Taxation of tax exempt entities
Periodically, entities that have previously been income tax exempt can transition to operate in the same manner as traditional business taxpayers.
Where income tax exempt entities transition to being taxable after 8 May 2018, any income tax deductions that arise on the repayment of the principal of a concessional loan will be disallowed.
Under this measure, impacted concessional loans will be required to be valued as if the loans were originally entered into on commercial terms.
This measure is an integrity measure necessary due to the interaction between the taxation of financial arrangements (TOFA) rules and those rules dealing with deemed market values for tax exempt entities that become taxable. While this is a small group, affected parties will need to carefully consider their circumstances.