Taxation Determination TD 2025/3
Date of effect: 18 June 2025


Class of entities or scheme: 6. TA 2024/1, issued on 10 December 2024, describes arrangements which typically display all or most of the following features. 7. For sophisticated investors, the terms of the arrangement typically allow for an extended period. This extension provides a greater benefit by enabling a longer duration for the investor to claim tax deductions for interest expenses under their borrowing. | Application of Part IVA: 8. Under Part IVA, the Commissioner may cancel all or part of a tax benefit that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. Part IVA applies if: 9. The precise description of the scheme for the purposes of Part IVA will depend on the facts of the particular case. However, in the context of the arrangements described in this Determination, the scheme under section 177A would normally consist of some or all of the features described in paragraph 6 of this Determination. It is specifically noted that while these arrangements may assure investors of their ability to repay their financing through returned subscription monies by way of share buy-back or otherwise, the actual return of subscription monies to the investor is not essential for Part IVA to apply. 10. In identifying the tax benefit, where the company in which the investor has acquired shares: 11. Furthermore, on annihilating the scheme under subsection 177CB(2), it can be concluded that the tax effects in paragraphs 177CB(1)(daa) and 177CB(1)(b) respectively would not have been obtained if the scheme had not been entered into or carried out. [1] 12. The tax benefit is the amount of the tax offset as an innovation tax offset [2] and the deduction amount for interest expense respectively. 13. Having identified the scheme and tax benefit, the enquiry is whether that scheme or any part of the scheme was entered into for the dominant purpose [3] of enabling the 'relevant taxpayer' to obtain the tax benefit. [4] This is to be undertaken by reference to the 8 matters set out in subsection 177D(2) and is the conclusion of a reasonable person. Notably, subjective purposes are not relevant. What is relevant is the objective conclusion that can be drawn from a consideration of the 8 matters. 14. The examination as to purpose under section 177D can look to that of any person or persons who entered into or carried out the scheme (or part of it). In the present context, this could be that of the taxpayer investor, the start-up company, the finance entity, or any other entity that is a party to, or has facilitated or orchestrated, the arrangement. It can also extend to the purposes of a promoter in obtaining a tax benefit for the taxpayer. [5] 15. The application of section 177D to any particular scheme depends on a careful weighing of all the relevant circumstances of the scheme and the relative weight that should be attached to each of those circumstances. 16. However, having regard to the matters set out in subsection 177D(2), there are several aspects of the arrangements described in TA 2024/1 that point to a conclusion of there being a dominant purpose of obtaining a tax benefit. 17. In these circumstances, the Commissioner is likely to exercise his powers under subsection 177F(1) to cancel the tax benefits and determine that neither the tax offset nor general deduction for interest expense are available. | Adjustments to period of review: 18. Table item 1 of subsection 170(1) provides that: 19. However, the qualifications in paragraphs (d) and (e) of table item 1 of subsection 170(1) state that the item does not apply: 20. Table item 4 of subsection 170(1) provides that: 21. Where Part IVA applies to an arrangement, it will usually follow that for the purposes of subsection 170(1), it is reasonable to conclude that the scheme was entered into or carried out (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year. Consequently, if Part IVA applies to participant individual investors in early stage innovation company investment arrangements as described in TA 2024/1, the qualification in paragraph (e) of table item 1 of subsection 170(1) will generally apply to disqualify those individual investors from the 2-year period of review limitation. 22. The Commissioner is therefore able to amend an assessment within 4 years after the day on which the Commissioner gives notice of the assessment to the investor. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Previously released in draft form as TD 2025/D1



