Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 2 - Income  

Subdivision A - Assessable income generally  

SECTION 26BC   SECURITIES LENDING ARRANGEMENTS  

26BC(1)    

In this section:

convertible note
:

(a) in relation to a company - has the same meaning as in Division 3A ; or

(b) in relation to a unit trust - means a note issued by the trustee of the unit trust, being a note that, if the unit trust were a company, would be a convertible note issued by the company, and includes a note that would be a convertible note within the meaning of Division 3A if:

(i) references in that Division to a company were references to a unit trust, or to the trustee of the unit trust, as the context requires; and

(ii) references in that Division to shares were references to units;

debenture
, in relation to a unit trust, means an instrument issued by the trustee of the unit trust, being an instrument that, if the unit trust were a company, would be a debenture issued by the company;

distribution
includes:

(a) interest; or

(b) a dividend; or

(c) a share issued by a company to a shareholder in the company where the share is issued:

(i) as a bonus share; or

(ii) in the circumstances mentioned in subsection 6BA(1) ; or

(d) an amount credited by the trustee of a unit trust to a unit holder as a unit holder; or

(e) a unit issued by the trustee of a unit trust to which section 130-20 of the Income Tax Assessment Act 1997 applies (apart from subsection (4) of that section).

eligible security
means:

(a) a share, bond, debenture, convertible note, right, option or similar financial instrument issued by a public company; or

(b) a unit, bond, debenture, convertible note, right, option or similar financial instrument issued by the trustee of:

(i) a listed unit trust; or

(ii) a unit trust any of the units of which were offered to the public; or

(c) a bond, debenture, right, option or similar financial instrument issued by a government or by an authority of a government;

government
means:

(a) the Commonwealth, a State or a Territory; or

(b) the government of, or of a part of, a foreign country;

listed company
means a company any of the shares of which are listed for quotation in the official list of a stock exchange in Australia or elsewhere;

listed unit trust
means a unit trust any of the units of which are listed for official quotation in the official list of a stock exchange in Australia or elsewhere;

option
:

(a) in relation to a company - means an option to acquire shares in the company; or

(b) in relation to a unit trust - means an option to acquire units in the unit trust; or

(c) in relation to a government or an authority of a government - means an option to acquire a bond, debenture or similar financial instrument issued by the government or by the authority;

public company
means:

(a) a listed company; or

(b) a mutual life assurance company; or

(c) a company in which a government or an authority of a government has a controlling interest; or

(d) a company that is a 100% subsidiary of a company covered by paragraph (a), (b) or (c);

right
:

(a) in relation to a company - means a right to acquire shares in the company or to acquire an option; or

(b) in relation to a unit trust - means a right to acquire units in the unit trust or to acquire an option; or

(c) in relation to a government or an authority of a government - means a right to acquire a bond, debenture or similar financial instrument issued by the government or by the authority or to acquire an option.

subsidiary
(Repealed by No 46 of 1998)

26BC(2)    
If an eligible security is held by a person as trustee for another person who is absolutely entitled to the eligible security as against the trustee, this section applies as if the eligible security were vested in the other person and any acts of the trustee were the acts of that other person.

26BC(3)    
This section applies where:

(a) under a written agreement of the kind known as a securities lending arrangement, being an agreement that was entered into after 9 May 1990:

(i) at a particular time (in this section called the original disposal time ), a taxpayer (in this section called the lender ) disposed of an eligible security (in this section called the borrowed security ) to another taxpayer (in this section called the borrower ); and

(ii) at a later time (in this section called the re-acquisition time ), being less than 12 months after the original disposal time, the lender:

(A) re-acquired the borrowed security (which re-acquired security is in this section called the replacement security ) from the borrower; or

(B) acquired an identical security (which acquired security is in this section also called the replacement security ) from the borrower; and

(b) both the borrower and the lender were dealing with each other at arm's length in relation to each of the transactions mentioned in paragraph (a); and

(c) if any of the following events occurred during the period (in this section called the borrowing period ) commencing at the original disposal time and ending at the re-acquisition time:

(i) the making or payment of a distribution (whether in property or money) in respect of the borrowed security;

(ii) the issue, by the company, trustee, government or government authority concerned, of a right or option in respect of the borrowed security;

(iii) if the borrowed security is a right or option:

