Income Tax Act 2007 section 257LC

The no risk avoidance requirement

Section 257LC prevents social investment tax relief from applying where arrangements exist to shield the investor from the normal risks of making the investment.

• During the shorter applicable period, no arrangements may exist whose main purpose (or one of whose main purposes) is to protect the investor wholly or partly against the risks of making the investment, whether through insurance, indemnity, guarantee, hedging or any other means.
• Arrangements that merely provide normal commercial protection for the social enterprise's own business activities are excluded from this prohibition.
• Where the social enterprise is a parent company meeting the trading requirement or acting as an accredited social impact contractor, the exclusion extends to protection provided for the parent itself, its subsidiaries, or both.
• The permitted protection must be of a kind that would reasonably be expected in normal commercial circumstances for the risks arising in the course of the enterprise's business.