Section 809BZJ: Type 3 finance arrangement defined
1151.This section defines a form of arrangement, labelled a “type 3 finance arrangement”, which falls within this legislation. It is based on section 774C(1), (4) and (5) of ICTA.
1152.A type 3 finance arrangement is similar to a type 2 finance arrangement. See the commentary on section 809BZF. But a type 3 finance arrangement deals with a case where an existing partnership enters into an arrangement under which the lender becomes a partner and shares in the profits to an extent sufficient to repay its contribution with interest. It differs from a type 2 finance arrangement in that (a) the partnership cannot be one formed for the purposes of the arrangement and (b) there is no reference to a transfer of an asset or a transferor.
1153.Subsection (1) provides that two conditions must be met if an arrangement is to be a type 3 finance arrangement.
1154.Subsection (2) specifies condition A, which concerns the terms of the arrangement. There are four tests in condition A, all of which must be passed if the condition is to be met.
1155.Subsection (3) specifies condition B, which is about accounting. To summarise, the payments mentioned in subsection (2)(d) must be, for accounting purposes, payments of principal rather than interest.
1156.Conditions A and B in this section are very similar to conditions A and B in section 809BZF (type 2 finance arrangement defined). For the provisions which differ, see sections 809BZF(2)(a) and (b) and 809BZJ(2)(a).