(1) The costs mentioned in paragraph 727 - 230(b) or 727 - 235(1)(b) are to be worked out:
(a) in accordance with generally accepted accounting practices; and
(b) to the extent that the services are to be provided in the future, on the basis of a reasonable estimate of those costs.
(2) To avoid doubt, the direct cost or indirect cost mentioned in paragraph 727 - 230(b) or 727 - 235(1)(b) does not include:
(a) to the extent that the services consist of or include lending money or providing any other form of financial accommodation--the amount of the loan or other accommodation; or
(b) to the extent that the services consist of or include leasing, renting, hiring, or allowing the use of, any asset:
(i) the cost of acquiring the asset; or
(ii) the cost of acquiring an interest in, or right in respect of, the asset in order to provide the services.
Example: Acme Ltd is the holding company of Group Financier Pty Ltd. Group Financier Pty Ltd borrows $20 million at 7% per annum, and on lends it to other subsidiaries of Acme Ltd at 8% per annum.
The $20 million does not form part of Group Financier Pty Ltd's direct cost of the services it provides to the other subsidiaries in the form of the on lending. However, the 7% interest that Group Financier Pty Ltd pays on the $20 million does form part of that direct cost.
(3) The present values mentioned in paragraph 727 - 230(b) or 727 - 235(1)(b) are to be worked out using a discount rate equal to the rate that, for the purposes of section 109N of Income Tax Assessment Act 1936 , is the benchmark interest rate for the income year in which the * IVS time occurs.
Note: That section is about distributions to entities connected with a
private company.