Taxation (International and Other Provisions) Act 2010 section 457

Elections under section 456: deemed debits and credits

Section 457 explains what happens when a company has made a fair value accounting election under section 456 for its creditor relationships, and the resulting notional debits are caught by the corporate interest restriction rules.

• Where a section 456 election creates notional debits that form part of a group's total disallowed amount, the company must bring both a matching debit and credit into account for the same accounting period.
• The debit is subject to the wider corporate interest restriction rules, meaning some or all of it may ultimately be disallowed — but the credit is brought in fully, ensuring the net position is correct.
• A "notional debit" is one that only exists, or is only larger, because of the fair value determination required by the section 456 election — it would not have arisen under the company's normal accounting basis.
• Both the deemed debit and the deemed credit take the same character as the underlying notional debits, so they are treated as loan relationship debits and credits of the same type.

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