Income Tax Act 2007 section 564E

Deposit arrangements

Section 564E defines the conditions under which deposit arrangements with a financial institution qualify as alternative finance arrangements, so that the returns received are treated as alternative finance return rather than conventional interest.

• A depositor places money with a financial institution, which pools it with other depositors' funds and uses it to generate a profit
• The institution periodically makes or credits payments to the depositor from the profits earned, in proportion to the amount the depositor originally put in
• The payments must, in substance, equate to the return that would be received on a conventional interest-bearing investment
• These arrangements are subject to the arm's length test in section 564H, which can exclude arrangements where the terms are not commercially realistic