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Income Tax Assessment Amendment (Foreign Investment) Act 1992 (190 of 1992)

27 After Part X of the Principal Act the following Part is inserted

"PART XI-FOREIGN INVESTMENT FUNDS AND FOREIGN LIFE ASSURANCE POLICIES

"Division 1-Preliminary

"Subdivision A-Application of Part

Taxpayers to be taxed on share of income of certain foreign investment funds and foreign life assurance policies

"469.(1) This Part applies to a taxpayer who has an interest or interests in what is referred to in this Part as a foreign investment fund ('FIF'). That expression refers to certain non-resident companies and non-resident trusts.

"(2) This Part also applies to a taxpayer who has an interest in a foreign life assurance policy ('FLP'). That expression refers to certain life assurance policies issued by a non-resident. A taxpayer is regarded as having an interest in a FLP if, and only if, the taxpayer has the legal title to the FLP.

"(3) The object of this Part is to include in a taxpayer's assessable income of a year of income an amount ('foreign investment fund income') that represents income attributable to an interest or interests in a FIF or a FLP held by the taxpayer during the accounting period ('notional accounting period') of the FIF or FLP that ends in that year of income.

"(4) The provision of this Act ('the operative provision') that includes foreign investment fund income in a taxpayer's assessable income is section 529, which is contained in Division 16.

"(5) The operative provision does not apply, or its application is affected, in certain circumstances, which are set out in Divisions 2 to 15.

"(6) Division 18 contains the provisions for determining whether any foreign investment fund income accrued from a FIF or a FLP to a taxpayer in respect of a notional accounting period.

There are 3 methods provided for making a determination in respect of a FIF.

These are called:

(a) the market value method;

(b) the deemed rate of return method;

The method available to the taxpayer in respect of a particular notional accounting period of a FIF generally depends on the level of detailed information that the taxpayer has about the FIF's income and on the method used by the taxpayer to determine whether foreign investment fund income accrued from that FIF in previous notional accounting periods.

There are 2 methods provided for making a determination in respect of a FLP.

These are called:

(d) the deemed rate of return method;

(e) the cash surrender value method.

"(7) Division 19 provides for the keeping of accounts to avoid double taxation in respect of interests in FIFs or FLPs.

"(8) Division 20 provides for the recording of the amount of the foreign tax credits allowed in respect of foreign investment fund income.

"(9) Division 21 contains provisions that apply in certain circumstances if an interest in a FIF or a FLP is disposed of.

"(10) Division 22 provides for the keeping of records relating to interests in FIFs and FLPs.

"Subdivision B-Meaning of Certain Expressions used in this Part

Definitions

"470. In this Part, unless the contrary intention appears:

'accounts' means ledgers, journals, profit and loss accounts and balance-sheets and includes statements, reports and notes attached to, or intended to be read with, any of the above;

'acquisition', in relation to an interest in a FIF or a FLP, has the meaning given by section 488;

'approved stock exchange' means:

(a) a stock exchange named in regulations made for the purposes of this definition; or

(b) until regulations are so made-a stock exchange named in Schedule 3;

'associate' has the meaning given by Subdivision E;

'Australian entity' has the meaning given by section 471;

'Australian partnership' has the meaning given by section 472;

'Australian tax' means income tax or withholding tax;

'Australian trust' has the meaning given by section 473;

'balance-sheet' includes any similar statement and also includes statements, reports and notes attached to, or intended to be read with, a balance-sheet or similar statement;

'calculation method' has the meaning given by paragraph 534(2)(c);

'CFC' has the same meaning as in Part X;

'CFT' has the same meaning as in Part X;

'convertible note':

(a) in relation to a foreign company, has the same meaning as in Division 3A of Part III; or

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

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

(ii) references in that Division to shares were references to interests in the trust;

'deemed rate of return method' has the meaning given by paragraph 534(2)(b) in relation to a FIF and the meaning given by paragraph 534(3)(a) in relation to a FLP;

'disposal', in relation to an interest in a FIF or a FLP, has the meaning given by section 488;

'distribution' has the meaning given by section 474;

'entitled to acquire' has the meaning given by section 475;

'entity' means any of the following:

(a) a company;

(b) a partnership;

(d) any other person;

'FIF' or 'foreign investment fund' has the meaning given to FIF by section 481;

'FLP' or 'foreign life assurance policy' has the meaning given to FLP by section 482;

'foreign company' has the meaning given by section 481;

'foreign trust' has the meaning given by section 481;

'general insurance business' means insurance business other than life insurance business;

'interest', in relation to a FIF or a FLP, has the meaning given by section 483;

'life insurance business' means life insurance business as defined by section 4 of the Life Insurance Act 1945;

'Lloyd's' means The Society of Lloyd's incorporated by the Lloyd's Act 1871 of the United Kingdom;

'market value method' has the meaning given by paragraph 534(2)(a);

'notional accounting period':

(a) in relation to a FIF, has the meaning given by section 486; or

(b) in relation to a FLP, has the meaning given by section 487;

'Part XI Australian resident' means a resident within the meaning of section 6 but does not include an entity if:

(a) there is a double tax agreement in force in respect of a foreign country; and

(b) that agreement contains a provision that is expressed to apply if, apart from the provision, the entity would, for the purposes of the agreement, be both a resident of Australia and a resident of the foreign country; and

(c) that provision has the effect that the entity is, for the purposes of the agreement, a resident solely of the foreign country;

'profit and loss account' includes any similar statement and also includes statements, reports and notes attached to, or intended to be read with, a profit and loss account or similar statement;

'quoted price' has the meaning given by section 476;

'resident Part IX entity' has the meaning given by section 477;

'share', in relation to a foreign company, includes any interest in the capital of the company that is in the nature of a share or stock, including such an interest in the nature of a preference share (whether or not redeemable), a bonus share or a share with deferred rights;

'statutory accounting period' has the same meaning as in Part X;

'tax detriment' has the meaning given by section 478;

'the operative provision' means section 529;

'trading stock' does not include securities within the meaning of the Corporations Law;

'trust' means:

(a) an entity in the capacity of trustee (including an entity that is taken to be a trustee because of section 268); or

(b) as the case requires, a trust or a trust estate;

'wholly-owned subsidiary' has the meaning given by section 479.

Australian entity

"471. For the purposes of this Part, each of the following is an Australian entity:

(a) an Australian partnership;

(b) an Australian trust;

Australian partnership

"472. For the purposes of this Part, a partnership is an Australian partnership at a particular time if at least one of the partners is an Australian entity at that time.

Australian trust

"473. For the purposes of this Part, a trust is an Australian trust at a particular time ('the test time') if:

(a) at any time in the period of 12 months immediately preceding the test time:

(i) any trustee of the trust was a resident; or

(ii) the central management and control of the trust was in Australia; or

(b) assuming that period had been a year of income:

(i) the trust would have been a corporate unit trust and a resident unit trust for the purposes of Division 6B of Part III in relation to that year of income; or

(ii) the trust would have been a public trading trust and a resident unit trust for the purposes of Division 6C of Part III in relation to that year of income.

Distributions by a FIF or a FLP

"474.(1) Some calculations made under this Part involve taking into account distributions made by a FIF or a FLP to a person who has an interest in the FIF or FLP.

"(2) A reference in this Part to a distribution made by a FIF or a FLP to a person who has an interest in the FIF or FLP is a reference to any amount paid or credited, or any property distributed, to the person by the FIF or in relation to the FLP that constitutes income derived, or a receipt of capital, by the person and:

(a) without limiting the generality of the above, includes a reference to:

(i) the issue by a FIF to a person of a further interest in the FIF in satisfaction of the person's entitlement to a payment by the FIF; and

(ii) in the case of a FLP-any payment to a person of a bonus or a refund of premium under or in respect of the FLP; but

(b) does not include a reference to the issue by a FIF or a FLP to a person of a further interest in the FIF or FLP without any consideration being paid or given by the person for the interest.

Entitlement to acquire

"475. For the purposes of this Part, a person is taken to be entitled to acquire anything that the person is absolutely or contingently entitled to acquire, whether because of any constituent document of a company, the exercise of any right or option or for any other reason.

Quoted price

"476.(1) It is necessary for the purposes of several provisions of this Part to value an interest in a FIF by reference to the quoted price on a particular day on a stock market of the class of interests in which the interest is included.

"(2) For the purposes of such a provision, that quoted price is:

(a) if there was more than one transaction on that stock market on that day in interests in that class-the last published price at which such an interest was traded on that stock market on that day; or

(b) if information as to the price mentioned in paragraph (a) was not published or there were no transactions on that stock market on that day in such interests-the last price at which an offer was made on that day to buy such an interest.

Resident Part IX entity

"477. For the purposes of this Part, a trust is a resident Part IX entity at a particular time ('the test time') if:

(a) the trust:

(i) was established in Australia; or

(ii) had its central management and control in Australia at any time in the period of 12 months immediately preceding the test time; and

(b) assuming that period had been a year of income, the trust would have been an eligible entity in relation to that year of income for the purposes of Part IX.

Tax detriment

"478.(1) For the purposes of this Part, each of the following is a tax detriment to a partner in a partnership:

(a) an increase in an amount included under section 92 in the partner's assessable income in respect of an interest in the net income of the partnership;

(b) a reduction in an amount allowable under section 92 as a deduction to the partner in respect of the partner's interest in a partnership loss of the partnership;

"(2) For the purposes of this Part, an increase in an amount included under section 97, 98A or 100 in the assessable income of a beneficiary in respect of a share of the net income of a trust is a tax detriment to the beneficiary.

"(3) For the purposes of this Part, an increase (including from nil) in an amount assessable to a trustee under section 98 in respect of a beneficiary's share of, or under section 99 or 99A in respect of the whole or a part of, the net income of a trust is a tax detriment to the trustee.

"(4) The amount of the tax detriment is equal to the amount of the increase or reduction or, if paragraph (1)(c) applies, the sum of the amounts of the reduction and increase.

Wholly-owned subsidiary

"479.(1) For the purposes of this Part, a company ('the subsidiary company') is taken to be a wholly-owned subsidiary of another company ('the holding company') at a particular time if:

(a) at that time, all the shares in the subsidiary company were owned by:

(i) the holding company; or

(ii) a company that is, or 2 or more companies each of which is, a wholly-owned subsidiary of the holding company; or

(iii) the holding company and a company that is, or 2 or more companies each of which is, a wholly-owned subsidiary of the holding company; and

(b) there was no agreement, arrangement or understanding in force at that time under which any person was in a position, or would be in a position after that time, to affect rights of the holding company or of a wholly-owned subsidiary of the holding company in relation to the subsidiary company.

"(2) For the purposes of this section, if a company ('the relevant company') is a wholly-owned subsidiary of another company (including a company that is such a wholly-owned subsidiary because of any other application or applications of this subsection), every company that is a wholly-owned subsidiary of the relevant company is taken to be a wholly-owned subsidiary of that other company.

"(3) For the purposes of subsection (1), a person is taken to be in a position at a particular time to affect any rights of a company ('the relevant company') in relation to another company if, at that time, that person has a right, power or option (whether under any provision of the constituent document of either of those companies or under any agreement or instrument or otherwise) to acquire those rights or do an act or thing that would prevent the relevant company from exercising those rights for its own benefit or receiving any benefits accruing because of those rights.

"Subdivision C-Key Concepts

Outline of Subdivision

"480. This Subdivision explains the meanings of certain key concepts as they are used for the purposes of this Part. For those purposes it is necessary to determine:

(a) what is meant by a FIF or a FLP (sections 481 and 482); and

(b) what is meant by an interest in a FIF or a FLP (section 483); and

(d) what is a notional accounting period of a FIF or a FLP (sections 486 and 487).

What is a FIF

"481.(1) An entity is a FIF at a particular time if at that time the entity is:

(a) a foreign company; or

(b) a foreign trust.

"(2) A company is a foreign company at a particular time if at that time the company is not a Part XI Australian resident.

"(3) A trust is a foreign trust at a particular time if:

(a) at that time the trust is neither an Australian trust nor a resident Part IX entity; and

(b) the trust did not result from:

(i) a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil; or

(ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate.

What is a FLP

"482.(1) A reference in this Part to a FLP or to a foreign life assurance policy in relation to a taxpayer in relation to a year of income is a reference to a life assurance policy issued by an entity that was not a resident of Australia at any time in that year of income but does not include an Australian policy as defined by section 110 if the entity that issued the policy was, when the policy was issued, authorised under the Life Insurance Act 1945 to carry on life insurance business in Australia.

"(2) In subsection (1):

'life assurance policy' means a policy insuring payment of money:

(a) on death (other than death by accident or expressly named sickness only); or

(b) on the happening of any contingency dependent on the termination or continuance of human life (either with or without provision for a benefit under a continuous disability insurance contract within the meaning of the Life Insurance Act 1945); and includes:

(c) an instrument evidencing a contract that is subject to payment of premiums or instalments of premiums for a term dependent on the termination or continuance of human life; or

(d) an instrument securing the grant of an annuity for a term dependent upon human life; but does not include:

(e) such a policy or instrument:

(i) that provides for the payment of money only on death, or death or permanent disability, and in respect of which the premium, or each of the instalments of premium, is calculated solely by reference to the period:

(A) for which the human life concerned is expected to continue; or

(B) within which the human life concerned is expected to terminate; or

(ii) that was issued before 1 July 1992 but cannot be cancelled, surrendered or redeemed on or after that day and whose terms have not been altered in a material respect on or after that day; or

(f) a contract between a non-resident and a resident:

(i) under which the non-resident reinsures the resident against the whole or a part of the liability of the resident under a policy ('the relevant policy') issued by the resident; and

(ii) in respect of which the premium, or each of the instalments of premium, is calculated solely by reference to the period:

(A) for which the human life to which the relevant policy applies is expected to continue; or

(B) within which the human life to which the relevant policy applies is expected to terminate.

What is an interest in a FIF or a FLP

"483.(1) An interest in a FIF that is a foreign company is:

(a) a share in the company other than an eligible finance share within the meaning of section 327; or

(b) an option, convertible note, or other instrument, that confers an entitlement to acquire such a share.

"(2) An interest in a FIF that is a foreign trust is:

(a) an interest in the corpus or income of the trust (including, in the case of a unit trust, an interest constituted by a unit in the unit trust); or

(b) an option, convertible note, or other instrument, that confers an entitlement to acquire an interest referred to in paragraph (a).

