Income Tax Act 2007 section 809BZF

Type 2 finance arrangement defined

Section 809BZF defines a "type 2 finance arrangement", which is a specific structure involving partnerships designed to disguise what is, in substance, a lending transaction as a profit-sharing arrangement.

• A type 2 finance arrangement involves a transferor disposing of an asset (the security) to a partnership, while the partnership separately receives an advance from a lender
• The transferor (or a connected person) must be a partner immediately after the disposal, and a "relevant change" must occur — typically the lender or a connected person joining the partnership or altering their profit share
• The profit share of the person involved in the relevant change must be determined wholly or partly by reference to payments relating to the disposed asset, even if that determination is conditional
• Under generally accepted accounting practice, the partnership's (or transferor's) accounts must record a financial liability for the advance, and the payments in question must reduce that liability