Minister in a legislative instrument. These examples will give guidance as to how the new scheme aggregation rule will apply in particular circumstances. The new scheme aggregation rule replaces the existing related scheme rules in subsections 974-15(2) and 974-70(2), and the equity override integrity provision in section 97480. Comparison of key features of new law and current law New law Current law Schemes are aggregated if: Schemes can be combined to affect the characterisation of an interest on a pricing, terms and conditions standalone basis if the schemes have, are interdependent in a way that and the scheme participants intended would change their debt or equity the schemes to have, the combined treatment; and effect of either a debt or equity it would be concluded that the interest. schemes were designed to operate For this to occur, the schemes must to produce their combined be schemes’. ‘related economic effect. The schemes’ threshold has ‘related been removed. Section 974-80 is repealed. However, Section 974-80 recharacterises certain the new scheme aggregation rule can debt interests as equity interests apply to schemes that would have where the interest is held by a been captured by section 97480. connected entity and is designed to operate to fund a return on a separate equity interest. Detailed explanation of new law Schedule 1 to this Exposure Bill introduces a new rule for determining when schemes should be aggregated for the purpose of the debt-equity rules in Division 974. This new scheme aggregation rule ensures that multiple schemes are treated as a single scheme only where this accurately reflects the economic substance of the schemes. Under the new rule, it is necessary to consider: the interdependence test that is, whether the pricing, terms — and conditions of the schemes are interdependent in a way that would change their debt or equity treatment under Division 974; and
Minister in a legislative instrument. These examples will give guidance as to how the new scheme aggregation rule will apply in particular circumstances. The new scheme aggregation rule replaces the existing related scheme rules in subsections 974-15(2) and 974-70(2), and the equity override integrity provision in section 97480. Comparison of key features of new law and current law New law Current law Schemes are aggregated if: pricing, terms and conditions are interdependent in a way that would change their debt or equity treatment; and it would be concluded that the schemes were designed to operate to produce their combined economic effect. The ‘related schemes’ threshold has been removed. Schemes can be combined to affect the characterisation of an interest on a standalone basis if the schemes have, and the scheme participants intended the schemes to have, the combined effect of either a debt or equity interest. For this to occur, the schemes must be ‘related schemes’. Section 974-80 is repealed. However, the new scheme aggregation rule can apply to schemes that would have been captured by section 97480. Section 974-80 recharacterises certain debt interests as equity interests where the interest is held by a connected entity and is designed to operate to fund a return on a separate equity interest. Detailed explanation of new law Schedule 1 to this Exposure Bill introduces a new rule for determining when schemes should be aggregated for the purpose of the debt-equity rules in Division 974. This new scheme aggregation rule ensures that multiple schemes are treated as a single scheme only where this accurately reflects the economic substance of the schemes. Under the new rule, it is necessary to consider: the interdependence test — that is, whether the pricing, terms and conditions of the schemes are interdependent in a way that would change their debt or equity treatment under Division 974; and
C2016-033_Exposure_Draft_EM.docx