"(3) A person has an interest in a FLP if the person has the legal title to the FLP and, if only one person has the legal title to the FLP, a reference in this Part to the person's interest or interests in the FLP is taken to be a reference to the FLP.

Bare trustee's interest to be attributed to beneficiary

"484.(1) If an interest in a FIF or a FLP is held by a person as trustee for another person who is absolutely entitled to the interest as against the trustee, this Part applies as if the interest were held by the other person and any acts of the trustee were acts of the other person.

"(2) For the purposes of subsection (1), if a person holds an interest in a FIF or a FLP as trustee for another person, the other person is not taken not to be absolutely entitled to the interest as against the trustee merely because the other person is under a legal disability.

Taxpayers to whose interests in FIFs and FLPs this Part applies

"485.(1) The operative provision applies to a taxpayer in relation to a FIF or a FLP in accordance with this section.

"(2) The application of the operative provision to a taxpayer in relation to a FIF or a FLP is to be worked out separately in relation to each notional accounting period of the FIF or FLP.

"(3) If:

(a) a taxpayer had an interest or interests in a FIF at the end of a year of income; and

(b) that year of income is the 1992-93 year of income or a later year of income; and

the operative provision applies to the taxpayer in relation to the FIF in respect of the notional accounting period of that FIF that ended in that year of income.

"(4) If:

(a) a taxpayer had an interest or interests in a FLP at any time during the notional accounting period of the FLP that ends in a year of income; and

(b) that year of income is the 1992-93 year of income or a later year of income; and

(c) the taxpayer was a resident at any time in that year of income; then, subject to subsection (5), the operative provision applies to the taxpayer in relation to the FLP in respect of that notional accounting period.

"(5) The operative provision does not apply to the taxpayer in relation to a FLP in respect of the 1992-93 year of income if the taxpayer did not have any interest or interests in the FLP at the end of that year of income.

"(6) Without affecting the circumstances in which, apart from this subsection, a taxpayer would be taken to be a resident at a time in a year of income, a taxpayer in the capacity of a trustee of a trust that is an Australian trust or a resident Part IX entity at a time in a year of income is taken for the purposes of subsection (3) or (4) to have been a resident at that time.

"(7) The application of the operative provision to a taxpayer in relation to a FIF or a FLP is subject to Divisions 2 to 15.

Notional accounting period of a FIF

"486.(1) This section sets out what is a notional accounting period of a FIF for the purposes of the application of this Part to a taxpayer in relation to the FIF.

"(2) Subject to the following provisions of this section, each period that is a year of income of the taxpayer is a notional accounting period of the FIF.

"(3) If the accounts of a FIF are made out for periods not exceeding 12 months, the taxpayer may elect that the notional accounting periods of that FIF are to be the respective periods in respect of which the accounts of the FIF are made out.

"(4) An election made under subsection (3) is irrevocable so long as the taxpayer continues to have an interest in the FIF.

"(5) Subject to subsection (6), if an election is made under subsection (3):

(a) the first period ('the first period') in respect of which the accounts of the FIF are made out that begins during the year of income of the taxpayer in which the election is made, and all later such periods, are notional accounting periods of the FIF; and

(b) the period starting at the beginning of that year of income and ending immediately before the beginning of the first period is a notional accounting period of the FIF.

"(6) If, after the making of an election under subsection (3), any accounts of the FIF are made out for a period exceeding 12 months:

(a) neither that period, nor any succeeding period exceeding 12 months for which accounts of the FIF are made out, is a notional accounting period of the FIF; and

(b) the period:

(i) beginning at the end of the last period in respect of which accounts of the FIF were made out for a period not exceeding 12 months; and

(ii) ending at the end of the taxpayer's year of income in which that last period ends;

is a notional accounting period of the FIF; and

"(7) Despite the preceding provisions of this section, the first notional accounting period of a FIF is the period that:

(a) in the case of a foreign company:

(i) if the company was incorporated or established or otherwise came into existence before 1 January 1993-began on that day; or

(ii) if the company was incorporated or established or otherwise came into existence on or after that day-began on the day of incorporation or establishment; or

(b) in the case of a foreign trust:

(i) if the trust was in existence immediately before 1 January 1993-began on that day; or

(ii) if the trust came into existence on or after that day-began on the day on which the trust came into existence;

and ended on the next day that is the last day of a notional accounting period of the FIF under whichever of the preceding provisions of this section is applicable.

Notional accounting period of a FLP

"487.(1) This section sets out what is a notional accounting period of a FLP for the purposes of the application of this Part to a taxpayer in relation to the FLP.

"(2) Subject to this section, each period of 12 months ending on 30 June is a notional accounting period of a FLP.

"(3) If cash surrender values for interests in a FLP are available on a day (a 'relevant day') during the same month (being one of the 12 months of the calendar year) in each calendar year (whether or not cash surrender values for such interests are also available at other times), the taxpayer may elect that the notional accounting periods of the FLP are to be the periods ascertained under the following provisions of this section.

"(4) An election made under subsection (3) is irrevocable so long as the taxpayer continues to have an interest in the FLP.

"(5) Subject to subsection (6), if an election is made under subsection (3):

(a) the period ('the first elective period') beginning immediately after the end of the month in which the last relevant day before the election occurred and ending at the end of the month in which the next relevant day occurs is a notional accounting period of the FLP; and

(b) each later period beginning after the end of the month in which a relevant day occurs and ending at the end of the month in which the next relevant day occurs is a notional accounting period of the FLP; and

(c) the period beginning on 1 July immediately preceding the first elective period and ending immediately before the beginning of the first elective period is a notional accounting period of the FLP.

"(6) If, after the making of an election under subsection (3), a cash surrender value is not available for the taxpayer's interest in a FLP in respect of a relevant day:

(a) neither the period of 12 months ending on that day nor any following period of 12 months ending on a relevant day is a notional accounting period of the FLP; and

(b) the period of 12 months beginning on 1 July immediately preceding the period of 12 months first mentioned in paragraph (a) is a notional accounting period of the FLP; and

"(7) Despite the preceding provisions of this section, the first notional accounting period of a FLP is the period that:

(a) if the FLP was in existence before 1 January 1993-began on that day; or

(b) if the FLP came into existence on or after that day-began on the day on which the FLP came into existence;

and ended on the next day that is the last day of a notional accounting period of the FLP under whichever of the preceding provisions of this section is applicable.

"(8) If the taxpayer disposes of the taxpayer's interest or all of the taxpayer's interest in a FLP, the notional accounting period of the FLP during which the disposal took place ends immediately after the disposal took place.

"Subdivision D-The Disposal and Acquisition of Interests

What is a disposal or acquisition of an interest in a FIF or a FLP

"488.(1) Some of the provisions of this Part refer to an interest in a FIF or a FLP having been disposed of or acquired and this section determines what is such a disposal or acquisition for the purposes of those provisions.

"(2) Subject to this section, if a change has occurred in the ownership of an interest in a FIF or a FLP, the change is taken to have effected a disposal of the interest by the person who owned it immediately before the change and an acquisition of the interest by the person who owned it immediately after the change.

"(3) A change in the legal ownership of an interest is not a change in the ownership of the interest for the purposes of this section unless there is also a change in the beneficial ownership of the interest.

"(4) A reference in subsection (2) to a change in the ownership of an interest is a reference to a change that has occurred in any way, including any of the following ways:

(a) by the execution of an instrument;

(b) by the entering into of a transaction;

(d) by the doing of any other act or thing;

(e) by the occurrence of any event.

"(5) Without limiting the generality of subsection (4), a change is taken to have occurred in the ownership of an interest by:

(a) a declaration of trust in relation to the interest under which the beneficiary is absolutely entitled to the interest as against the trustee; or

(b) the release, discharge, satisfaction, surrender, forfeiture, expiry, abandonment or extinction, at law or in equity, of the interest; or

"(6) An issue to a person of an interest in a FIF or a FLP is an acquisition of the interest by the person.

"(7) None of the following is an acquisition or disposal of an interest in a FIF or a FLP:

(a) the conversion of a convertible note issued by a FIF into another interest in the FIF pursuant to a right conferred by the convertible note if no consideration is paid or payable in respect of the exercise of that right;

(b) the exercise of any other right in relation to an interest in a FIF or a FLP if no consideration is paid or payable in respect of the exercise of that right;

Time of disposal or acquisition of interest

"489. If an interest in a FIF or a FLP has been disposed of or acquired, the time of disposal or acquisition is:

(a) if the interest was disposed of or acquired under a contract-the time of making of the contract; or

(b) otherwise-the time of the change in the ownership of the interest that is or gave rise to the disposal or acquisition.

Consideration for disposal or acquisition

"490.(1) In the circumstances referred to in subsections (2) and (3) it is necessary for the purposes of this Part to make special provision for the calculation of the consideration in respect of the disposal or acquisition of an interest in a FIF or a FLP.

"(2) If a person disposed of an interest in a FIF or a FLP and:

(a) the person did not receive any consideration in respect of the disposal; or

(b) both of the following subparagraphs apply:

(i) the amount that, apart from this subsection, would be taken to be the consideration received by the person in respect of the disposal is greater or less than the market value of the interest at the time of the disposal;

(ii) the person, and the person to whom the interest was disposed of, were not dealing with each other at arm's length in connection with the disposal;

the person is taken to have received as consideration in respect of the disposal an amount equal to the market value of the interest at the time of the disposal.

"(3) If a person acquired an interest in a FIF or a FLP and:

(a) the person did not pay or give any consideration in respect of the acquisition; or

(b) both of the following subparagraphs apply:

(i) the amount that, apart from this subsection, would be taken to be the consideration paid or given by the person in respect of the acquisition was greater or less than the market value of the interest at the time of the acquisition;

(ii) the person, and the person from whom the person acquired the interest, were not dealing with each other at arm's length in connection with

the acquisition;

the person is taken to have paid or given as consideration in respect of the acquisition an amount equal to the market value of the interest at the time of the acquisition.

"Subdivision E-Associates

Associates of an entity to be determined in accordance with section 318 as modified

"491.(1) For the purposes of this Part, the associates of an entity are to be determined in accordance with section 318 subject to the modifications made by subsection (2) of this section.

"(2) The modifications are as follows:

(a) 'relative', in relation to a person, means:

(i) a spouse of the person other than a spouse who is legally married to the person but is living separately and apart from the person and has been so living for at least 12 months; or

(ii) a child of the person; or

(iii) if the person has not reached the age of 18 years:

(A) a parent of the person; or

(B) a brother or sister of the person;

(b) 'child', in relation to a person, means:

(i) a child (other than a step-child) of the person; or

(ii) a child (other than a child referred to in subparagraph (i)) of a spouse of the person, being a child who lives with the person;

(d) subsections 318(5) and (7) are to be disregarded;

(e) for the purposes of the application of paragraphs 318(6)(a) and (b) in relation to an entity, the references in those paragraphs to interposed companies, partnerships or trusts are taken to be references to any such companies, partnerships or trusts that are associates of the entity.

"Division 2-Exemption of Attributable Taxpayers for Interests in Certain FIFs

Object of Division

"492. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from certain FIFs.

Exemption of attributable taxpayer in relation to certain trusts

"493. If an amount of foreign investment fund income that accrued to a taxpayer from a foreign trust in respect of a notional accounting period of the trust would, apart from this section, be included in the taxpayer's assessable income of a year of income and:

(a) the taxpayer is an attributable taxpayer for the purposes of Division 6AAA in relation to the year of income and in relation to a trust estate and the trust to which the trust estate relates is the same entity as the foreign trust; or

(b) the foreign trust is a CFT and the taxpayer is an attributable taxpayer in relation to that CFT at any time during the year of income;

the operative provision does not apply to the taxpayer in relation to the foreign trust in respect of the notional accounting period of the foreign trust that ends in the year of income.

Exemption of attributable taxpayer referred to in section 456

"494.(1) If:

(a) an amount of foreign investment fund income that accrued to a taxpayer from a FIF in respect of a notional accounting period of the FIF would, apart from this subsection, be included in the taxpayer's assessable income of a year of income; and

(b) a statutory accounting period of a CFC coincides with that notional accounting period of the FIF; and

(d) the CFC is the same entity as the FIF;

the operative provision does not apply to the taxpayer in relation to the FIF in respect of the notional accounting period of the FIF referred to in paragraph (a).

"(2) If:

(b) each of 2 or more statutory accounting periods of a CFC occurs partly within that notional accounting period of the FIF; and

(d) the CFC is the same entity as the FIF;

the operative provision does not apply to the taxpayer in relation to the FIF in respect of the notional accounting period of the FIF referred to in

paragraph (a).

"Division 3-Exemption for Interest in Foreign Company that is Designated as Engaging, or whose Assets are Principally for Use, in certain Activities

Object of Division

"495. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a foreign company that is taken by the application of one of the methods referred to in section 498 to have been principally engaged in eligible activities at the time determined under section 497.

Interpretation

"496.(1) In this Division:

'eligible activities' means business activities (including the provision of services) other than activities:

(a) named in regulations made for the purposes of this section; or

(b) until regulations are so made-named in Schedule 4.

"(2) The inclusion in regulations referred to in paragraph (1)(a), or in Schedule 4, of references to banking, investment, life insurance business, general insurance business, and activities in connection with real property, as activities that are not eligible activities does not affect the exemptions provided for by Divisions 4, 5, 6 and 7.

Exemption

"497.(1) The operative provision does not apply to a taxpayer in relation to a foreign company in respect of a notional accounting period of the foreign company if the foreign company is taken by one of the methods referred to in section 498 to have been principally engaged in eligible activities at the time ('the test time') applicable under subsection (2).

"(2) The test time is:

(a) if the taxpayer uses the stock exchange listing method referred to in section 499-the end of the notional accounting period; or

(b) if the taxpayer uses the balance-sheet method referred to in section 500:

(i) if the notional accounting period is a period in respect of which the accounts of the company are made out-the end of that period; or

(ii) if the notional accounting period is the taxpayer's year of income-the end of the last period in respect of which the accounts of the company were made out that ended before the end of that year of income.

How to determine whether a foreign company is taken to have been principally engaged in eligible activities

"498.(1) The question whether a foreign company is taken to have been principally engaged in eligible activities at the test time in relation to a notional accounting period is to be determined either:

(a) by ascertaining, by the stock exchange listing method applicable under section 499, the designation accorded to the company at the test time by an approved stock exchange or an international sectoral classification system; or

(b) by ascertaining, by the balance-sheet method applicable under section 500, the extent to which the company's assets were for use in eligible activities at the test time.

