Income Tax Act 2007 section 809FZW

Anti-avoidance

Section 809FZW introduces anti-avoidance rules to prevent arrangements designed to manipulate how carried interest is classified, particularly by artificially reducing the proportion treated as income-based carried interest.

• Any arrangements whose main purpose (or one of whose main purposes) is to reduce the proportion of carried interest that counts as income-based carried interest must be disregarded when calculating average holding periods or determining fund type classifications.
• The fund types covered by this rule include venture capital funds, significant equity stake funds, controlling equity stake funds, real estate funds, funds of funds, and secondary funds.
• Arrangements designed to prevent the income tax charge under section 809EZA(1) from applying to some or all carried interest must also be disregarded when determining the extent to which carried interest is income-based.
• The rule targets two distinct areas: manipulation of the inputs used to classify carried interest (holding periods and fund type), and manipulation aimed at sidestepping the income tax charge on carried interest altogether.