»Ê¹ÚÌåÓýapp

TIOPA10/444(2)-(3)

»Ê¹ÚÌåÓýapp Group Ratio (Blended) Election

A JV company that has made a QIC joint venture election can still make a group ratio (blended) election under TIOPA10/s401. TIOPA10/s444(2) modifies the calculation assuming that the qualifying investors are removed from the calculation.

Example

In this example the JV has two qualifying investors that each have a 30% share and two non-qualifying investors that have 25% and 15% shares respectively.

For the purpose of the blended group ratio calculation we assume that the qualifying investors were not investors in the group. This means that A and B are treated as if they do not have a share of the JV.

C’s share is now recalculated as 25/40 x 100 = 62.5%

D’s share is now recalculated as 15/40 x 100 = 37.5%

»Ê¹ÚÌåÓýapp blended ratio is calculated under S401(3)-(4).

This is (62.5% x 60%) + (37.5% x 80%) = 37.5 + 30 = 67.5%

»Ê¹ÚÌåÓýapp Interest Allowance (non-consolidated investment) election

A non-qualifying company that is an investor in a QIC that makes a QIC joint venture election can still make an interest allowance (non-consolidated investment) election. TIOPA10/s444(3) modifies the calculation assuming that the qualifying investors are not included in the calculation.

To illustrate how the election works we assume the same structure as the previous example. »Ê¹ÚÌåÓýapp JV has third party interest expense of 200 and has group EBITDA of 100. A, B, C and D each lend to the JV and receive related party interest from the JV of 6, 6, 5 and 3 respectively.

TIOPA10/s444(5) calculates the exempt amount from the third party interest of the JV. »Ê¹ÚÌåÓýapp combined qualifying proportion of A and B is 60% so the exempt amount is 60/100 x 200 = 120. »Ê¹ÚÌåÓýapp interest of 12 that is paid to A and B is also an exempt amount as A and B are QICs. »Ê¹ÚÌåÓýapprefore the total exempt amount in the JV is 132.

It therefore follows under TIOPA10/s442(2) that the remaining amount that is not an exempt amount is 80 and as this is third party interest both the adjusted net group-interest expense and qualifying net group-interest expense of JV is 80. »Ê¹ÚÌåÓýapp interest paid of 8 to C and D is related party interest expense and this increases the adjusted net group-interest expense by 8. It does not increase the qualifying net group-interest expense.

Under TIOPA10/s444(10) the group-EBITDA of JV is calculated to the proportion of the non-qualifying investors. This is 40/100 x 100 = 40.

Applying TIOPA10/s444(3) it is assumed for the purposes of applying the non-consolidated investment election that the qualifying investors are ignored so the effective proportions of the group held by the non-qualifying investors are not further diluted. »Ê¹ÚÌåÓýappse are calculated as follows:

C’s share is 62.5% and Ds share is 37.5%.

Application of the non-consolidated investment election to C

C increases its adjusted net group-interest expense on the remaining third party interest of 80 by (62.5/100) x 80 = 50

C increases its qualifying net group-interest expense on the remaining third party interest of 80 by (62.5/100) x 80 = 50

For the purposes of this election the loan from C to JV of 5 is ignored. C increases its adjusted net group interest expense on the balance of the related party interest by (62.5/100) x 3 = 1.9

C share of the JV’s group-EBITDA is (62.5/100) x 40 = 25

Application of the non-consolidated investment election to D

D increases its adjusted net group-interest expense on the remaining third party interest of 80 by (37.5/100) x 80 = 30

D increases its qualifying net group-interest expense on the remaining third party interest of 80 by (37.5/100) x 80 = 30

For the purposes of this election the loan from D to JV of 3 is ignored. D increases its adjusted net group interest expense on the balance of the related party interest by (37.5/100) x 5 = 1.9

D share of the JV’s group-EBITDA is (37.5/100) x 40 = 15