"(2) If both of those methods are capable of being applied, the question is to be determined in relation to a particular taxpayer by whichever method the taxpayer chooses.

"(3) If one only of those methods is capable of being applied, the question is to be determined by that method.

"(4) If neither of those methods is capable of being applied,section 497 does not exempt the taxpayer from the application of the operative provision in relation to the company in respect of the notional accounting period.

Stock exchange listing method

"499.(1) The stock exchange listing method may be applied only if the taxpayer's interest or any of the taxpayer's interests in the foreign company at the test time in relation to a notional accounting period was included in a class of interests in the company that were quoted on the stock market of an approved stock exchange.

"(2) Subject to subsection (3), if the stock exchange listing method applies and at the test time:

(a) one of the following subparagraphs applies:

(i) the company was included by an approved stock exchange in a class of companies designated by the stock exchange as engaged in activities of a particular kind;

(ii) the company was included:

(A) by an international sectoral classification system named in regulations made for the purposes of this section; or

(B) until regulations are so made-by an international sectoral classification system named in Schedule 5;

in a class of companies designated by the system as engaged in activities of a particular kind; and

(b) activities of the kind referred to in the designation by the stock exchange or the international sectoral classification system, as the case may be, are eligible activities;

then, irrespective of the extent (if any) to which the company engages in activities that are not eligible activities, the company is taken, for the purposes of the application of section 497 in relation to the taxpayer, to have been principally engaged in eligible activities at that time.

"(3) If, at the test time:

(a) if subparagraph (2)(a)(i) applies and subparagraph (2)(a)(ii) does not apply:

(i) if there was only one approved stock exchange that included the company in a designated class of companies-that stock exchange; or

(ii) if there were 2 or more approved stock exchanges that included the company in a designated class of companies-each of those stock exchanges; or

(b) if subparagraph (2)(a)(ii) applies and subparagraph (2)(a)(i) does not apply:

(i) if there was only one international sectoral classification system that included the company in a designated class of companies-that system; or

(ii) if there were 2 or more international sectoral classifiation systems that included the company in a designated class of companies-each of those systems; or

(c) if both subparagraphs (2)(a)(i) and (2)(a)(ii) apply-each approved stock exchange and each international sectoral classification system that included the company in a designated class of companies;

included the company in a class of companies designated by the stock exchange or system as engaged in activities of an unclassified kind or of a kind designated as 'miscellaneous', the company is not taken under subsection (2) to have been principally engaged in eligible activities at that time.

"(4) For the purposes of subsection (3), the designation by an approved stock exchange or an international sectoral classification system of a class of companies as 'conglomerates' or as 'multi-industry' is not taken to be a designation of the companies as being engaged in activities of an unclassified kind or as being designated 'miscellaneous'.

Balance-sheet method

"500.(1) The balance-sheet method involves determining the extent to which a foreign company's assets were for use in eligible activities by reference to a relevant balance-sheet of the company and, if appropriate, of its subsidiaries prepared as at the test time in relation to a notional accounting period.

"(2) If, at the test time, the gross value of the foreign company's assets for use in eligible activities was 50% or more of the gross value of all of the company's assets, the company is taken, for the purposes of the application of section 497 in relation to the taxpayer, to have been principally engaged in eligible activities at that time.

"(3) If, at the test time, a company ('the holding company') was the direct or indirect owner of 50% or more of the paid-up share capital of another company ('the subsidiary company'), the following paragraphs apply:

(a) the gross value at the test time of the holding company's assets for use in eligible activities includes the amount worked out using the formula:

Gross value of subsidiary's eligible assets * (Interest in share capital / Total share capital);

(b) the gross value at the test time of all the holding company's assets does not include the gross value of the shares in the subsidiary company owned by the holding company but includes the amount worked out using the formula:

Gross value of subsidiary's assets * (Interest in share capital / Total share capital).

In the formulas:

'Gross value of subsidiary's eligible assets' means the gross value at the test time of the subsidiary company's assets for use in one or more eligible activities;

'Gross value of subsidiary's assets' means the gross value at the test time of all the subsidiary company's assets;

'Interest in share capital' means the amount of the share capital of the subsidiary company that was owned by the holding company;

'Total share capital' means the total amount of the share capital of the subsidiary company.

"(4) Subsection (3) applies in relation to the subsidiary company whether the subsidiary company engages in eligible activities or activities that are not eligible activities, or both.

"(5) In subsection (3):

(a) any reference to the holding company's assets does not include:

(i) in the case of the reference in paragraph (3)(a)-a reference to so much of the holding company's assets for use in eligible activities that comprise debts due or other amounts payable to the holding company by the subsidiary company, or by any company interposed between the holding company and the subsidiary company, as are related to the subsidiary company's assets whose gross value is included in the gross value of the holding company's assets for use in eligible activities; or

(ii) in the case of the reference in paragraph (3)(b)-a reference to so much of all the holding company's assets that comprise debts due or other amounts payable to the holding company by the subsidiary company, or by any company interposed between the holding company and the subsidiary company, as are related to the subsidiary company's assets whose gross value is included in the gross value of all the holding company's assets; and

(b) any reference to the subsidiary company's assets does not include a reference to:

(i) shares owned by the subsidiary company in another company that is a subsidiary of the holding company by virtue of Division 6 of Part 1.2 of the Corporations Law; or

(ii) assets comprising debts or other amounts payable to the subsidiary company by:

(A) the holding company; or

(B) any company interposed between the subsidiary company and the holding company; or

(C) any other company that is a subsidiary of the holding company by virtue of Division 6 of Part 1.2 of the Corporations Law.

"(6) For the purposes of subsection (3), the percentage of the paid-up share capital of the subsidiary company of which the holding company was the owner at the test time includes the percentage (if any) of that paid-up share capital of which the holding company was the indirect owner at that time, as calculated in accordance with section 501.

"(7) Subsections (3) to (6) apply in relation to the ownership by a company of any of the paid-up share capital of another company whether the other company's place of incorporation or establishment is the same as, or different from, the former company's place of incorporation or establishment.

"(8) If a company had, at the test time, an interest, as a partner in a partnership, in any assets of the partnership:

(a) the gross value at that time of all of the company's assets does not include the value of the company's interest in the partnership as shown in the company's balance-sheet but includes the gross value of the company's interest in each of the partnership's assets; and

(b) the company's assets at that time that were for use in eligible activities are taken to have included the company's interests in the assets of the partnership that were for use in one or more eligible activities.

"(9) A reference in this section to the gross value of an asset of a company at the test time is a reference to that value as shown in a balance-sheet of the company that:

(a) was prepared in accordance with commercially accepted accounting principles; and

(b) gives a true and fair view of the company's financial position as at that time.

"(10) For the purposes of this section, the gross value, at the test time, of an asset in which a company has an interest as a partner in a partnership is to be that value as shown in a balance-sheet of the partnership that:

(a) was prepared in accordance with commercially accepted accounting principles; and

(b) gives a true and fair view of the partnership's financial position as at that time.

"(11) If, at the test time, any of the company's assets ('the relevant assets') are for use partly in one or more eligible activities and partly for other purposes, a reference in this section to the gross value at that time of the company's assets for use in one or more eligible activities is a reference to so much only of the gross value at that time of the relevant assets as is proportionate to the extent to which they are for use at that time in one or more eligible activities.

"(12) If an amount that, under subsection (3) or (8), is to be included in:

(a) the gross value, at the test time, of all the assets of a foreign company; or

(b) the gross value, at that time, of such of those assets as were for use at that time in one or more eligible activities;

is not expressed in the currency in which the balance-sheet applicable under subsection (9) in relation to the foreign company is expressed, the amount to be so included is the equivalent amount expressed in that currency, being the equivalent amount obtained by reference to the appropriate rate of exchange between those 2 currencies in force at that time.

"(13) A reference in this section to an asset of a company being for use in an eligible activity is a reference to the asset being for use by the company in engaging in that activity either through its directors or employees in the performance of their duties as directors or employees or through another person pursuant to a contract or arrangement.

Indirect ownership of paid-up share capital of company

"501.(1) For the purposes of this section, a company has a direct ownership interest in another company at a particular time equal to the percentage of the paid-up share capital of the other company of which the first-mentioned company is the owner at that time.

"(2) The percentage of the paid-up share capital of a company ('the bottom company') of which another company ('the top company') is the indirect owner at a particular time ('the indirect ownership interest') is calculated in accordance with this section.

"(3) If there is only one company interposed between the top company and the bottom company, the indirect ownership interest is calculated by multiplying the direct ownership interest that the top company holds in the interposed company by the direct ownership interest that the interposed company holds in the bottom company.

"(4) If there are 2 companies interposed between the top company and the bottom company, the indirect ownership interest is calculated:

(a) by multiplying the direct ownership interest that the top company holds in the first interposed company by the direct ownership interest that the first interposed company holds in the second interposed company; and

(b) by multiplying the result of the calculation referred to in paragraph (a) by the direct ownership interest that the second interposed company holds in the bottom company.

"(5) If there are 3 or more companies interposed between the top company and the bottom company, the indirect ownership interest is calculated:

(b) by multiplying the result of the calculation referred to in paragraph (a) by the direct ownership interest that the second interposed company holds in the third interposed company;

and so on, ending with a multiplication by the direct ownership interest that the last interposed company holds in the bottom company.

"Division 4-Exemption for Interest in Foreign Bank or Holding Company of Foreign Bank

Object of Division

"502. The object of this Division is to exempt certain taxpayers from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a foreign company that is a bank or has a wholly-owned subsidiary that is a bank.

Exemption for interest in foreign bank

"503. If:

(a) at the end of the notional accounting period of a foreign company the taxpayer had an interest in the foreign company that consisted of shares included in a class of shares that were quoted on the stock market of an approved stock exchange; and

(b) throughout that period, or the part of that period in which the taxpayer had that interest, as the case may be:

(i) shares in the foreign company were widely held, and actively traded on a regular basis, on a stock market of an approved stock exchange; and

(ii) the foreign company was authorised under the law of its place of residence to carry on banking business; and

(iii) the foreign company was principally engaged in the active carrying on of banking business;

the interest referred to in paragraph (a) is disregarded for the purposes of the application of the operative provision to the taxpayer in relation to the foreign company in respect of that notional accounting period.

Exemption for interest in foreign holding company of foreign bank

"504. If:

(a) at the end of the notional accounting period of a foreign company ('the holding company') that ended during a year of income:

(i) the taxpayer had an interest in the holding company that consisted of shares included in a class of shares that were quoted on the stock market of an approved stock exchange; and

(ii) one of the following sub-subparagraphs applies:

(A) the holding company was included by an approved stock exchange in a class of companies designated by the stock exchange as engaged in activities of a kind designated as "banking" or "banks";

(B) the holding company was included by an international sectoral classification system named in regulations made for the purposes ofsection 499, or, until regulations are so made, by an international sectoral classification system named in Schedule 5, in a class of companies designated by the system as engaged in activities of a kind designated as "banking" or "banks"; and

(b) throughout that period, or the part of that period in which the taxpayer had that interest, as the case may be:

(i) shares in the holding company that were included in the class referred to in subparagraph (a)(i) were widely held, and actively traded on a regular basis, on a stock market of an approved stock exchange; and

(ii) one or more other foreign companies were wholly-owned subsidiaries of the holding company; and

(iii) if there was only one such subsidiary, that subsidiary was:

(A) authorised under the law of its place of residence to carry on banking business; and

(B) principally engaged in the active carrying on of banking business; and

(iv) if there were 2 or more such subsidiaries:

(A) at least one subsidiary was authorised under the law of its place of residence to carry on banking business; and

(B) the principal activities of all the subsidiaries, considered together, were the active carrying on of banking business;

the interest referred to in subparagraph (a)(i) is disregarded for the purposes of the application of the operative provision to the taxpayer in relation to the holding company in respect of that notional accounting period.

"Division 5-Exemption for Interest in Foreign Company whose Assets are Principally for Use in carrying on Life Insurance Business

Object of Division

"505. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a foreign company that is taken by the application of the method in section 507 to have been principally engaged in life insurance business at the test time in relation to a notional accounting period. That method involves determining the extent to which the foreign company's assets were for use in carrying on life insurance business at that time by reference to a relevant balance-sheet of the company and, if appropriate, of its subsidiaries prepared at that time.

Exemption

"506.(1) The operative provision does not apply to a taxpayer in relation to a foreign company in respect of a notional accounting period of the foreign company if the foreign company is taken to have been principally engaged in carrying on life insurance business at the time ('the test time') applicable under subsection (2).

"(2) The test time is:

(a) if the notional accounting period is a period in respect of which the accounts of the company are made out-the end of that period; or

(b) if the notional accounting period is the taxpayer's year of income-the end of the last period in respect of which the accounts of the company were made out that ended before the end of that year of income.

How to determine whether a foreign company was principally engaged in carrying on life insurance business

"507.(1) The question whether a foreign company is taken to have been principally engaged in carrying on life insurance business at the test time is to be determined as provided by this section.

"(2) If:

(a) throughout the notional accounting period referred to in section 506 or the part of that period in which the taxpayer had an interest in a foreign company, the company was authorised under the law of its place of residence to carry on life insurance business; and

(b) at the test time, the gross value of the foreign company's assets for use in carrying on life insurance business was 50% or more of the gross value of all of the company's assets;

the company is taken, for the purposes of the application of section 506 in relation to the taxpayer, to have been principally engaged in carrying on life insurance business at that time.

(a) the gross value at the test time of the holding company's assets for use in carrying on life insurance business includes the amount worked out using the formula:

Gross value of subsidiary's eligible assets * (Interest in share capital / Total share capital);

(b) the gross value at the test time of all the holding company's assets:

(i) except as provided by subsection (11), does not include the gross value of the shares in the subsidiary company owned by the holding company; but

(ii) includes the amount worked out using the formula:

Gross value of subsidiary's assets * (Interest in share capital / Total share capital).

In the formulas:

'Gross value of subsidiary's eligible assets' means the gross value at the test time of the subsidiary company's assets for use in carrying on life insurance business;

'Gross value of subsidiary's assets' means the gross value at the test time of all the subsidiary company's assets;

'Interest in share capital' means the amount of the share capital of the subsidiary company that was owned by the holding company;

'Total share capital' means the total amount of the share capital of the subsidiary company.

"(4) Subsection (3) applies in relation to the subsidiary company whether the subsidiary company carries on life insurance business or not.

