Income Tax Act 2007 section 564DA

Diminishing shared ownership arrangements: refinancing

Section 564DA extends the alternative finance (Sharia-compliant) diminishing shared ownership rules to cover refinancing situations, where a new financier replaces an existing one partway through an arrangement.

• A customer who already holds a beneficial interest in an asset can sell part of that interest to a financier (a financial institution, regulated home purchase plan provider, or via regulated electronic system facilitated arrangements), then gradually buy it back through payments, while retaining exclusive use and entitlement to any income or gains from the asset.
• Where an existing diminishing shared ownership arrangement under section 564D or this section is refinanced, the new financier acquires whatever share of the beneficial interest the customer has not yet bought back, and the customer continues making payments to the new financier for the outstanding balance on the same diminishing shared ownership basis.
• The customer's exclusive right to occupy or use the asset does not prevent them from granting interests or rights over it to third parties, provided the grant is not made to the financier or a person connected with the financier, and is not required by the financier or related arrangements.
• The financier may bear responsibility for, or share in losses from, any reduction in the asset's value — this does not breach the requirement that the customer is exclusively entitled to income, profit or gain from the asset. However, the entire section is overridden if the arrangements are not on arm's length terms.

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