Tax Treatment of Financing Arrangement for Asset Refurbishment

• Technical Decision Summary No. 25/02 clarifies the tax treatment of a financing arrangement for capital asset refurbishment.
• DEF owned ABC, which had a license for the asset.
• DEF’s shareholders were also licensees and provided interest-free loans to ABC.
• ABC’s cash balances and future net operating cash flows covered the remaining costs.
• Capital works license fees were charged on a straight-line basis over the tax life of the new assets.
• ABC was entitled to GST input tax credits for capital expenditures without adjustments.
• ABC was subject to GST on the capital works license fees paid by offset against loan principal.

Source: news.bloombergtax.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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