Meaning of 'equity interest' in paragraph 974-30(1)(b) of the ITAA 1997

Does the term 'equity interest' in paragraph 974-30(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) have its general legal meaning or the meaning given to the term in Subdivision 974-C of the ITAA 1997?

The meaning of the term 'equity interest' in paragraph 974-30(1)(b) of the ITAA 1997 is the meaning given to the term in Subdivision 974-C.

A company issues redeemable preference shares to a connected entity in exchange for an amount of cash. The redeemable preference shares have a term of five years and redemption for that same amount of cash is contingent only on Corporations Act 2001 requirements of the redemption being out of a fresh issue of shares or profits.

Subdivision 2-C of the ITAA 97 explains how to identify defined terms and how to find the associated definitions. Section 2-10 of the ITAA 1997 provides: (1) Many of the terms used in income tax law are defined. (2) Most defined terms in this Act are identified by an asterisk appearing at the start of the term...

However, not all defined terms are identified in this way. Section 15 of Subdivision 2-C of the ITAA 1997 outlines in what circumstances terms are not identified by an asterisk. Subsection 2-15(1) states: 'Once a defined term has been identified by an asterisk, later occurrences of the term in the same subsection are not usually asterisked.'

This raises the question as to whether the context in which the term 'equity interest' is used in subsection 974-30(1)(b) of the ITAA 1997 leads to the conclusion that the term should not have the meaning it would bear were it to be asterisked, that is, the meaning given to it in Subdivision 974-C of the ITAA 1997.

An examination of that context clearly indicates that the term 'equity interest' ought to bear the meaning given to it in Subdivision 974-C of the ITAA 1997.

It is clear that 974-30(1)(b) of the ITAA 1997 is intended to operate with 974-30(1)(a) to ensure that, broadly, neither the issue of, nor an amount to be applied in respect of the issue of, a Subdivision 974-C 'equity interest' can be a 'financial benefit' for, inter alia, the purposes of the debt test. Subsection 974-30(1)(b) was enacted to prevent the policy expressed in subsection 974-30(1)(a) being circumvented by an amount being applied in respect of the issue of a Subdivision 974-C 'equity interest', rather than a Subdivision 974-C 'equity interest' being directly issued.

Subsection 974-10(2) of the ITAA 1997 states that '[a]nother object of the Division is that the test referred to in subsection (1) is to operate on the basis of the economic substance of the rights and obligations arising under the *scheme or schemes rather than merely on the basis of the legal form of the scheme or schemes.'

Therefore, the meaning of the term 'equity interest' in paragraph 974-30(1)(b) of the ITAA 1997 is the meaning given to the term in Subdivision 974-C of the ITAA 1997.