(A) the giving of a direction by the lender to the borrower to exercise the right or option; or

(B) the giving of a direction by the lender to the borrower to exercise an identical right or option;

then (even if the event occurred after the borrowed security was disposed of by the borrower to a third party), the lender receives from the borrower, under the agreement:

(iv) if subparagraph (i) applies:

(A) the distribution; or

(B) if the distribution is in property - identical property; or

(C) a payment (in this section called the compensatory payment ) equal to the value to the lender of the distribution; or

(v) if subparagraph (ii) applies:

(A) the right or option; or

(B) an identical right or option; or

(C) a payment (in this section also called the compensatory payment ) equal to the value to the lender of the right or option; or

(vi) if subparagraph (iii) applies:

(A) the shares, units, bonds, debentures or financial instruments that resulted from exercising the right or option; or

(B) shares, units, bonds, debentures or financial instruments that are identical to those that resulted from, or that would have resulted from, exercising the right or option; or

(C) a payment (in this section also called the compensatory payment ) equal to the value to the lender of the shares, units, bonds, debentures or financial instruments that resulted from, or would have resulted from, exercising the right or option; and

(d) if the total consideration payable or to be given by the borrower under the agreement consists of:

(i) the transfer of, or the promise to transfer, the replacement security or replacement securities concerned; and

(ii) other consideration (in this paragraph called the notifiable consideration );

the agreement contains:

(iii) if the notifiable consideration is wholly covered by one of the following categories:

(A) a fee;

(B) an adjustment for variations in the market value of eligible securities;

(C) other consideration;

a statement specifying the category concerned and setting out such information as will enable the amount or value of the notifiable consideration to be readily ascertained; or

(iv) if the notifiable consideration is covered by 2 or more of the following categories:

(A) a fee;

(B) an adjustment for variations in the market value of eligible securities;

(C) other consideration;

a statement dissecting the notifiable consideration into those categories in such a manner as will enable the amount or value of each category to be readily ascertained; and

(e) the lender does not dispose of (by transfer, declaration of trust or otherwise) the right to receive any part of the total consideration payable or to be given by the borrower under the agreement.

26BC(3A)    

For the purposes of paragraph (3)(c), if, apart from this subsection, either of the following events occurred after the commencement of the borrowing period:

(a) the making or payment of a distribution (whether in property or money) in respect of the borrowed security;

(b) the issue, by the company, trustee, government or government authority concerned, of a right or option in respect of the borrowed security;

(even if the event occurred after the borrowed security was disposed of by the borrower to a third party), the event is taken to have occurred during the borrowing period if, and only if, (assuming that the borrower had held the borrowed security at all times during the borrowing period) the entitlement to the distribution or issue would have been attributable to the borrower's holding of the borrowed security at a particular time during the borrowing period.

26BC(4)    
In determining:

(a) whether an amount (other than a fee payable under the securities lending arrangement) is included in the assessable income of the lender under a provision of this Act other than Part 3-1 or 3-3 of the Income Tax Assessment Act 1997 (about CGT); or

(b) whether an amount is allowable as a deduction to the lender;

in respect of either or both of the transactions covered by paragraph (3)(a), the lender is to be treated as if:

(c) neither of those transactions had been entered into; and

(d) the lender had held the borrowed security at all times during the borrowing period; and

(e) if the replacement security is not the borrowed security - the replacement security were the borrowed security.

26BC(4A)    

If the lender receives a compensatory payment covered by sub-subparagraph (3)(c)(v)(C), then, in determining whether an amount is included in the assessable income of the lender under a provision of this Act other than Part 3-1 or 3-3 of the Income Tax Assessment Act 1997 , the lender is to be treated as if:

(a) the lender had held the borrowed security at all relevant times during the borrowing period; and

(b) the right or option had been issued directly to the lender in respect of the borrowed security; and

(c) the lender had disposed of the right or option immediately after its issue for a consideration equal to the compensatory payment.

26BC(4B)    

If the lender receives a compensatory payment covered by sub-subparagraph (3)(c)(vi)(C), then, in determining whether an amount is included in the assessable income of the lender under a provision of this Act other than Part 3-1 or 3-3 of the Income Tax Assessment Act 1997 , the lender is to be treated as if:

(a) the lender had held the right or option at all relevant times during the borrowing period; and

(b) the lender had exercised the right or option; and

(c) the lender had immediately disposed of the shares, units, bonds, debentures or financial instruments that resulted from exercising the right or option for a consideration equal to the compensatory payment.

