Document ID: chunk:federal_register_of_legislation:C2004C01257:clause:2_1:p4
Version: federal_register_of_legislation:C2004C01257
Segment Type: clause
Provision Reference: sch 2 cl 1 (pt 4/20)
Character Range: 17854–20731

no part of those payments were capital in nature.

 (2) The *notional buyer is entitled to deduct *notional interest for *arrangement payment periods, and parts of arrangement payment periods, in the income year.

240‑55  Arrangement payments not to be allowable deductions

  The *notional buyer is not entitled to deduct *arrangement payments that the *notional buyer makes under the *arrangement, but those payments are taken into account in calculating *notional interest that may be deducted under section 240‑50.

Subdivision 240‑E—Notional interest and arrangement payments

Table of sections

Operative provisions

240‑60 Notional interest
240‑65 Arrangement payments
240‑70 Arrangement payment periods

Operative provisions

240‑60  Notional interest

 (1) The *notional interest for an *arrangement payment period is worked out as follows:

Calculating *notional interest

Step 1. Add the *notional interest from previous *arrangement payment periods to the *notional loan principal.

Step 2. Subtract any *arrangement payments that have already been made or that are due but that have not been made. The result is the outstanding notional loan principal as at the start of the *arrangement payment period.

Step 3. Work out the implicit interest rate. It is the rate of compound interest for the *arrangement payment period at which the *notional loan principal equals the sum of:

 (a) the present value of the *arrangement payments payable by the *notional buyer under the *arrangement; and

 (b) the present value of any *termination amounts.

Step 4. Multiply the outstanding *notional loan principal by the implicit interest rate. The result is the notional interest for the *arrangement payment period.

 (2) If only part of an *arrangement payment period occurs during an income year, the *notional interest for that part of the arrangement payment period is so much of the notional interest for that arrangement payment period as may appropriately be related to that income year in accordance with generally accepted accounting principles.

 (3) In calculating the implicit interest rate, if any of the relevant amounts are not known at the start of the *arrangement, a reasonable estimate of the amount is to be made and is to be used for the purposes of calculating the implicit interest rate for each income year of the *notional seller.

 (4) If a reasonable estimate cannot be made at that time, an estimate of the amount is to be made at the end of each income year of the *notional seller for the purposes of calculating the implicit interest rate for each income year of the notional seller.

240‑65  Arrangement payments

  An arrangement payment is an amount that the *notional buyer is required to pay under the *arrangement but does not include:
 (a) an amount in the nature of a penalty payable for failure to make a payment on time;