"(5) In subsection (3):

(a) any reference to the holding company's assets does not include:

(i) in the case of the reference in paragraph (3)(a)-a reference to so much of the holding company's assets for use in carrying on life insurance business that comprise debts due or other amounts payable to the holding company by the subsidiary company, or by any company interposed between the holding company and the subsidiary company, as are related to the subsidiary company's assets whose gross value is included in the gross value of the holding company's assets for use in carrying on life insurance business; or

(b) any reference to the subsidiary company's assets does not include a reference to:

(i) shares owned by the subsidiary company in another company that is a subsidiary of the holding company by virtue of Division 6 of Part 1.2 of the Corporations Law; or

(ii) assets comprising debts or other amounts payable to the subsidiary company by:

(A) the holding company; or

(B) any company interposed between the subsidiary company and the holding company; or

(C) any other company that is a subsidiary of the holding company by virtue of Division 6 of Part 1.2 of the Corporations Law.

"(7) Subsections (2) to (5) apply in relation to the ownership by a company of any of the paid-up share capital of another company whether the other company's place of incorporation or establishment is the same as, or different from, the former company's place of incorporation or establishment.

"(8) A reference in this section to the gross value of an asset of a company at the test time is a reference to that value as shown in a balance-sheet of the company that:

(a) was prepared in accordance with commercially accepted accounting principles; and

(b) gives a true and fair view of the company's financial position as at that time.

"(9) If, at the test time, any of a company's assets ('the relevant assets') are for use partly in carrying on life insurance business and partly for other purposes, a reference in this section to the gross value at that time of the company's assets for use in carrying on life insurance business is a reference to so much only of the gross value at that time of the relevant assets as is proportionate to the extent to which they are for use at that time in carrying on life insurance business.

"(10) If an amount that, under subsection (3), is to be included in:

(a) the gross value, at the test time, of all the assets of a foreign company; or

(b) the gross value, at that time, of such of those assets as were for use at that time in carrying on life insurance business;

is not expressed in the currency in which the balance-sheet applicable under subsection (8) in relation to the foreign company is expressed, the amount to be so included is the equivalent amount expressed in that currency, being the equivalent amount obtained by reference to the appropriate rate of exchange between those 2 currencies in force at that time.

"(11) For the purposes of subsection (2), if, at the test time:

(a) the foreign company referred to in that subsection owned shares in another company which was not a resident of Australia at that time and which at that time managed funds of the foreign company by investing those funds at the discretion of the other company; and

(b) the funds so managed were maintained by the foreign company in a manner similar to the manner in which companies carrying on life insurance business in Australia maintain statutory funds under Division 3 of Part III of the Life Insurance Act 1945;

the gross value of those shares at that time is to be included in the gross value of all the foreign company's assets, and in the gross value of the foreign company's assets for use in carrying on life insurance business, at that time.

"Division 6-Exemption for Interest in Foreign General Insurance Company

Object of Division

"508. The object of this Division is to exempt certain taxpayers from taxation in respect of certain foreign investment fund income that would otherwise be taken to accrue from a foreign company that carries on general insurance business.

Exemption

"509. If:

(b) throughout that period, or the part of that period in which the taxpayer had that interest, as the case may be:

(i) shares in the foreign company that were included in that class were widely held, and actively traded on a regular basis, on a stock market of an approved stock exchange; and

(ii) the foreign company was authorised under the law of its place of residence to carry on general insurance business; and

(iii) the foreign company was principally engaged in the active carrying on of general insurance business;

the interest referred to in subparagraph (a)(i) is disregarded for the purposes of the application of the operative provision to the taxpayer in relation to the foreign company in respect of that notional accounting period.

"Division 7-Exemption for Interest in Foreign Company Engaged in certain Activities connected with Real Property

Object of Division

"510. The object of this Division is to exempt certain taxpayers from taxation in respect of certain foreign investment fund income that would otherwise be taken to accrue from a foreign company that engages in certain activities connected with real property.

Exemption

"511. If:

(b) throughout that period, or the part of that period in which the taxpayer had that interest, as the case may be:

(i) shares in the foreign company that were included in that class were widely held, and actively traded on a regular basis, on a stock market of an approved stock exchange; and

(ii) the foreign company was principally engaged in the active carrying on of any one or more of the following:

(A) construction;

(B) development of real property through capital improvement;

(C) receipt of rental income from commercial real property owned by the company, being property in respect of which the management, maintenance and security services were principally provided by directors or employees of the company or by a wholly-owned subsidiary of the company that was principally engaged in carrying on the business of providing those services through directors or employees of that subsidiary;

(D) provision of management services in respect of real property by directors or employees of the company;

(E) acting as agent in connection with the sale or purchase of commercial real property;

"Division 8-Exemption for Interests in certain Foreign Trusts

Object of Division

"512. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from certain foreign trusts.

Exemption

"513. The operative provision does not apply to a taxpayer in respect of an interest or interests in:

(a) a foreign trust named in regulations made for the purposes of this section; or

(b) until regulations are so made-a foreign trust that is named in Schedule 6.

"Division 9-Exemption for Interests of less than $50,000

Object of Division

"514. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a FIF or a FLP if the value of the interests of the taxpayer and any associates is less than $50,000.

Exemption

"515.(1) If:

(a) a taxpayer who is a natural person (otherwise than in the capacity of a trustee) had an interest or interests in a particular FIF or FLP at the end of a notional accounting period of that FIF or FLP; and

(b) the sum of:

(i) the values of all the interests of the taxpayer and any associates of the taxpayer in FIFs; and

(ii) the values of all FLPs in which the taxpayer and any associates of the taxpayer had interests;

at the end of the year of income in which that notional accounting period ended did not exceed $50,000;

the operative provision does not apply to the taxpayer in relation to that FIF or FLP in respect of that notional accounting period of that FIF or FLP.

"(2) For the purposes of subsection (1), the value at the end of the year of income of a person's interest in a FIF, or of a FLP in which a person has an interest, is taken to be:

(a) the cost incurred by the person in acquiring the interest in the FIF or FLP, as the case may be; or

(b) the market value of the interest in the FIF or of the FLP, as the case may be, at the end of the year of income;

whichever is the greater amount.

"Division 10-Exemption of certain Visitors to Australia

Object of Division

"516. The object of this Division is to exempt certain taxpayers who are visitors to Australia from taxation in respect of foreign investment fund income.

Exemption

"517.(1) If a taxpayer is an exempt visitor to Australia in relation to a year of income, the operative provision does not apply to the taxpayer in relation to a FIF or FLP in respect of the notional accounting period of the FIF or FLP that ends in that year of income.

"(2) For the purposes of this section, a person is an exempt visitor to Australia in relation to a year of income if at the end of the year of income:

(a) the person was lawfully in Australia because the person was the holder of a temporary entry permit ('the current permit') granted under the Migration Act 1958; and

(b) the period from the time when:

(i) the current permit; or

(ii) if the current permit was issued by way of an extension of a previous permit or of extensions of previous permits-the earlier or earliest previous permit;

was issued until the current permit is due to expire does not exceed 4 years; and

(c) the person is not awaiting the determination of an application for the grant to the person of permanent residency in Australia under that Act.

"Division 11-Exemption for Interest in an Employer-sponsored Superannuation Fund

Object of Division

"518. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a FIF that is an employer-sponsored superannuation fund.

Interests of employees and former employees to be exempt

"519.(1) If:

(a) a taxpayer who is a natural person had an interest or interests in a particular FIF at the end of a notional accounting period of that FIF; and

(b) that FIF was a superannuation fund maintained by an employer, or by an associate of an employer, for the benefit of employees of the employer; and

the operative provision does not apply to the taxpayer in relation to that FIF in respect of that notional accounting period.

"(2) In this section:

'employee', in relation to an employer, includes:

(a) a former employee of the employer; or

(b) if the employer is a company-a director or former director of the company.

"Division 12-Exemption for certain Interests that are Trading Stock

Object of Division

"520. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from FIFs to the extent that that income is attributable to interests in FIFs that consist of trading stock whose value to be taken into account at the end of the year of income under section 31 is its market value.

Exemption

"521. If:

(a) subsection 31(5) applies to a taxpayer in respect of a year of income; and

(b) at any time during the notional accounting period of a FIF that ended in that year of income the taxpayer had an interest in the FIF that was trading stock;

that interest is disregarded for the purposes of the application of the operative provision to the taxpayer in relation to the FIF in respect of that notional accounting period.

"Division 13-Exemption for Interest in Foreign Company Principally Engaged in several Activities

Object of Division

"522. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a foreign company that engages in several activities.

Exemption

"523. If:

(a) at the end of the notional accounting period of a foreign company a taxpayer had an interest in the foreign company that consisted of shares included in a class of shares that were quoted on the stock market of an approved stock exchange; and

(b) throughout that period, or the part of that period in which the taxpayer had that interest, as the case may be:

(i) shares in the foreign company that were included in that class were widely held, and actively traded on a regular basis, on a stock market of an approved stock exchange; and

(ii) the foreign company was engaged in the active carrying on of any 2 or more of the following activities:

(A) construction;

(B) development of real property through capital improvement;

(D) provision of management services in respect of real property by directors or employees of the company or by a wholly-owned subsidiary of the company that was principally engaged in carrying on the business of providing those services through directors or employees of that subsidiary;

(E) acting as agent in connection with the sale or purchase of commercial real property;

(F) general insurance business of a kind that the company was authorised under the law of its place of residence to carry on;

(G) life insurance business of a kind that the company was authorised under the law of its place of residence to carry on;

(H) eligible activities within the meaning of Division 3;

(c) having regard to all the activities in which the company engaged in that period or that part of that period, it would be concluded that any 2 or more of the activities referred to in subparagraph (b)(ii), taken together, were the activities in which the company was principally engaged throughout that period or that part of that period, as the case may be.

"Division 14-Exemption for Interests in FIFs the Value of which is not more than 5% of Value of all Taxpayer's Interests in FIFs

Object of Division

"524. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from FIFs if the total value of the taxpayer's interests in those FIFs does not exceed 5% of the total value of all the taxpayer's interests in FIFs.

Exemption

"525.(1) If:

(a) at the end of the notional accounting period of a FIF, or the end of the notional accounting periods of FIFs, that ended in the year of income a taxpayer had an interest in that FIF or interests in those FIFs; and

(b) apart from this Division the operative provision would apply to the taxpayer in relation to that FIF or those FIFs in respect of that notional accounting period or those notional accounting periods; and

(c) the value or the sum of the values of the taxpayer's interest or interests in that FIF or those FIFs at the end of that year of income did not exceed 5% of the sum of the values of all the taxpayer's interests in FIFs at the end of that year of income (other than interests in relation to which the operative provision does not apply to the taxpayer in respect of notional accounting periods that ended in that year of income because of Division 2 or 11);

the operative provision does not apply to the taxpayer in relation to the FIF or FIFs referred to in paragraph (a) in respect of the notional accounting period or notional accounting periods referred to in that paragraph.

"(2) For the purposes of subsection (1), the value at the end of the year of income of a person's interests in a FIF is taken to be:

(a) the cost incurred by the person in acquiring the interest in the FIF; or

(b) the market value of the interest in the FIF at the end of the year of income;

whichever is the greater amount.

"Division 15-Exemption for certain Interests of Underwriting Members of Lloyd's

Object of Division

"526. The object of this Division is to exempt a taxpayer who is an underwriting member of Lloyd's from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a Premiums Trust Fund.

Exemption

"527. The operative provision does not apply to a taxpayer who is an underwriting member of Lloyd's in relation to an interest in assets that form part of a Premiums Trust Fund, as referred to in section 83 of the Insurance Companies Act 1982 of the United Kingdom.

"Division 16-Assessable Income to Include Foreign Investment Fund Income

Object of Division

"528. The object of this Division is to include in a taxpayer's assessable income in certain circumstances foreign investment fund income that accrued to the taxpayer.

Foreign investment fund income to be included in assessable income

"529.(1) The circumstances in which this section applies to a taxpayer in relation to a FIF or FLP in respect of a notional accounting period of the FIF or FLP are as set out in section 485.

"(2) If foreign investment fund income accrued to a taxpayer to whom this section applies from a FIF or a FLP in respect of a notional accounting period of the FIF or FLP:

(a) if the taxpayer was a resident throughout the whole of the year of income in which that notional accounting period ended-the taxpayer's assessable income of that year of income includes that foreign investment fund income; or

(b) if the taxpayer was a resident throughout a part or parts of that year of income-the taxpayer's assessable income of that year of income includes so much of that foreign investment income as is worked out using the formula:

Foreign investment fund income * (Number of days of residence / Total number of days).

In the formula:

'Foreign investment fund income' means the amount of the foreign investment fund income that accrued to the taxpayer from the FIF or FLP in respect of the notional accounting period;

'Number of days of residence' means the number of days in the year of income throughout which the taxpayer was a resident;

'Total number of days' means the number of days in the year of income.

Reduction of foreign investment fund income because of interim dividend or interim distribution of trust income

"530.(1) If:

(a) a FIF attribution account payment is made by a FIF to a taxpayer during a notional accounting period of the FIF; and

(b) under section 529 an amount of foreign investment fund income that is taken to have accrued to the taxpayer from that FIF in respect of that period would be included in the taxpayer's assessable income of the year of income in which that period ended;

the amount to be included ('the section 529 amount') under that section in that assessable income is reduced by so much of the payment as:

(d) is exempt from income tax under section 23AJ;

and does not exceed the section 529 amount.

"(2) If:

(a) an amount of foreign investment fund income that accrued to a taxpayer from a FIF in respect of a notional accounting period of the FIF is included in the taxpayer's assessable income of a year of income; and

(b) a residence-change time (within the meaning of section 457) in relation to a CFC occurs in that notional accounting period of the FIF; and

(c) section 457 applies to the taxpayer in respect of the taxpayer's assessable income of the year of income in which the residence-change time occurs; and

(d) the CFC is the same entity as the FIF;

the amount included in the taxpayer's assessable income undersection 457 is taken for the purposes of subsection (1) of this section to be a FIF attribution account payment made by the FIF to the taxpayer.

"Division 17-Foreign Investment Fund Losses resulting from Application of Market Value Method or Cash Surrender Value Method to be Allowable Deductions

Object of Division

"531. The object of this Division is to allow foreign investment fund losses incurred by a taxpayer as a result of the application of the market value method in relation to a FIF, or the cash surrender value method in relation to a FLP, to be deducted from the taxpayer's assessable income.

