Document ID: chunk:federal_register_of_legislation:C2004A00898:clause:1_34:p1
Version: federal_register_of_legislation:C2004A00898
Segment Type: clause
Provision Reference: sch 1 cl 34 (pt 1/14)
Character Range: 22231–25014

34  After Division 960
Insert:

[The next Division is Division 974.]

Division 974—Debt and equity interests

Table of Subdivisions

974‑A General
974‑B Debt interests
974‑C Equity interests
974‑D Common provisions
974‑E Non‑share distributions by a company
974‑F Related concepts

Subdivision 974‑A—General

Guide to Division 974

974‑1  What this Division is about

      This Division tells you whether an interest is a debt interest, or an equity interest, for tax purposes. An interest that could be characterised as both a debt interest and an equity interest will be treated as a debt interest for tax purposes (except for certain interests that fund returns on equity interests).
      Whether an interest is a debt interest or an equity interest matters because returns on debt interests are not frankable but may be deductible while returns on equity interests are not deductible but may be frankable.
      This Division extends beyond shares the range of interests that are recognised as equity in a company. An interest that is an equity interest in a company but is not a share will be treated in the same way as a share for some tax purposes (particularly in relation to the determination of the tax treatment of returns on the interest).
      This Division also tells you how to work out which distributions made in respect of a non‑share equity interest in a company will be non‑share dividends and which will be non‑share capital returns. Those that are non‑share dividends will be treated, for most tax purposes, in the same way as dividends.

Table of sections

974‑5 Overview of Division

Operative provisions

974‑10 Object

974‑5  Overview of Division

Test for distinguishing debt and equity interests

 (1) The test for distinguishing between debt interests and equity interests focuses on economic substance rather than mere legal form (see subsection 974‑10(2)). The test is designed to assess the economic substance of an interest in terms of its impact on the issuer's position.

Debt interests

 (2) Subdivision 974‑B tells you when an interest is a debt interest in an entity. The basic test is in section 974‑20.

Equity interests

 (3) Subdivision 974‑C tells you when an interest is an equity interest in a company. The basic test is in section 974‑75.

Tie breaker between debt and equity

 (4) If an interest satisfies both the debt test and the equity test, it is treated as a debt interest and not an equity interest.

Distributions in relation to equity interests that are not shares

 (5) If you have an equity interest in a company that is not a share, Subdivision 974‑E tells you what will count as a non‑share distribution, a non‑share dividend and a non‑share capital return in relation to the interest.

Concepts used in the