Treasury has issued a draft amendment to the Income Tax Assessment Act that clarifies the definition of limited recourse debt.Under current law, a debt is a limited recourse debt if the creditor's rights of recourse are contractually limited to specific rights in relation to the financed property or security. A debt is also a limited recourse debt if there are no specific conditions to that effect but it is reasonable to conclude that the creditor's rights of recourse are capable of being limited to specific rights in relation to the financed property or security.Under the proposed change, a debt will be limited recourse debt if it reasonable to conclude that the rights of the creditor, as against the debtor, upon a default in payment are in substance or effect limited wholly or predominantly to specific rights in relation to the financed property or security.According to an explanatory memorandum issued by Treasury, the amendment ensures that the limited recourse debt tax provisions are not circumvented through the use of other arrangements that have the same commercial effect as contractually limited recourse-debt arrangements.The purpose of the limited recourse debt tax provisions is to recoup excess capital allowance deductions claimed with respect to capital expenditure, where the taxpayer has not been fully at risk in relation to the expenditure.The provisions operate to reverse capital allowance deductions that, at the time the debt is terminated, are excessive, having regard to the amount of debt repaid.Treasury has called for submissions on the draft, with a closing date of November 12.