an Asian Currency Unit which is essentially a Singaporean OBU). The sale entails an assignment for tax purposes of non-resident parties to the loan contracts and any amounts payable are not denominated in Australian dollars. The transaction would be an OB activity in terms of section 121D. | Commissioner of Taxation 8/7/93 | Footnotes: Previously issued as Draft TD93/D36


Legislative references: ITAA 121D(4)