Debt/equity

The correct characterisation of an instrument/financing arrangement (instrument) within a PPP arrangement as debt or equity for tax purposes is fundamental. The tax legislation has specific rules which consider, based on the substance of the instrument, whether it is debt or equity for tax purposes. While a payment of interest on a debt instrument is generally deductible to the borrower for tax purposes, payments to equity holders (e.g. dividends) are generally non-deductible (yet frankable for tax purposes).