Chartered Accountants Australia and New Zealand (CA ANZ) has lodged a submission with the Australian Taxation Office (ATO) on the Draft Taxation Determination TD 2024/D3 Income tax: does section 109U of the Income Tax Assessment Act 1936 only apply to arrangements where a private company gives a guarantee to another private company? (Draft TD).

The Draft TD impacts the common practice of private groups to use a group financing/treasury company to borrow from banks and then on-lend borrowed amounts to group entities. However, it only provides binding guidance to address a narrow question.

To improve the utility of the Draft TD, the submission calls for:

• the scope of the Draft TD to be broadened to include the factors the Commissioner would have regard to when determining the amount of deemed payment under section 109V of the Income Tax Assessment Act 1936.
• the Commissioner to determine the amount of any notional payment under section 109V as nil where a private company guarantee is provided in respect of a back-to-back loan arrangement (originating from a bank) with the last leg being a Division 7A complying loan. Because a payment is deemed under section 109V rather than an amount of a loan under section 109W, there is no exception available (e.g. section 109X) where the loan to the target entity is made on Division 7A complying terms.
• further commentary and examples be included in the ATO’s compliance approach to provide more guidance and examples on what arrangements would be low risk from the ATO’s point of view.