TheTaxation Laws Amendment (2012 Measures No 6) Bill (Cth) (Bill) is making its way through Parliament, and is currently before the Senate. The Bill includes amendments to the definition of ‘limited recourse debt’, which will widen the current meaning to include arrangements where, in substance or effect, the debtor is not fully at risk in relation to the debt.
How may this affect you?
The amendments in the Bill are intended to affect the financing of projects where the borrower is a special purpose vehicle that has minimal or no other assets or income from other sources apart from the project assets. However, the amendments have been drafted very widely and may potentially apply to a wider range of financial arrangements where assets have been financed using debt. This may allow for the depreciation to be clawed back even when a debt has been repaid in full, or any time a debt is refinanced, which means that a taxable gain can arise on refinancing of debt.
What should you do?
Companies that have set up special purpose vehicles or have entered agreements which limit a creditor’s right of recovery upon default should consider the potential impact of the amendments contained in the Bill on the company’s taxable income.