Foreign investment fund loss from FIF under market value method to be allowable deduction

"532. If:

(a) a taxpayer incurs a foreign investment fund loss undersection 541 from a FIF in respect of a notional accounting period; and

(b) a FIF attribution surplus for the FIF under section 604 exists in relation to the taxpayer at the end of that notional accounting period;

so much of that foreign investment fund loss as does not exceed that FIF attribution surplus is an allowable deduction from the taxpayer's assessable income of the year of income in which that notional accounting period ended.

Foreign investment fund loss from FLP under cash surrender value method to be allowable deduction

"533. If:

(a) a taxpayer incurs a foreign investment fund loss under section 599 from a FLP in respect of a notional accounting period; and

(b) a FIF attribution surplus for the FLP under section 604 exists in relation to the taxpayer at the end of that notional accounting period;

"Division 18-How to Determine whether Foreign Investment Fund

Income Accrued to a Taxpayer from a FIF or a FLP

"Subdivision A-Preliminary

Object of Division

"534.(1) The object of this Division is to prescribe methods for determining whether any foreign investment fund income accrued from a particular FIF or FLP in respect of a notional accounting period to a taxpayer to whom the operative provision applies in relation to the FIF or FLP in respect of that period.

"(2) Subject to this Subdivision, there are 3 alternative methods for making a determination in relation to a FIF, as follows:

(a) the method set out in Subdivision B ('the market value method');

(b) the method set out in Subdivision C ('the deemed rate of return method');

"(3) Subject to this Subdivision, there are 2 alternative methods for making a determination in relation to a FLP, as follows:

(a) the method set out in Subdivision E ('the deemed rate of return method');

(b) the method set out in Subdivision F ('the cash surrender value method').

Methods applicable in relation to a FIF

"535.(1) Subject to this section, if it is practicable to apply the market value method in respect of the taxpayer's interest, or all of the taxpayer's interests in a particular class or classes, in a FIF in respect of the notional accounting period, the market value method is to be so applied.

"(2) Subject to this section, if it is not practicable to apply the market value method in respect of the taxpayer's interest, or all of the taxpayer's interests in a particular class, in a FIF in respect of the notional accounting period, the deemed rate of return method is to be applied in respect of the interest or the interests in that class.

"(3) Subject to subsection (5), the taxpayer may elect to apply the calculation method in respect of all of the taxpayer's interests in a FIF in respect of a notional accounting period, and if such an election is made, the calculation method is to be so applied.

"(4) An election under subsection (3) relates to the first period in respect of which the accounts of the FIF are made out that begins after the day on which the election is made.

"(5) The taxpayer is not entitled to make an election under subsection (3) in relation to a FIF unless the taxpayer also makes an election in relation to the FIF under subsection 486(3).

"(6) This section has effect subject to section 577.

Methods applicable in relation to FLP

"536. (1) The deemed rate of return method is to be applied in respect of the taxpayer's interest in a FLP in respect of a notional accounting period unless, under the following provisions of this section, the cash surrender value method is to be applied in respect of that period.

"(2) Subject to subsection (3), the taxpayer may elect to apply the cash surrender value method in respect of the taxpayer's interest in the FLP in respect of a notional accounting period ('the relevant notional accounting period') if the deemed rate of return method has not already been applied in respect of that interest in respect of that period.

"(3) The taxpayer is not entitled to make an election under subsection (2) in relation to a FLP unless the taxpayer also makes an election in relation to a FLP under subsection 487(3).

"(4) If such an election is made, then, subject to the following provisions of this section, the cash surrender value method is to be applied in respect of the relevant notional accounting period and in respect of every later notional accounting period.

"(5) An election under subsection (2) is irrevocable.

"(6) If the cash surrender value method would, apart from this subsection, be required to be applied in respect of a notional accounting period but the taxpayer is unable to provide cash surrender values for the beginning and the end of that period, the cash surrender value is not to be applied in respect of that period or any later notional accounting period.

"(7) If the deemed rate of return method is to be applied in respect of a notional accounting period because of subsection (6) and the cash surrender value method has been applied in respect of one or more previous notional accounting periods, then subsections (8) and (9) have effect.

"(8) The application of the deemed rate of return method in respect of the first notional accounting period in respect of which it is to be applied because of subsection (6) ('the notional accounting period concerned') is to be on the same basis as that on which it would have been applied if the cash surrender value method had not been applied in respect of any previous notional accounting period.

"(9) However, if:

(a) the FLP was issued after 3 November 1992; and

(b) the amount, or the sum of the amounts, of foreign investment fund income ('the actual FIF income') that accrued to the taxpayer from the FLP in respect of the notional accounting period or notional accounting periods in respect of which the cash surrender value method was applied is less than the amount, or the sum of the amounts, of foreign investment fund income ('the notional FIF income') that would have so accrued if the deemed rate of return method had been applied in respect of that period or those periods;

the amount that, apart from this subsection, would have been the foreign investment fund income that accrued to the taxpayer from the FLP in respect of the notional accounting period concerned is increased by the amount worked out using the formula:

The notional FIF income - The actual FIF income.

"Subdivision B-Market Value Method for FIFs

Procedure for determining foreign investment fund income by market value method

"537.(1) This Subdivision applies only if it is practicable to ascertain, as at the relevant times referred to in this Subdivision, the market value of the interest, or the market values of all the interests in a particular class or classes, of a person ('the taxpayer') in a FIF. For the purposes of this Subdivision as so applying, a reference to an interest in a FIF is a reference to an interest of which it is practicable to ascertain the market value as at the relevant time.

"(2) Accordingly, this Subdivision sets out the procedure for determining by the market value method whether, in respect of the interest, or the interests in the class or classes concerned, any foreign investment fund income accrued to the taxpayer from the FIF in respect of a notional accounting period ('the relevant period'). There are 2 steps in this procedure, which are set out in sections 538 and 542, respectively.

Step 1-calculation of foreign investment fund amount

"538.(1) The first step in the procedure is to work out the foreign investment fund amount in relation to the taxpayer in respect of the relevant period.

"(2) This is done as follows:

(a) first, determine the market value of the taxpayer's interest, or the sum of the market values of all the taxpayer's interests in the relevant class or classes, on the last day of the period;

(b) secondly, add the amount or value of each distribution (if any) in respect of any interest or interests referred to in paragraph (a) that was made by the FIF to the taxpayer during the period;

(i) the amount or value of each distribution (if any) in respect of that interest or those interests made by the FIF to the taxpayer during the period; and

(ii) the amount or value of any consideration received or receivable by the taxpayer in respect of the disposal;

(d) fourthly, if the taxpayer had the interest or any of the interests in the FIF on the day immediately preceding the first day of the period, deduct the market value of the interest or interests on that day;

(e) fifthly, if the taxpayer acquired the interest or any of the interests during the period, deduct the amount or value of the consideration paid or given by the taxpayer in respect of the acquisition.

"(3) Each amount resulting from the application of one of the paragraphs of subsection (2) is to be expressed in the currency used in determining the market value referred to in paragraph (2)(a).

How market value is ascertained

"539.(1) For the purposes of the application of section 538 in relation to the taxpayer in respect of the relevant period, the market value of an interest in the FIF on a particular day ('the relevant day') is to be determined in accordance with this section.

"(2) If the interest is included in a class of interests that were quoted on the relevant day on the stock market of an approved stock exchange, the market value of the interest on that day is the amount worked out on the basis of the quoted price of such an interest on that day on that stock market.

"(3) If:

(a) an interest in a trust is not included in a class of interests that were quoted on the relevant day on the stock market of an approved stock exchange; and

(b) the interest is included in a class of interests for which the trustee or manager of the trust offered, at interevals of not more than 12 months, a buy-back or redemption price; and

(i) was publicly available and was offered to all persons having interests in that class; and

(ii) was calculated by reference to the market values of the assets of the trust; and

(iii) represents an arm's length valuation of the interest on that day;

the market value of the interest on that day is the amount worked out on the basis of that price.

"(4) If:

(a) the relevant period started on 1 January 1993; and

(b) the relevant day is 31 December 1992; and

(c) the class of interests in which the interest is included were not quoted on the relevant day on the stock market of an approved stock exchange and, in the case of an interest in a trust, there was no buy-back or redemption price for such an interest offered on the relevant day by the trustee or manager of the trust; and

(d) that class of interests were quoted on the stock market of an approved stock exchange, or in the case of an interest in a trust, there was a buy-back or redemption price so offered for such an interest:

(i) on the last reporting day for the FIF before 1 January 1993; and

(ii) on the next reporting day for the FIF on or after 1 January 1993, being a reporting day that is not more than 12 months after the reporting day referred to in subparagraph (i);

the market value of the interest on the relevant day is:

(e) one-half of the sum of the quoted price on that last reporting day, and the quoted price on that next reporting day, of such an interest on that stock market; or

(f) one-half of the sum of the buy-back or redemption price offered by the trustee or manager of the trust on that last reporting day, and the buy-back or redemption price so offered on that next reporting day, for such an interest;

as the case may be.

"(5) A reference in this section to a quoted price on a particular day of a class of interests on the stock market of an approved stock exchange is, if the class of interests is quoted on that day on 2 or more such stock markets, taken to be a reference to the quoted price on that day of that class of interests on whichever of those stock markets is nominated by the taxpayer.

"(6) If the taxpayer has nominated a particular stock market for the purposes of the application of this section in respect of the taxpayer's interest in a particular FIF, that stock market is taken to continue to be so nominated by the taxpayer unless and until it is no longer practicable to use that stock market for those purposes as, for example, if that stock market ceases to exist or the class of interests in the FIF in which the taxpayer's interest is included ceases to be quoted on that stock market.

"(7) A reference in subsection (4) to a reporting day for a FIF is a reference to a day on which:

(a) in the case of a foreign company-the directors reported to the members on the financial position of the company; or

(b) in the case of a foreign trust-the trustee or manager of the trust reported to the holders of interests in the trust on the financial position of the trust.

Gross foreign investment fund income

"540. If the foreign investment fund amount as worked out under section 538 is a positive amount, that amount is gross foreign investment fund income in relation to the taxpayer from the FIF in respect of the relevant period.

Foreign investment fund loss

"541. If the foreign investment fund amount as worked out under section 538 is a minus amount, that amount is a foreign investment fund loss incurred by the taxpayer from the FIF in respect of the relevant period.

Step 2-calculation of foreign investment fund income

"542.(1) The second step in the procedure is to work out under this section the amount of any foreign investment fund income in relation to the taxpayer in respect of the relevant period.

"(2) If:

(a) there is, under section 540, any gross foreign investment fund income in relation to the taxpayer from the FIF in respect of the relevant period; and

(b) that gross foreign investment fund income exceeds the total of any unapplied previous foreign investment fund losses incurred by the taxpayer from the FIF in respect of a notional accounting period or notional accounting periods before the relevant period;

the following provisions have effect.

"(3) The excess referred to in paragraph (2)(b) is to be converted to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of the relevant period.

"(4) Foreign investment fund income equal to that corresponding amount is taken to have accrued to the taxpayer from the FIF in respect of the relevant period.

"(5) The reference in paragraph (2)(b) to an unapplied foreign investment fund loss incurred by the taxpayer from the FIF in respect of a notional accounting period before the relevant period is a reference to so much of the undeducted amount of a foreign investment fund loss under section 541 that was incurred by the taxpayer from the FIF in respect of any such notional accounting period as exceeds the sum of the amounts (if any) worked out under the following paragraphs in respect of each referable notional accounting period of the FIF:

(a) if paragraph (b) does not apply to the referable notional accounting period concerned-any amount that under section 540 was gross foreign investment fund income in relation to the taxpayer from the FIF in respect of that period; or

(b) if the operative provision did not apply to the taxpayer in respect of the referable notional accounting period concerned, or the application of the operative provision to the taxpayer in respect of that period was affected, because of any of Divisions 2 to 9 and 11 to 15:

(i) any amount that under section 540 would have been gross foreign investment fund income in relation to the taxpayer from the FIF in respect of that period; or

(ii) any amount by which the amount that under section 540 was gross foreign investment fund income in relation to the taxpayer from the FIF in respect of that period would have been increased; or

(iii) any amount by which the amount that under section 541 was a foreign investment fund loss in relation to the taxpayer from the FIF in respect of that period would have been reduced;

if the operative provision had applied to the taxpayer in respect of that period or the application of the operative provision to the taxpayer in respect of that period had not been so affected, as the case may be.

"(6) In subsection (5):

'undeducted amount', in relation to a foreign investment fund loss, means so much of that loss as has not been allowed, and is not allowable, as a deduction under section 532 from the taxpayer's assessable income of any year of income preceding the year of income in which the relevant period ends;

'referable notional accounting period', in relation to a FIF, means a notional accounting period of the FIF that occurred after the notional accounting period in which the foreign investment fund loss was incurred and before the relevant period.

"(7) In calculating under subsection (5) the extent (if any) to which a foreign investment fund loss that was incurred by the taxpayer from a FIF in respect of a notional accounting period is an unapplied previous foreign investment fund loss, an amount worked out under paragraph (5)(a) or subparagraph (5)(b)(i), (ii) or (iii) does not include any part of that amount that has been, or is to be, taken into account in calculating the extent to which a foreign investment fund loss under section 541 that was incurred by the taxpayer from the FIF in respect of a notional accounting period before the first-mentioned notional accounting period was an unapplied previous foreign investment fund loss.

"Subdivision C-Deemed Rate of Return Method for FIFs

Procedure to be followed

Procedure for determining foreign investment fund income from a FIF by deemed rate of return method

"543. This Subdivision sets out in several steps the procedure for determining by the deemed rate of return method whether any foreign investment fund income accrued to a person ('the taxpayer') from a particular FIF in respect of a notional accounting period ('the relevant period'). In following the procedure it is necessary to determine the value of an interest in a FIF on a day called 'the relevant day', which has the meaning given by section 545, and then to apply a specified rate of return to that value.

Step 1-groups of interests

"544.(1) The first step in the procedure is to determine:

(a) whether the taxpayer had only one interest, or had 2 or more interests, in the FIF during the relevant period; and

(b) if the taxpayer had 2 or more such interests-whether any of the interests from a group or groups within the meaning of subsection (4) or (5).

"(2) Subject to subsection (6), if the taxpayer had only one interest in a FIF during the relevant period, the procedure applies in respect of the interest and so applies as if the interest were a group.

"(3) If the taxpayer had 2 or more interests in a FIF during the relevant period, the procedure:

(a) applies separately in respect of each interest (if any) that is not included in a group and so applies as if each such interest were a separate group; and

(b) if any of the interests form a group or groups-applies separately in respect of the group or each of the groups.

