s24J/s24O/s31

Question 1

s24J(2) - The issuer

What are the requirements? (7)

Answer 1

1. Issuer
2. Instrument
3. Interest
4. Accrual amounts
5. Accrual period
6. Carrying on a trade
7. In the production of income

Question 2

s24J(3) - The holder

What are the requirements? (3)

Answer 2

1. Holder
2. Income instrument
3. Interest

Question 3

Instrument

Answer 3

• Any form of interest-bearing arrangement or any debt
• Any acquisition/disposal of a right to receive/pay interest i.t.o. An interest bearing arrangement
• Repurchase/resale agreement

BUT excludes leases (but includes sale and leaseback under S23G)

Question 4

Income Instrument

Answer 4

• Company: ANY instrument
• Not a company (a trust or NP):
  i. any instrument where the term exceeds 1 year AND
  ii. issued at discount/premium/ or bears deferred interest

Question 5

Exclusions from s24J

Answer 5

• Doesn’t meet Income instrument definition (NP/Trust and less than 12 months or no premium/discount/deferred interest)
• Doesn’t meet Instrument definition
  -Demand instruments: (S24J (12))
  o Holder has right to require redemption of instrument at any time during period; AND
  o Does not provide for payment of deferred interest

Exclude BUT may qualify under Gross Income and s11(a)

Question 6

How is interest apportioned?

Answer 6

by DAYS!

Question 7

s24O - Purpose?

Answer 7

It deems interest incurred on loans to acquire shares to be in production of income.. Then may be deductible under s24J/s11(a).

Question 8

s24O(2) - any interest incurred by a company in respect of a debt issued/used by that company - requirements

Answer 8

• for the purposes of financing an acquisition transaction
• of equity share.
• To the extent that the interest incurred on the equity shares constitutes a qualifying interest
• in an operating company.

Question 9

s24O(3) - an equity share constitutes a qualifying interest if:

Answer 9

• company was an operating company in prior YOA
• If equity share not held directly in the operating company:
• – to extent the value of equity share of the holding company is derived by the operating company
• – part of same group of companies

Question 10

s24O(1) - Acquisition transaction

Answer 10

Where a company acquires an equity share in
• Operating company and
• Acquirer becomes controlling group company (>70%)

Question 11

s24O(1) - Operating company

Answer 11

A company where
• 80% of the amounts received or accrued constitute
income; and
• from business is carried on continuously
• In providing goods or rendering services.

Question 12

name s31

Answer 12

s31. Tax payable in respect of international transactions to be based on arm’s length principle
- it is an anti-avoidance provision

Question 13

s31(2) - application requirements

Answer 13

1. Where an affected transaction
2. results in a tax benefit for one of the parties
3. the person that derives the tax benefit must calculate as if transaction was at arm’s length

Question 14

s31(3) - remedy

Answer 14

The difference between actual terms and arm’s lengths terms is treated as a:
If resident is a company
- dividend in specie (subject to div tax - but excl from s1 definition of dividend)

If resident is not a company
- donation, therefore subject to donations tax

Question 15

s31(1) - affected transaction

Answer 15

Transaction, etc

• between resident and non-resident
• who are CP
• not at arm’s length

Question 16

general things s31 applies to (3)

Answer 16

Actual Selling Price is not Market Value
Excessive interest - not at market-related rate
Excessive lending
(only effects the resident)