Appendix: Early stage innovation company investment arrangements: 6. TA 2024/1, issued on 10 December 2024, describes arrangements which typically display all or most of the following features. 7. For sophisticated investors, the terms of the arrangement typically allow for an extended period. This extension provides a greater benefit by enabling a longer duration for the investor to claim tax deductions for interest expenses under their borrowing. | Application of Part IVA: 8. Under Part IVA, the Commissioner may cancel all or part of a tax benefit that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. Part IVA applies if: 9. The precise description of the scheme for the purposes of Part IVA will depend on the facts of the particular case. However, in the context of the arrangements described in this Determination, the scheme under section 177A would normally consist of some or all of the features described in paragraph 6 of this Determination. It is specifically noted that while these arrangements may assure investors of their ability to repay their financing through returned subscription monies by way of share buy-back or otherwise, the actual return of subscription monies to the investor is not essential for Part IVA to apply. 10. In identifying the tax benefit, where the company in which the investor has acquired shares: 11. Furthermore, on annihilating the scheme under subsection 177CB(2), it can be concluded that the tax effects in paragraphs 177CB(1)(daa) and 177CB(1)(b) respectively would not have been obtained if the scheme had not been entered into or carried out. [1] 12. The tax benefit is the amount of the tax offset as an innovation tax offset [2] and the deduction amount for interest expense respectively. 13. Having identified the scheme and tax benefit, the enquiry is whether that scheme or any part of the scheme was entered into for the dominant purpose [3] of enabling the 'relevant taxpayer' to obtain the tax benefit. [4] This is to be undertaken by reference to the 8 matters set out in subsection 177D(2) and is the conclusion of a reasonable person. Notably, subjective purposes are not relevant. What is relevant is the objective conclusion that can be drawn from a consideration of the 8 matters. 14. The examination as to purpose under section 177D can look to that of any person or persons who entered into or carried out the scheme (or part of it). In the present context, this could be that of the taxpayer investor, the start-up company, the finance entity, or any other entity that is a party to, or has facilitated or orchestrated, the arrangement. It can also extend to the purposes of a promoter in obtaining a tax benefit for the taxpayer. [5] 15. The application of section 177D to any particular scheme depends on a careful weighing of all the relevant circumstances of the scheme and the relative weight that should be attached to each of those circumstances. 16. However, having regard to the matters set out in subsection 177D(2), there are several aspects of the arrangements described in TA 2024/1 that point to a conclusion of there being a dominant purpose of obtaining a tax benefit. 17. In these circumstances, the Commissioner is likely to exercise his powers under subsection 177F(1) to cancel the tax benefits and determine that neither the tax offset nor general deduction for interest expense are available. | Adjustments to period of review: 18. Table item 1 of subsection 170(1) provides that: 19. However, the qualifications in paragraphs (d) and (e) of table item 1 of subsection 170(1) state that the item does not apply: 20. Table item 4 of subsection 170(1) provides that: 21. Where Part IVA applies to an arrangement, it will usually follow that for the purposes of subsection 170(1), it is reasonable to conclude that the scheme was entered into or carried out (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year. Consequently, if Part IVA applies to participant individual investors in early stage innovation company investment arrangements as described in TA 2024/1, the qualification in paragraph (e) of table item 1 of subsection 170(1) will generally apply to disqualify those individual investors from the 2-year period of review limitation. 22. The Commissioner is therefore able to amend an assessment within 4 years after the day on which the Commissioner gives notice of the assessment to the investor. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Previously released in draft form as TD 2025/D1


If this Determination applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Determination. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Determination. | Ruling: 1. Taxpayer Alert TA 2024/1 Early stage investor tax offset claimed using circular financing arrangements describes and sets out concerns with arrangements which appear designed to artificially meet the conditions for claiming the maximum tax offset, allowing individuals to benefit with minimal (if any) risk on their investment. Entities promote, orchestrate, and finance these schemes primarily for the individuals to obtain the tax offset, with the refunded offset shared with those entities. | 2. While the application of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) to any particular arrangement depends on a careful weighing of all the relevant circumstances, Part IVA is likely to apply to arrangements similar to that described in TA 2024/1. | 3. If Part IVA of the ITAA 1936 applies to an arrangement, it follows that the qualification in paragraph (e) of table item 1 of subsection 170(1) of the ITAA 1936 will usually apply to disqualify an individual from the 2-year period of review limitation. | 4. All legislative references in this Determination are to the ITAA 1936, unless otherwise indicated. | Date of effect: 5. This Determination applies both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 to 76 of Taxation Ruling TR 2006/10 Public Rulings ). | Commissioner of Taxation 18 June 2025 | The Commissioner may amend an assessment of an individual for a year of income within 2 years after the day on which the Commissioner gives notice of the assessment to the individual. | If item 1, 2 or 3 does not apply, the Commissioner may amend an assessment within 4 years after the day on which he or she gives notice of the assessment to the taxpayer.


Related rulings: TR 2006/10
Legislative references: ITAA 1936 Part IVA ITAA 1936 170(1) ITAA 1936 170(1)(d) ITAA 1936 170(1)(e) ITAA 1936 177A ITAA 1936 177A(1)(b) ITAA 1936 177A(5) ITAA 1936 177C ITAA 1936 177C(1)(b) ITAA 1936 177C(1)(bbaa) ITAA 1936 177CB(1)(b) ITAA 1936 177CB(1)(daa) ITAA 1936 177CB(2) ITAA 1936 177D ITAA 1936 177D(1) ITAA 1936 177D(2) ITAA 1936 177D(2)(a) ITAA 1936 177D(2)(b) ITAA 1936 177D(2)(c) ITAA 1936 177D(2)(e) ITAA 1936 177D(2)(f) ITAA 1936 177F ITAA 1936 177F(1) ITAA 1997 8-1 ITAA 1997 Div 360 ITAA 1997 Subdiv 360-A ITAA 1997 360-40 ITAA 1997 360-40(1)
Case references: Puzey v Commissioner of Taxation [2002] FCA 1171 2002 ATC 4853 50 ATR 595 194 ALR 615
Other references: TA 2024/1