SAIM2720 - Interest: disguised interest: what is disguised interest?
Disguised interest is the return that is produced from arrangements that give rise to an amount that is 鈥榚conomically equivalent to interest鈥� without constituting interest in legal form.
See SAIM2030 onwards, and the Corporate Finance Manual at onwards for a more detailed explanation of the case law on the meaning of interest.
A return that is economically equivalent to interest will have the following features:
- It is calculated by reference to the time value of money.
- It is comparable to a commercial rate of interest.
- There is no practical likelihood at the 鈥榬elevant time鈥� of the return not being produced, unless the producer is prevented by insolvency or otherwise from producing it.
These features are explained in more detail at SAIM2730.