"(4) Interests in a FIF which are of the same class and which the taxpayer had throughout the relevant period form a group.

"(5) Subject to subsection (6), interests in a FIF which are of the same class and which the taxpayer had throughout the same part of the relevant period form a group.

"(6) Any interest in a FIF that the taxpayer ceased to have before the end of the relevant period is to be disregarded.

Determination of Opening Value

Step 2-determination of opening value of interests

"545. The second step is to determine the value of the interests in the group or the respective values of the interests in each group as at the day ('the relevant day') referred to in whichever of the following paragraphs applies:

(a) if the taxpayer had the interests in the FIF at the beginning of the relevant period-the day immediately preceding the first day of the relevant period; or

(b) if the interests in the FIF were acquired by the taxpayer during the relevant period-the day on which they were acquired.

If relevant period starts on 1 January 1993

"546. If the interests in the group were acquired before the start of the relevant period and that period starts on 1 January 1993, the value of the interests on the relevant day is to be determined in accordance with section 547, 548 or 549, as the case requires.

Value of interests at start of relevant period (being 1 January 1993)-quoted prices

"547.(1) If the interests in the group are included in a class of interests that were quoted on the relevant day on the stock market of an approved stock exchange, the value of the interests on that day is the amount worked out on the basis of the quoted price of such an interest on that day on that stock market.

"(2) If the interests in the group are included in a class of interests that were not quoted on the relevant day on the stock market of an approved stock exchange but were quoted on such a stock market within the period of 12 months immediately before that day, the value of the interests on that day is the amount worked out on the basis of the quoted price of such an interest on the latest day in that period on which the class of interests were so quoted.

"(3) If the interests in the group are interests in a trust that are included in a class of interests that were not quoted on a stock market of an approved stock exchange on the relevant day or within the period of 12 months immediately before that day:

(a) if there was on that day a buy-back or redemption price offered by the trustee or manager of the trust for such interests-the value of the interests on that day is the amount worked out on the basis of that price; or

(b) if paragraph (a) does not apply but there was within that period of 12 months such a buy-back or redemption price-the value of the interests on that day is the amount worked out on the basis of the latest such price that was offered within that period.

"(4) Subsection (3) does not apply in relation to a buy-back or redemption price unless it:

(a) was publicly available and was offered to all persons having interests in that class; and

(b) was calculated by reference to the market values of the assets of the trust; and

(i) in the case of a price referred to in paragraph (3)(a)-on the relevant day; or

(ii) in the case of a price referred to in paragraph (3)(b)-on the day it was offered.

"(5) A reference in this section to a quoted price on the stock market of an approved stock exchange on a particular day of a class of interests is, if the class of interests are quoted on that day on 2 or more such stock markets, taken to be a reference to the quoted price on that day of that class of interests on whichever of those stock markets is nominated by the taxpayer.

Value of interests at start of relevant period (being 1 January 1993) – fair market value

"548.(1) This section applies in relation to interests in the group if it is impracticable to value the interests in accordance with section 547.

"(2) The value of the interests in the group on the relevant day is the amount certified in writing by an independent valuer to have been the fair market value of the interests on a day named in the certificate, being any day within the period of 3 months ending on the relevant day or the period of 3 months starting on the relevant day.

Value of interests at start of relevant period (being 1 January 1993) - notional past application of deemed rate of return method

"549.(1) This section applies in relation to interests in the group if it is impracticable to value the interests in accordance with section 547 or 548.

"(2) The value of the interests in the group on the relevant day is the amount that would be that value if:

(a) this Part had been in force at all times since the interests were acquired; and

(b) the value of each interest at the date on which it was acquired was the consideration paid or given in respect of the acquisition by the taxpayer; and

(c) subject to paragraph (b), the deemed rate of return method had been used to determine whether any foreign investment fund income accrued to the taxpayer from the FIF in respect of each notional accounting period of the FIF before the relevant period.

If relevant period starts after 1 January 1993

"550. If the interests in the group were acquired before the start of the relevant period and that period starts on a day later than 1 January 1993, the value of the interests on the relevant day is to be determined in accordance with section 551, 552 or 553, as the case requires.

Value of interests at start of relevant period (being later than 1 January 1993) - deemed rate of return method applied for previous period

"551. If the deemed rate of return method was applied in respect of the notional accounting period that immediately preceded the relevant period, the value of the interests in the group on the relevant day is to be determined as follows:

(a) first, ascertain the value, as previously determined under this Subdivision, of the interests in the group at the beginning of the immediately preceding period or, if any of the interests were acquired after that time, at the date or dates of the acquisition of the interest or interests concerned;

(b) secondly, add so much of the foreign investment fund income determined in relation to the taxpayer in respect of the immediately preceding period as was attributable to the interests in the group;

(c) thirdly, deduct the amount or value of so much (if any) of any distributions made by the FIF to the taxpayer during the immediately preceding period as were attributable to the interests in the group.

Value of interests at start of relevant period (being later than 1 January 1993) - calculation method applied, or interests exempt, for previous period

"552.(1) If:

(a) the calculation method was applied in respect of the notional accounting period immediately preceding the relevant period; or

(b) the operative provision did not apply to the taxpayer in respect of that immediately preceding period, or the application of the operative provision to the taxpayer in respect of that notional accounting period was affected, because of any of Divisions 2 to 15;

the value of the interests in the group on the relevant day is to be determined in accordance with this section.

"(2) If the interests are included in a class of interests for which there were quoted prices on an approved stock exchange at any time during the immediately preceding period, the value of the interests in the group on the relevant day is the amount worked out on the basis of the quoted price for such an interest on the latest day during the immediately preceding period on which there was a quoted price for such an interest on such a stock exchange.

"(3) If it is not practicable to determine the value of the interests in a group on the relevant day under subsection (2), that value is taken to be the amount that would be that value if:

(a) this Part had been in force at all times since the interests were acquired; and

(b) the value of each interest in the group at the date on which it was acquired was the consideration paid or given in respect of the acquisition by the taxpayer; and

Value of interests at start of relevant period (being later than 1 January 1993) - market value method applied for previous period

"553. If the market value method was applied in respect of the notional accounting period immediately preceding the relevant period, the value of the interests in the group on the relevant day is the value of the interests at the end of that immediately preceding period as determined in accordance with that method.

Value of interests at time of acquisition (after start of relevant period)

"554. If the interests in the group were acquired by the taxpayer during the relevant period, the value of the interests on the relevant day is the consideration paid or given by the taxpayer in respect of the acquisition.

Application of Rate of Return to Opening Value

Step 3-determination of foreign investment fund amount

"555.(1) The third step is to determine, in relation to the taxpayer in respect of the relevant period, the foreign investment fund amount in respect of the taxpayer's interests in the group.

"(2) The foreign investment fund amount is the amount worked out using the formula:

Opening value * Deemed rate of return * (Number of days held / 365).

For the purposes of this subsection:

'Opening value' means the value of the interests in the group on the relevant day;

'Deemed rate of return', in relation to the relevant period, means:

(a) if there is only one basic statutory interest rate in relation to the year of income in which the relevant period ends-that rate; or

(b) if there are 2 or more basic statutory interest rates in relation to that year of income-the weighted average of those rates;

increased, in either case, by 4 percentage points;

'basic statutory interest rate', in relation to a year of income, means the interest rate, or each of the interest rates, applicable for the purposes of section 10 of the Taxation (Interest on Overpayments) Act 1983 for the year of income or for periods included in the year of income, as the case may be;

'Number of days held' means the number of days in the relevant period in which the taxpayer had the interests in the group.

Step 4-conversion of foreign investment fund amount to Australian currency

"556.(1) If the taxpayer's interests in the FIF during the relevant period form one group only, the foreign investment fund amount determined in respect of the taxpayer's interests in the group is to be converted to the

corresponding amount in Australian currency in accordance with the rate of

exchange applicable at the end of that period.

"(2) If the taxpayer's interests in the FIF during the relevant period form 2 or more groups, the sum of the foreign investment fund amounts respectively determined in respect of the taxpayer's interests in each of those groups is to be converted to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of that period.

Foreign investment fund income

"557. Foreign investment fund income equal to the corresponding amount calculated under subsection 556(1) or (2), as the case requires, is taken to have accrued to the taxpayer from the FIF in respect of the relevant period.

"Subdivision D-Calculation Method for FIFs

Procedure to be followed

Procedure for determining foreign investment fund income by calculation method

"558.(1) This Subdivision sets out the procedure for determining by the calculation method whether any foreign investment fund income accrued to a person ('the taxpayer') from a particular FIF in respect of a notional accounting period ('the relevant period').

"(2) The procedure is to be applied separately for each taxpayer.

"(3) The procedure involves:

(a) determining whether, for the purposes of the application of this Subdivision in relation to the taxpayer, there is any calculated profit or calculated loss in respect of the FIF in respect of the relevant period; and

(b) if there is such a calculated profit, determining the share of that calculated profit to which the taxpayer is entitled; and

(c) if there is such a calculated loss, taking the calculated loss into account in respect of later notional accounting periods as provided in section 572.

Determination of calculated profit or calculated loss of FIF

"559.(1) The first step in the procedure referred to in paragraph 558(3)(a) is to work out the notional income of the FIF of the relevant period.

"(2) The second step in that procedure is to work out the notional deductions from that notional income.

"(3) If the notional income exceeds the notional deductions, the excess is a calculated profit in respect of the FIF in respect of the relevant period.

"(4) If the notional income is less than the notional deductions, the difference is a calculated loss in respect of the FIF in respect of the relevant period.

"(5) All calculations for the purpose of determining whether there is a calculated profit or a calculated loss in respect of the FIF in respect of the relevant period are to be made in the currency in which the accounts of the FIF are made out.

"(6) If an amount that is to be included in the notional income of the FIF of the relevant period or is to be a notional deduction from that notional income is expressed in a currency other than the currency referred to in subsection (5), that amount is to be converted into the corresponding amount in the currency referred to in subsection (5) at such rate of exchange as is reasonable and appropriate.

"(7) After any calculated profit in respect of the FIF in respect of the

relevant period is determined, the amount of that calculated profit is to be converted into the corresponding amount in Australian currency at the rate of exchange applicable at the end of the relevant period.

What is included in notional income

Notional income-general provision

"560.(1) The notional income of the FIF of the relevant period includes the gross income, and the profits or gains of a capital nature, derived by the FIF during that period.

"(2) For the purposes of the application of this Subdivision to the taxpayer in relation to a FIF, an amount ('the excluded amount') is not to be taken into account in determining whether an amount is to be included in the notional income of the FIF of the relevant period, or in calculating an amount to be so included, to the extent (if any) to which the excluded amount:

(a) has been, or is to be, allowed as a notional deduction, or taken into account in the calculation of a notional deduction, from the notional income of the FIF in respect of the relevant period or a previous notional accounting period; or

(b) would have been, or would be, allowed as a notional deduction, or taken into account in the calculation of a notional deduction, from the notional income of the FIF in respect of a previous notional accounting period if the taxpayer had been required for the purposes of this Part to work out the notional deductions from that notional income.

Section 560 to be subject to following provisions

"561. Section 560 is subject to sections 562 to 566, but those sections do not limit by implication the application of section 560 in circumstances to which those sections do not apply.

Notional income-discounted securities

"562.(1) Subject to subsection (2), if the FIF was the holder of a qualifying security within the meaning of Division 16E of Part III during the relevant period, that Division applies, so far as it is capable of application, for the purpose of determining whether an amount is included in the notional income of the FIF of the relevant period in respect of that security as if the FIF were a taxpayer that is a resident and that period were the year of income in which that period ends.

"(2) If the accounting standards applicable during the relevant period in the country in which the FIF is incorporated or established require part of any discount or deferred interest in respect of the qualifying security to be treated in the accounts of the FIF as having been derived by the FIF during that period on an accruing basis, and an amount is shown in those accounts as having been so derived, the amount to be included in the notional income of the FIF of that period in respect of that security is the amount so shown in those accounts.

Notional income-interest in net income from partnership

"563.(1) If:

(a) the FIF was a partner in a partnership at the end of the accounting period of the partnership; and

(b) that accounting period of the partnership ends in the relevant period;

the notional income of the FIF of the relevant period includes the interest of the FIF in any net income of the partnership of that accounting period.

"(2) For the purposes of subsection (1):

(a) a partnership has a net income in relation to an accounting period of the partnership if the amount that, if the partnership were a FIF and that accounting period were a notional accounting period, would be the notional income of the partnership of that accounting period under this section exceeds the notional deductions that would be allowable from that notional income; and

(b) the excess is taken to be the amount of that net income.

Notional income-exclusion of certain dividends and trust distributions

"564. The notional income of the FIF in respect of the relevant period does not include any dividend or distribution paid to the FIF by another FIF.

Derivation of income, profits or gains

"565. Income, profits or gains are taken to have been derived by a FIF although the income, profits or gains are not actually paid to the FIF but are reinvested, accumulated, capitalised, carried to a reserve, sinking fund or insurance fund (however designated), or are otherwise dealt with on behalf of the FIF or as the FIF directs.

Notional income to be pre-tax

"566. An amount included in the notional income of a FIF is an amount before the payment of any foreign tax or Australian tax in respect of that amount.

What are notional deductions

Notional deductions-general provision

"567. Subject to sections 568 to 574, any losses or outgoings of a revenue or capital nature incurred by the FIF during the relevant period, to the extent to which they relate to income, or to profits or gains of a revenue nature, are notional deductions from the notional income of the FIF of that period.

Notional deductions-expenditure in acquiring trading stock

"568. Without limiting the generality of section 567, expenditure incurred by the FIF during the relevant period in the acquisition of trading stock is, subject to section 574, a notional deduction from the notional income of the FIF of that period.

Notional deductions-exclusion of expenditure in acquiring securities or partnership interest

"569. Expenditure incurred by the FIF during the relevant period in the acquisition of shares or interests in shares in a company, an interest in a trust, other securities, or an interest in a partnership, is not a notional deduction from the notional income of the FIF of that period.

Notional deductions-amortisation of expenditure in acquiring property

"570.(1) If:

(a) the accounts of the FIF in respect of the relevant period include an amount in respect of the amortisation of the expenditure incurred in the acquisition of:

(i) plant or articles within the meaning of section 54; or

(ii) industrial property within the meaning of Division 10B of Part III; or

(iii) any other prescribed class of property; and

(b) the amortisation is based on the effective life of the plant, articles or industrial or other property; and

(c) the accounts were prepared in accordance with generally accepted accounting principles and give a true and fair view of the financial position of the FIF;

the amount so included is, subject to section 574, a notional deduction from the notional income of the FIF of the relevant period.