26BC(5)    
In determining:

(a) whether an amount is included in the assessable income of the borrower under a provision of this Act other than Part 3-1 or 3-3 of the Income Tax Assessment Act 1997 ; or

(b) an amount (other than a fee payable under the securities lending arrangement) is allowable as a deduction to the borrower;

in respect of either or both of the transactions covered by paragraph (3)(a):

(c) if the borrowed security was disposed of by the borrower to a third party:

(i) the borrower is to be treated as if the borrower had acquired the borrowed security from the lender for a consideration equal to the market value of the borrowed security at the time of its acquisition; and

(ii) the borrower is to be treated as if the borrower had disposed of the replacement security to the lender for a consideration equal to the market value of the borrowed security at the time of its acquisition from the lender; or

(d) in any other case - the borrower is to be treated as if neither of the transactions referred to in paragraph (3)(a) had been entered into.

26BC(6)    
Any capital gain or capital loss from the disposal of the borrowed security by the lender is disregarded.

26BC(6A)    
If the lender acquired the borrowed security before 20 September 1985, the lender is taken (for the purposes of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 ) to have acquired the replacement security before that day.

26BC(6B)    
If the lender acquired the borrowed security on or after 20 September 1985, the first element of the cost base of the replacement security is the cost base of the borrowed security just before the acquisition of the replacement security. The reduced cost base of the replacement security is worked out similarly.

26BC(7)    

If:

(a) the borrowed security was acquired on or after 20 September 1985; and

(b) a CGT event (other than one involving a transaction covered by subsection (3)) happens in relation to the replacement security at least 12 months after the lender acquired a paired security in relation to the replacement security (otherwise than under a transaction covered by subsection (3));

section 114-10 of the Income Tax Assessment Act 1997 (about the requirement for 12 months ownership) does not apply to the CGT event.

26BC(8)    
For the purposes of subsection (7):

(a) if CGT event A1 happens (involving a transaction covered by subsection (3)) by the lender disposing of an eligible security to the borrower, that security is a paired security in relation to the replacement security subsequently acquired or re-acquired by the lender; and

(b) a security is a paired security in relation to a second security if the first security is a paired security in relation to a third security that is a paired security in relation to the second security (including a pairing with the second security by another application or other applications of this paragraph).

26BC(9)    
For the purpose of applying Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to the borrower:

(a) if the borrower disposes of the borrowed security to a third party:

(i) the first element of the cost base and reduced cost base of the borrowed security (in the hands of the borrower) is taken to be its market value when the borrower acquired it; and

(ii) when the borrower disposes of a replacement security to the lender, the capital proceeds from that CGT event are taken to be that market value; and

(b) if no third party is involved - the transactions referred to in paragraph (3)(a) are ignored.

26BC(9A)    

For the purpose of applying Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to the borrower, the incidental costs to the borrower of the acquisition of an eligible security covered by sub-subparagraph (3)(a)(ii)(B) include a compensatory payment incurred by the borrower (to the extent that the borrower has not deducted and cannot deduct it).

26BC(9B)    

For the purposes of the application of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to a right or option received by the lender as mentioned in subparagraph (3)(c)(v), the borrower and lender are to be treated as if the eligible security in respect of which the right or option was issued had been held by the lender at the time of the acquisition of the right or option.

26BC(9C)    

For the purposes of the application of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to a share, unit, bond, debenture or financial instrument received by the lender as mentioned in subparagraph (3)(c)(vi), the borrower and the lender are to be treated as if:

(a) the share, unit, bond, debenture or financial instrument had been received as the result of the exercise of the borrowed security; and

(b) the borrowed security had been held by the lender at the time of the exercise; and

(c) the lender had exercised the borrowed security; and

(d) the lender had exercised the borrowed security at the time the direction concerned was given; and

(e) the amount of the contribution (if any) made by the lender to the borrower in respect of the carrying out of the direction were an amount paid as consideration by the lender in respect of the exercise.

