ATO Rulings and Determinations
Debt/equity rules: effectively non-contingent obligation
14.01.2009
A final determination has been issued on the meaning of the definition “effectively non-contingent obligation” in sec 974-135(1) ITAA 1997 which is used for several purposes of the debt test in the debt/equity rules (TD 2009/1).
Under sec 974-135(1) ITAA 1991, there will be an “effectively non-contingent obligation” to take an action under a scheme if, having regard to the pricing, terms and conditions of the scheme, there is in substance or effect a non-contingent obligation to take that action.
The determination states that an “obligation” for the purposes of this provision does not have to be a legally enforceable obligation. The clause “there is in substance or effect a non-contingent obligation” is to be interpreted as “there is in substance or effect an obligation that is, in substance or effect, non-contingent”.
