Business, in particular small business, is urged to comment on a discussion paper released today dealing with the tax treatment of certain ‘at call’ loans, Minister for Revenue and Assistant Treasurer, Senator Helen Coonan said.
Transitional arrangements, which currently treat related party ‘at call’ loans as debt interests, will end on 30 June 2004. After this date, such loans may be classified as equity interests for the purposes of the debt/equity rules.
The Treasury discussion paper deals with how the debt/equity tax
rules should apply to these loans after 30 June 2004.
The ‘at call’ loans subject to the transitional arrangements generally
don’t have a fixed term and are payable on demand. Interest payments may
also fluctuate as determined by the parties from time to time.
“Commonly a shareholder controlling a small company will make an ‘at-call’ loan to provide funds to the company, on the basis that the funds will be repaid if and when the company is able to,” Senator Coonan said.
“This is often done informally and the shareholder determines
whether interest is paid on the loan and, if so, how much interest is paid and
when.
“Small business in particular has expressed concern about a lack of understanding
and awareness of the possible change in tax treatment of these very common loans
and concerns about increased compliance costs.
“Whether such loans are treated as debt or equity for income tax purposes is important because returns on a debt interest may be deductible and are non-frankable, while returns on an equity interest are non-deductible and may be frankable.”
Comments on the Treasury discussion paper will help determine how the debt/equity rules operate for such loans after 30 June 2004.
Comments should be sent by 30 April 2004 to the Manager, Taxation of Financial Arrangements Unit, Business Income Division, Revenue Group, The Treasury at Langton Crescent, Canberra ACT 2600 or by email to tofa&leasing@treasury.gov.au.
The discussion paper is available on the Treasury
website.