26BC(9D)    

If a distribution covered by subparagraph (3)(c)(i) consists of one or more shares issued by a company to the borrower or to a third party in the circumstances mentioned in subsection 6BA(1) , then, for the purposes of the application of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to a share (in this subsection called the notional bonus share ) received by the lender in relation to the distribution in the circumstances mentioned in sub-subparagraph (3)(c)(iv)(A) or (B), the borrower and the lender are to be treated as if:

(a) the company had issued the notional bonus share to the lender instead of the borrower or the third party, as the case requires; and

(b) the notional bonus share had been issued in the circumstances mentioned in subsection 6BA(1) ; and

(c) the notional bonus share had been issued in respect of the borrowed security; and

(d) the lender had held the borrowed security at the time the notional bonus share was issued.

26BC(9E)    

If a distribution covered by subparagraph (3)(c)(i) consists of one or more units issued by the trustee of a unit trust to the borrower or to a third party in the circumstances covered by section 130-20 of the Income Tax Assessment Act 1997 , then, for the purposes of the application of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to a unit (in this subsection called the notional bonus unit ) received by the lender in relation to the distribution in the circumstances mentioned in sub-subparagraph (3)(c)(iv)(A) or (B), the borrower and the lender are to be treated as if:

(a) the trustee had issued the notional bonus unit to the lender instead of the borrower or the third party, as the case requires; and

(b) the notional bonus unit had been issued in the circumstances covered by section 130-20 of the Income Tax Assessment Act 1997 ; and

(c) the notional bonus unit had been issued in respect of the borrowed security; and

(d) the lender had held the borrowed security at the time the notional bonus unit was issued.

26BC(9F)    

If the lender receives a compensatory payment covered by sub-subparagraph (3)(c)(v)(C), then, for the purposes of the application of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to the lender, the lender is to be treated as if:

(a) the lender had held the borrowed security at all relevant times during the borrowing period; and

(b) the right or option had been issued directly to the lender in respect of the borrowed security; and

(c) the lender had disposed of the right or option immediately after its issue and had received capital proceeds of an amount equal to the compensatory payment.

26BC(9G)    

If the lender receives a compensatory payment covered by sub-subparagraph (3)(c)(vi)(C), then, for the purposes of the application of Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 to the lender, the lender is to be treated as if:

(a) the lender had held the right or option at all relevant times during the borrowing period; and

(b) the lender had exercised the right or option; and

(c) the lender had immediately disposed of the shares, units, bonds, debentures or financial instruments that resulted from exercising the right or option and had received capital proceeds of an amount equal to the compensatory payment.

26BC(10)    

(Repealed by No 46 of 1998)

26BC(11)    

(Repealed by No 46 of 1998)

26BC(11A)    

If:

(a) the lender receives from the borrower a distribution or identical property covered by subparagraph (3)(c)(iv); and

(b) assuming that the borrowed security had continued to be held by the lender, an amount (in this subsection called the otherwise assessable amount ) would have been included in the lender's assessable income of a year of income in respect of the distribution concerned;

the lender's assessable income of the year of income includes an amount equal to the otherwise assessable amount.

26BC(11B)    

If:

(a) the lender receives from the borrower a compensatory payment covered by sub-subparagraph (3)(c)(iv)(C); and

(b) assuming that the borrowed security had continued to be held by the lender, an amount (in this subsection called the otherwise assessable amount ) would have been included in the lender's assessable income of a year of income in respect of the distribution concerned;

the lender's assessable income of the year of income includes an amount equal to the otherwise assessable amount.

26BC(12)    
Where:

(a) a taxpayer has entered into a transaction of a kind referred to in subparagraph (3)(a)(i); and

(b) at the time of making an assessment in respect of income of the taxpayer of the year of income in which the transaction occurred, the Commissioner is of the opinion that, at a later time, circumstances will exist because of which this section will apply in connection with that transaction;

the Commissioner may apply the provisions of this section as if those circumstances existed at the time of making the assessment.

26BC(13)    
Where:

(a) in the making of an assessment, this section has been applied on the basis that a circumstance that did not exist at the time of making the assessment would exist at a later time; and

(b) after the making of the assessment, the Commissioner becomes satisfied that the circumstance will not exist;

then, in spite of anything in section 170 , the Commissioner may amend the assessment at any time for the purpose of ensuring that this section is to be taken always to have applied on the basis that the circumstance did not exist.