F.1.2  Division 250 tax payable upon project capture - Taxation of Financial Arrangements (TOFA) mathematics

If a project is caught by Division 250, the tax consequences are based on the Division 16 D model. Accordingly, the arrangement is deemed to constitute a loan from the taxpayer to the tax-exempt, and the financial benefits provided to the taxpayer for the tax-preferred use of the asset(s) are re-characterised, bifurcating the loan servicing into interest (taxable) and principal (capital account). However, whilst the administration of the new law is still in the developmental phase, the assessable interest component of the deemed loan under Div 250 (other things equal) may be greater in a PPP arrangement when compared to Div 16 D due to:

•  not restricting the relevant income stream (for bifurcation into interest & principal) to the actual cash payments. The compounding accruals method allows taxation in advance of cash, and this implies a bring forward e.g. a higher tax liability in present value terms; or

•  the deeming / imputing of sums where no transaction has occurred e.g. end values may be counted where the taxpayer continues to hold the asset i.e. taxation of unrealised gains.