At Call Loans

Dated: August 2004

Under the existing transitional rules 'at call' loans would be classified as equity interests (and not as debt) after 30 June 2004. However, small business has been granted a carve-out from the debt/equity rules for related party 'at call' loans.

Changes as announced by the Assistant Treasurer on 24 May 2004, will extend the existing transitional rules until 30 June 2005. Further, there will be a permanent carve-out of related party 'at call' loans where the following conditions are satisfied:

• the company (and any related entities) have CGT assets with a net value of $5 million of less; and
• the amount of deductions in respect of the loan in that income year is $100,000 or less.

For companies that do not satisfy the new criteria the only alternative to having the loan treated as an equity interest will be to turn the loan into an excluded loan where:

• the loan is made under a written agreement;
• the interest rate payable exceeds the benchmark interest rate published before the start of the income year; and
• the term of the loan does not exceed the maximum permitted (eg. 25 years if secured and 7 years in all other cases).