Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012

80 Limitation on deductions by persons with interests in look-through companies
  • (1) In section HB 11(5)(c), paragraph (b) is replaced by paragraph (b) by the person or another person.

    (2) Section HB 11(7)(a) is replaced by the following:

    • (a) income that the person has by virtue of section HB 1 in the income year and previous income years:

    • (ab) if the person has FIF income or a FIF loss, an amount under subsection (7B):.

    (3) After section HB 11(7), the following is inserted:

    Formula
    • (7B) The amount described in subsection (7)(ab) is given by the following formula, but if the calculation returns a negative number, the amount is zero:

      dividend –FIF amount.
    Definition of items in formula
    • (7C) In the formula,—

      • (a) dividend is the amount that would, under section HB 1, be the person's proportion of the dividend paid by a FIF to the LTC, if section CD 36(1) were ignored:

      • (b) FIF amount is––

        • (i) zero, if subparagraph (ii) does not apply:

        • (ii) the amount that is the person's FIF income, for the relevant income year and FIF, if the person has such an amount.

    (4) Section HB 11(12) is replaced by the following:

    Some definitions
    • (12) In this section,––

      guarantor means––

      • (a) a person (person A) who has an effective look-through interest for the LTC, if—

        • (i) person A, ignoring section HB 1, secures the relevant debt by guarantee or indemnity:

        • (ii) an owner's associate of person A secures the relevant debt by guarantee or indemnity:

      • (b) a person who is not described in paragraph (a)(i) and (ii) but who secures the relevant debt by guarantee or indemnity, if person A or an owner's associate also secures the relevant debt as described in paragraph (a)(i) or (ii)

      look-through company deduction means, for the person and the income year, the amount of the deductions that the person would be allowed if they were treated as having only income and deductions arising from the application of this subpart

      owner's associate means a person who does not have an effective look-through interest for the LTC and who is—

      • (a) a relative of a person who has an effective look-through interest for the LTC:

      • (b) a trustee who is associated in their capacity of trustee, with a person who has an effective look-through interest for the LTC

      recourse property means property to which a creditor has recourse, to enforce a guarantee or indemnity for the relevant debt, if the guarantee or indemnity expressly provides recourse to only that property

      secured amounts means, for the person, the lesser of the following applicable amounts:

      • (a) the amount of the look-through company's debt ignoring section HB 1 (the secured debt) for which the person is a guarantor, divided by the total number of guarantors for the secured debt:

      • (b) the market value of the recourse property for the secured debt to the extent of the interest that the person and their owner's associates have in it, net of higher-ranking calls whether actual, future or contingent, divided by the total number of guarantors described in paragraph (a) of the definition of guarantor who have an interest in the recourse property or have an owner's associate with an interest in the recourse property.

    (5) In section HB 11, in the list of defined terms, FIF loss, guarantor, owner's associate, and recourse property are inserted.