"(2) Except as provided in subsection (1), no amount in respect of the amortisation of expenditure in the acquisition of any property is a notional deduction from the notional income of the FIF of the relevant period.

Notional deductions-interest in partnership loss

"571.(1) If:

(a) the FIF was a partner in a partnership at the end of an accounting period of the partnership; and

(b) that accounting period of the partnership ends in the relevant period;

the interest of the FIF in a partnership loss of the partnership of that accounting period is, subject to section 574, a notional deduction from the notional income of the FIF of the relevant period.

"(2) For the purposes of subsection (1):

(a) a partnership has a partnership loss in relation to an accounting period of the partnership if the amount of the deductions that, if the partnership were a FIF and that accounting period were a notional accounting period, would be notional deductions under this section from the notional income of the FIF of that period exceeds that notional income; and

(b) the excess is taken to be the amount of that partnership loss.

Notional deductions-past calculated losses

"572.(1) If there was any calculated loss, or there were any calculated losses, in respect of the FIF under subsection 559(4) in respect of any notional accounting period or notional accounting periods of the FIF that preceded the relevant period (other than such a preceding notional accounting period that ended before the taxpayer first acquired an interest in the FIF), so much of that calculated loss or of those calculated losses as has not been allowed as a notional deduction from the notional income of the FIF of any of those preceding notional accounting periods is a notional deduction from the notional income of the FIF of the relevant period.

"(2) If 2 or more calculated losses are notional deductions under subsection (1), the calculated losses are to be taken into account in the order in which they were incurred.

Notional deductions-taxes

"573. An amount paid by the FIF in respect of Australian tax or foreign tax is a notional deduction from the notional income of the FIF in respect of the relevant period to the extent to which the tax or foreign tax relates to an amount or amounts included in that notional income.

Notional deductions-certain amounts to be excluded

"574.(1) The following expenditure incurred by the FIF during the relevant period is not a notional deduction from the notional income of the FIF of that period:

(a) expenditure incurred in the acquisition of:

(i) plant, articles or industrial or other property referred to in paragraph 570(1)(a); or

(ii) land or buildings; or

(iii) goodwill; or

(iv) gold, silver or other precious metals; or

(v) any other capital asset;

except to the extent that the expenditure is incidental to the acquisition;

(b) repayments of debts;

"(2) For the purposes of the application of this Subdivision to the taxpayer in relation to a FIF, an amount is not to be a notional deduction from the notional income of the FIF of the relevant period to the extent (if any) to which the amount:

(a) has been, or is to be, taken into account in the calculation, in relation to the taxpayer, of an amount included, or to be included, in the notional income of the FIF in respect of the relevant period or in respect of a previous notional accounting period; or

(b) would have been, or would be, taken into account in the calculation, in relation to the taxpayer, of an amount that would have been, or would be, included in the notional income of the FIF in respect of a previous notional accounting period if the taxpayer had been required for the purposes of this Part to work out that notional income.

Procedure if FIF has interest in a second tier FIF or in a FLP Application

"575.(1) Sections 576 to 579 apply if a FIF ('the first tier FIF') had an interest in another FIF ('the second tier FIF') or in a FLP during the whole or the part of the notional accounting period of the second tier FIF or of the FLP that ended in the relevant period.

"(2) For the purposes of the application of the sections referred to in subsection (1), it is to be assumed that:

(a) the relevant period was a year of income; and

(b) the first tier FIF was a taxpayer that was a resident in relation to that year of income; and

(d) references in this Part to assessable income were references to notional income.

Notional income of FIF to include foreign investment fund income from second tier FIF or from FLP

"576. The notional income of the first tier FIF in respect of the relevant period includes any amount of foreign investment fund income that would, on the assumptions referred to in subsection 575(2), be taken under this Part to have accrued to the first tier FIF from the second tier FIF or from the FLP in respect of the relevant period.

How to determine whether foreign investment fund income accrued from second tier FIF or from FLP

"577.(1) Subject to subsection (2), in determining whether any foreign investment fund income would be taken to have accrued to the first tier FIF from the second tier FIF or from the FLP in respect of the relevant period:

(a) any declaration, election or selection that could be made, any notice that could be given, or any option that could be exercised, by the first tier FIF apart from this section is not to be made, given or exercised by the first tier FIF but instead may be made, given or exercised by the taxpayer; but

(b) if the first tier FIF is not a CFC-the taxpayer is not entitled to make an election under subsection 535(3), as that subsection applies because of paragraph (a), to use the calculation method in respect of the second tier FIF unless:

(i) the taxpayer has also made an election under subsection 535(3) to use that method in respect of the first tier FIF; and

(ii) the taxpayer also makes the election in relation to the second tier FIF under subsection 486(3) that the taxpayer is entitled to make because of paragraph (a) of this subsection.

"(2) If:

(a) a FIF that is a CFC had an interest in a FIF that is not a CFC ('the first non-controlled FIF'); and

(b) the first non-controlled FIF had an interest in another FIF that is not a CFC ('the second non-controlled FIF');

the taxpayer is taken not to have made an election under subsection 535(3), as that subsection applies because of paragraph (1)(a), to use the calculation method in respect of the second non-controlled FIF.

What happens if there is a calculated loss in respect of second tier FIF

"578. If there was a calculated loss in respect of the second tier FIF under subsection 559(4) in respect of the second tier FIF's notional accounting period, that calculated loss is taken into account as provided in section 572 for the purpose of determining whether any amount of foreign investment fund income would be taken under this Part to accrue to the first tier FIF from the second tier FIF in subsequent notional accounting periods of the first tier FIF.

If second tier FIF has interest in a third tier FIF or in a FLP

"579. If the taxpayer elects to use the calculation method in respect of the second tier FIF, and the second tier FIF had an interest in another FIF ('the third tier FIF') or in a FLP during the whole or a part of the notional accounting period of the third tier FIF or of the FLP that ended in a notional accounting period of the second tier FIF, the following provisions have effect:

(a) the notional income of the second tier FIF includes any amount of foreign investment fund income that would, if the assumptions referred to in subsection 575(2) applied to the second tier FIF, be taken under this Part to have accrued to the second tier FIF from the third tier FIF or from the FLP in respect of the second tier FIF's or the FLP's notional accounting period;

(b) in calculating the foreign investment fund income referred to in paragraph (a):

(i) any declaration, election or selection that could be made, any notice that could be given, or any option that could be exercised, by the second tier FIF or by the FLP apart from this subparagraph is not to be made, given or exercised by the second tier FIF or by the FLP but instead may be made, given or exercised by the taxpayer; and

(ii) the taxpayer is taken not to have made an election under subsection 535(3), as that subsection applies because of paragraph (a), to use the calculation method in respect of the third tier FIF.

How to determine taxpayer's share of calculated profit of foreign company

Procedure to be followed

"580.(1) The procedure for determining the share of the calculated profit of a foreign company in respect of the relevant period to which the taxpayer is entitled is to work out in accordance with this section:

(a) the part of the taxpayer's share of the calculated profit that is attributable to any interest or interests that the taxpayer had in the company throughout the whole of the relevant period; and

(b) the part or parts of the taxpayer's share of the calculated profit that is or are attributable to any interest or interests that the taxpayer had in the company throughout a particular part or particular parts of the relevant period;

and to add up the amounts so worked out.

"(2) If the taxpayer had an interest or interests in the company throughout the whole of the relevant period, the part of the taxpayer's share of the calculated profit that is attributable to that interest or those interests is the amount worked out using the formula:

Calculated profit * Attribution percentage.

"(3) If the taxpayer had an interest or interests in the company throughout a particular part of the relevant period, the part of the taxpayer's share of the calculated profit that is attributable to that interest or those interests is the amount worked out using the formula:

Calculated profit * Attribution percentage * (Number of days held / Total number of days).

"(4) In the formulas in this section:

'Calculated profit' means the calculated profit of the company in respect of the relevant period;

'Attribution percentage' means the attribution percentage applicable to the taxpayer in respect of the company at the end of the relevant period;

'Number of days held' means the number of days in the part of the relevant period throughout which the taxpayer had the interest or interests;

'Total number of days' means the number of days in the relevant period.

"(5) A reference in this section to an interest that a taxpayer had in a foreign company throughout a particular part of the relevant period does not include a reference to such an interest that the taxpayer ceased to have before the end of that period.

How to work out attribution percentage applicable to taxpayer in respect of interest or interests in foreign company

"581.(1) The attribution percentage applicable to the taxpayer in respect of the taxpayer's interest or interests in a foreign company at the end of the relevant period is the percentage that, because of that interest or those interests, as the case may be, the taxpayer had, or was entitled to acquire, at that time of:

(a) the total paid-up share capital of the company; or

(b) the total rights of shareholders to vote, or participate in any decision-making, concerning any of the following:

(i) the making of distributions of capital or profits of the company to its shareholders;

(ii) the constituent document of the company;

(iii) any variation of the share capital of the company; or

(d) the total rights to distributions of capital or profits of the company to its shareholders, otherwise than on winding-up;

or, if different percentages are applicable under the preceding paragraphs, the greater or greatest of those percentages.

"(2) If the percentage of total rights to vote or participate in decision-making differs as between differing types of decision-making, the highest of those percentages applies for the purposes of paragraph (1)(b).

"(3) For the purposes of subsection (1), the percentage that the taxpayer had, or was entitled to acquire, at the end of the relevant period, because of an interest or interests in the company, of the total rights to distributions of capital or profits of the company to its shareholders on winding-up, or of the total rights to distributions of capital or profits of the company to its shareholders otherwise than on winding-up, is to be worked out in either case by:

(a) ascertaining whichever of the following is applicable:

(i) the capital of the company as at the end of the relevant period;

(ii) the profits of the company for the relevant period; and

(b) assuming that the rights to such distributions that the taxpayer had, or was entitled to acquire, at the end of the relevant period because of the interest or interests were the same at all other times during the relevant period; and

How to determine taxpayer's share of calculated profit of foreign trust

Procedure to be followed

"582.(1) The share of the calculated profit of a foreign trust in respect of the relevant period to which the taxpayer is entitled is to be worked out in accordance with this section.

"(2) If all of the income, profits or gains derived by the trust during the relevant period consisted of either or both of the following:

(a) income, profits or gains to which beneficiaries of the trust were presently entitled; or

(b) income, profits or gains to which beneficiaries of the trust were not presently entitled but which were distributed to beneficiaries of the trust during the relevant period or within 2 months after the end of that period;

the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled is the amount worked out using the

formula:

Calculated profit * Attribution percentage.

In the formula:

'Calculated profit' means the calculated profit of the trust of the relevant period;

'Attribution percentage' means the percentage of the total income, profits and gains derived by the trust during the relevant period to which the taxpayer was presently entitled or to which the taxpayer was not presently entitled but which was distributed to the taxpayer during the relevant period or within 2 months after the end of the relevant period.

"(3) If subsection (2) does not apply, the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled is the amount determined by calculating:

(a) the part of the share of the calculated profit to which the taxpayer is entitled that is attributable to any interest or interests that the taxpayer had in the trust throughout the whole of the relevant period; and

(b) the part or parts of the share of the calculated profit to which the taxpayer is entitled that is or are attributable to any interest or interests that the taxpayer had in the trust throughout a particular part or particular parts of the relevant period;

and adding up the amounts so calculated.

"(4) The part of the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled that is attributable to an interest or interests that the taxpayer had in the trust throughout the whole of the relevant period is the amount worked out using the formula:

Calculated profit * Attribution percentage.

"(5) The part of the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled that is attributable to an interest or interests that the taxpayer had in the trust throughout a particular part of the relevant period is the amount worked out using the formula:

Calculated profit * Attribution percentage * (Number of days held / Total number of days.

"(6) For the purposes of the formulas in subsections (4) and (5):

'Calculated profit' means the calculated profit of the trust of the relevant period;

'Attribution percentage' means:

(a) the percentage of the income of the trust represented by the share of the income to which the taxpayer was entitled, or was entitled to acquire, at the end of the relevant period because of:

(i) the taxpayer's interest or interests in the trust; and

(ii) any interest or interests in the trust that the taxpayer was entitled to acquire; or

(b) the percentage of the corpus of the trust represented by the share of the corpus to which the taxpayer was entitled, or was entitled to acquire, at the end of the relevant period because of:

(i) the taxpayer's interest or interests in the trust; and

(ii) any interest or interests in the trust that the taxpayer was entitled to acquire;

or, if those percentages differ, the greater of those percentages;

'Number of days held' means the number of days in the part of the relevant period throughout which the taxpayer had the interest;

'Total number of days' means the number of days in the relevant period.

"(7) For the purposes of subsection (6):

(a) the percentage of the income of the trust represented by the share of the income to which the taxpayer was entitled, or was entitled to acquire, at the end of the relevant period because of the interest or interests referred to in subparagraph (a)(i) or (ii) of the definition of 'attribution percentage' in that subsection; or

(b) the percentage of the corpus of the trust represented by the share of the corpus to which the taxpayer was entitled, or was entitled to acquire, at the end of the relevant period because of the interest or interests referred to in subparagraph (b)(i) or (ii) of the definition of 'attribution percentage' in that subsection;

is to be worked out by:

(i) the income of the trust for the year of income;

(ii) the corpus of the trust as at the end of the year of income; and

(d) assuming that the share to which the taxpayer is entitled, or became entitled to acquire, at the end of the relevant period because of the interest or interests was the same at all other times during the year of income; and

(e) ascertaining the percentage concerned on that assumption.

"(8) A reference in this section to income, profits or gains having been distributed to a taxpayer is a reference to an amount included in such income, profits or gains having been paid or credited to, or applied for the benefit of, the taxpayer.

"(9) A reference in this section to an interest that a taxpayer had in a foreign trust throughout a particular part of the relevant period does not include a reference to such an interest that the taxpayer ceased to have before the end of that period.

Foreign investment fund income

"583. If the taxpayer is entitled to a share of the calculated profit of the FIF in respect of the relevant period, foreign investment fund income equal to the amount of that share is taken to have accrued to the taxpayer from the FIF in respect of that period.

"Subdivision E-Deemed Rate of Return Method for FLPs

Procedure to be followed

Procedure for determining foreign investment fund income from FLP by deemed rate of return method

"584. This Subdivision sets out in several steps the procedure for determining by the deemed rate of return method whether any foreign investment fund income accrued to a person ('the taxpayer') from a particular FLP in respect of a notional accounting period ('the relevant period'). In following the procedure it is necessary to determine the value of a FLP on a day called 'the relevant day', which has the meaning given by section 586, and then to apply a specified rate of return to that value.

Step 1-interests in a FLP

"585.(1) The first step in the procedure is to determine whether the taxpayer had only one interest, or had 2 or more interests, in the FLP during the relevant period.

"(2) If the taxpayer had 2 or more interests that were acquired at different times during the relevant period, the procedure applies separately in respect of each such interest.

"(3) The following provisions involve determining the value of the FLP at the relevant times referred to in those provisions.

Determination of Opening Value

Step 2-determination of opening value

"586. The second step is to determine the value of the FLP as at the day ('the relevant day') referred to in whichever of the following paragraphs applies:

(a) if the taxpayer had the interests in the FLP at the beginning of the relevant period-the day immediately preceding the first day of the relevant period; or

(b) if the interests in the FLP were acquired by the taxpayer during the relevant period-the day on which they were acquired.

If relevant period starts on 1 January 1993

"587. If the interests in the FLP were acquired before the start of the relevant period and that period starts on 1 January 1993, the value of the FLP on the relevant day is to be determined in accordance with section 588.

Value at start of relevant period (being 1 January 1993)

"588. The value of the FLP on the relevant day is:

(a) subject to paragraph (b), the cash surrender value of the FLP on that day; or

(b) if the taxpayer elects that this paragraph is to apply in respect of the taxpayer's interests in the FLP-the consideration paid or given by the taxpayer in respect of the acquisition of those interests.

If relevant period starts after 1 January 1993

"589. If the interests in the FLP were acquired before the start of the relevant period and that period starts on a day later than 1 January 1993, the value of the FLP on the relevant day is to be determined in accordance with section 590.

Value at start of relevant period (being later than 1 January 1993)

"590. The value of the FLP on the relevant day is to be determined as follows:

(a) first, ascertain the value, as previously determined under this Subdivision, of the FLP at the beginning of the notional accounting period that immediately preceded the relevant period;

(b) secondly, add so much of the foreign investment fund income determined in relation to the taxpayer in respect of the immediately preceding period as was attributable to the FLP;

(c) thirdly, add the amount of any premium or instalment of premium (excluding the first premium or an instalment of the first premium) paid by the taxpayer in respect of the FLP in the immediately preceding period;

(d) fourthly, deduct the amount or value of any distributions made to the taxpayer during the immediately preceding period in relation to the FLP.

Value at time of acquisition (after start of relevant period)

"591. If the interests in the FLP were acquired by the taxpayer during the relevant period, the value of the FLP on the relevant day is:

(a) if the taxpayer had paid the whole of the consideration in respect of the acquisition-the amount of that consideration; or

(b) otherwise-the amount of the first premium paid by the taxpayer in respect of the FLP.

Application of Rate of Return to Opening Value

Step 3-determination of foreign investment fund amount

"592.(1) The third step is to determine, in relation to the taxpayer in respect of the relevant period, the foreign investment fund amount in respect of the taxpayer's interest or interests in the FLP.

"(2) The foreign investment fund amount is the amount worked out using the formula:

Opening value * Deemed rate of return * (Number of days held / 365).

For the purposes of the formula:

'Opening value' means the value of the FLP on the relevant day;

'Deemed rate of return', in relation to the relevant period, means:

(a) if there is only one basic statutory rate in relation to the year of income in which the relevant period ends-that rate; or

(b) if there are 2 or more basic statutory interest rates in relation to that year of income-the weighted average of those rates;

increased, in either case, by 4 percentage points;

'Number of days held' means the number of days in the relevant period in which the taxpayer had the interests in the FLP.

Step 4-conversion of foreign investment fund amount to Australian currency

"593. The foreign investment fund amount determined in respect of the taxpayer's interests in a FLP during the relevant period is to be converted to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of that period.

Foreign investment fund income

"594. Foreign investment fund income equal to the corresponding amount calculated under section 593 is taken to have accrued to the taxpayer from the FLP in respect of the relevant period.

"Subdivision F-Cash Surrender Value Method for FLPs

Procedure for determining foreign investment fund income by cash surrender value method

"595.(1) This Subdivision applies only if it is practicable to ascertain, as at the relevant time referred to in this Subdivision, the cash surrender value of the interest of a person ('the taxpayer') in a FLP. For the purposes of this Subdivision as so applying, a reference to an interest in a FLP is a reference to an interest of which it is practicable to ascertain the cash surrender value as at the relevant time.

"(2) Accordingly, this Subdivision sets out the procedure for determining by the cash surrender value method whether, in respect of the interest, any foreign investment fund income accrued to the taxpayer from the FLP in respect of a notional accounting period ('the relevant period'). There are 2 steps in this procedure, which are set out in sections 596 and 600, respectively.

Step 1-calculation of foreign investment fund amount

"596.(1) The first step in the procedure is to work out the foreign investment fund amount in relation to the taxpayer in respect of the relevant period.

"(2) This is done as follows:

(a) first, determine the cash surrender value of the taxpayer's interest at the end of the period;

(b) secondly, add the amount or value of each distribution (if any) in respect of the taxpayer's interest in the FLP that was made by the FLP to the taxpayer during the period;

(i) the amount or value of each distribution (if any) in respect of that interest made by the FLP to the taxpayer during the period; and

(ii) the amount or value of any consideration received or receivable by the taxpayer in respect of the disposal;

(d) fourthly, if the taxpayer had an interest in the FLP on the day immediately preceding the first day of the period, deduct the cash surrender value of the interest on that day;

(e) fifthly, if the taxpayer contributed to the interest in the FLP during the period, deduct the amount or value of the consideration paid or given by the taxpayer in respect of the contribution.

"(3) Each amount resulting from the application of one of the paragraphs of subsection (2) is to be expressed in the currency used in determining the cash surrender value referred to in paragraph (2)(a).

If no cash surrender value available on 1 January 1993

"597. If:

(a) the relevant period started on 1 January 1993; and

(b) a cash surrender value was not available in respect of the taxpayer's interest in the FLP on 31 December 1992; and

(d) a cash surrender value was available in respect of that interest on a day later than 31 December 1992; and

(e) the earliest day on which a cash surrender value was available as mentioned in paragraph (d) was not more than 12 months after the latest day on which a cash surrender value was available as mentioned in paragraph (c);

the cash surrender value in respect of the taxpayer's interest in the FLP on 31 December 1992 is taken to have been one-half of the sum of:

(f) the latest cash surrender value that was available as mentioned in paragraph (c); and

(g) the earliest cash surrender value that was available as mentioned in paragraph (d).

Gross foreign investment fund income

"598. If the foreign investment fund amount as worked out under section 596 is a positive amount, that amount is gross foreign investment fund income in relation to the taxpayer from the FLP in respect of the relevant period.

Foreign investment fund loss

"599. If the foreign investment fund amount as worked out under section 596 is a minus amount, that amount is a foreign investment fund loss incurred by the taxpayer from the FLP in respect of the relevant period.

Step 2-calculation of foreign investment fund income

"600.(1) The second step in the procedure is to work out under this section the amount of any foreign investment fund income in relation to the taxpayer in respect of the relevant period.

"(2) If:

(a) there is, under section 598, any gross foreign investment fund income in relation to the taxpayer from the FLP in respect of the relevant period; and

(b) that gross foreign investment fund income exceeds the total of any unapplied previous foreign investment fund losses that were incurred by the taxpayer from the FLP in respect of a notional accounting period or notional accounting periods before the relevant period;

the following provisions have effect.

"(4) Foreign investment fund income equal to that corresponding amount is taken to have accrued to the taxpayer from the FLP in respect of the relevant period.

"(5) The reference in paragraph (2)(b) to an unapplied previous foreign investment fund loss incurred by the taxpayer from the FLP in respect of a notional accounting period before the relevant period is a reference to so much of the undeducted amount of a foreign investment fund loss under section 599 that was incurred by the taxpayer from the FLP in respect of any such notional accounting period as exceeds the sum of the amounts (if any) worked out under the following paragraphs in respect of each referable notional accounting period of the FLP:

(a) if paragraph (b) does not apply to the referable notional accounting period concerned-any amount that under section 598 was gross foreign investment fund income in relation to the taxpayer from the FLP in respect of that period; or

(i) any amount that under section 598 would have been gross foreign investment fund income in relation to the taxpayer from the FLP in respect of that period; or

(ii) any amount by which the amount that under section 598 was gross foreign investment fund income in relation to the taxpayer from the FLP in respect of that period would have been increased; or

(iii) any amount by which the amount that under section 599 was a foreign investment fund loss in relation to the taxpayer from the FLP in respect of that period would have been reduced;

"(6) In subsection (5):

'undeducted amount', in relation to a foreign investment fund loss, means so much of that loss as has not been allowed, and is not allowable, as a deduction under section 533 from the taxpayer's assessable income of any year of income preceding the year of income in which the relevant period ends;

'referable notional accounting period', in relation to a FLP, means a notional accounting period of the FLP that occurred after the notional accounting period in which the foreign investment fund loss was incurred and before the relevant period.

"(7) In calculating under subsection (5) the extent (if any) to which a foreign investment fund loss that was incurred by the taxpayer from a FLP in respect of a notional accounting period is an unapplied previous foreign investment fund loss, an amount worked out under paragraph (5)(a) or subparagraph (5)(b)(i), (ii) or (iii) does not include any part of that amount that has been, or is to be, taken into account in calculating the extent to which a foreign investment fund loss under section 599 that was incurred by the taxpayer from the FLP in respect of a notional accounting period before the first-mentioned notional accounting period was an unapplied previous foreign investment fund loss.

"Division 19-FIF Attribution Accounts

FIF attribution account entity

"601. Each of the following is a FIF attribution account entity:

(a) a company that is not a resident of Australia;

(b) a partnership;

(d) a FLP.

FIF attribution account percentage

"602. The FIF attribution account percentage of a taxpayer in relation to a FIF attribution account entity is the interest that the taxpayer has in the income or profits of the entity, whether directly, or indirectly through one or more interposed FIF attribution account entities.

FIF attribution account payments

"603.(1) Each of the following is a FIF attribution account payment:

(a) a dividend paid by a company to a shareholder;

(b) interest paid on a convertible note to the holder of the note;

(c) the individual interest of a partner in the net income (within the meaning of section 90) of a partnership of a year of income;

(d) if a beneficiary of a trust is presently entitled to a share of the income of the trust-that share of the net income (within the meaning of section 95) of the trust of a year of income;

(e) the whole or part of the net income of a trust of a year of income that is assessable to the trustee under section 99 or 99A;

(f) an amount of trust property that would be included in the assessable income of a beneficiary of a year of income under section 99B if:

(i) the beneficiary were a resident, within the meaning of section 6, at a time during the year of income; and

(ii) paragraph 99B(2)(c) were replaced by a paragraph referring to any FIF attribution account payment under paragraph (d) or (e) of this subsection;

(g) a payment made by the person who issued a FLP to a person who has an interest in the FLP.

"(2) The FIF attribution account payment is taken to be made:

(a) in a paragraph (1)(c) case-by the partnership to the partner; and

(b) in a paragraph (1)(d) or (f) case-by the trust to the beneficiary; and

and, in any such case, to be made at the end of the year of income.

FIF attribution surplus

"604. A FIF attribution surplus for a FIF attribution account entity in relation to a taxpayer exists at a particular time if the entity's total FIF attribution credits arising before that time in relation to the taxpayer exceed its total FIF attribution debits arising before that time in relation to the taxpayer.

FIF attribution credit

"605.(1) A FIF attribution credit arises for a FIF attribution account entity ('the eligible entity') in relation to a taxpayer if:

(a) an amount is included in the taxpayer's assessable income under section 529 in respect of the foreign investment fund income of the eligible entity in respect of a notional accounting period of the eligible entity; or

(b) both of the following conditions apply:

(i) an amount is included in the taxpayer's assessable income under section 529 in respect of the foreign investment fund income of another FIF attribution account entity ('the other entity') in respect of a notional accounting period of the other entity;

(ii) that amount was calculated by reference to another amount ('the section 576 amount') that under section 576 was included in the notional income of the other entity because the other entity had an interest in the eligible entity; or

(i) the amount ('the section 529 amount') is included in the taxpayer's assessable income under section 529 in respect of another FIF attribution account entity ('the first tier FIF') in respect of a notional accounting period of the first tier FIF;

(ii) that amount was calculated by reference to another amount ('the section 576 amount') that under section 576 was included in the notional income of the first tier FIF because the first tier FIF had an interest in another FIF attribution account entity ('the second tier FIF');

(iii) the section 576 amount was calculated by reference to an amount ('the section 579 amount') that under section 579 was included in the notional income of the second tier FIF because the second tier FIF had an interest in the eligible entity; or

(d) a FIF attribution account payment that requires a FIF attribution debit for another entity in relation to the taxpayer is made to the eligible entity.

"(2) Subject to the following provisions of this section, the amount of the FIF attribution credit is equal to the amount included in the assessable income or to the amount of the FIF attribution debit, as the case may be.

"(3) If a FIF attribution credit arises under paragraph (1)(b) for an eligible entity, the amount of the FIF attribution credit is to be worked out using the formula:

(FIF income * Section 529 amount) / Notional income.

In the formula:

'FIF income' means the amount of the foreign investment income included, in relation to the eligible entity, in the foreign investment fund income of the other entity for the notional accounting period referred to in paragraph (1)(b) of the other entity;

'Section 529 amount' means the amount included in the taxpayer's assessable income under section 529 in respect of the notional accounting period referred to in paragraph (1)(b) of the other entity;

'Notional income' means the notional income of the other entity under this Part in respect of the notional accounting period referred to in paragraph (1)(b) of the other entity.

"(4) If a FIF attribution credit arises under paragraph (1)(c) for an eligible entity, the amount of the FIF attribution credit is to be worked out using the formula:

(FIF income * Section 529 amount) / Notional income of the first tier FIF.

For the purposes of this subsection:

'FIF income' means the amount worked out using the formula:

(Section 579 amount * Section 576 amount) / notional income of the second tier FIF;

'Section 579 amount' means the section 579 amount referred to in subparagraph (1)(c)(iii);

'Section 576 amount' means the section 576 amount referred to in subparagraph (1)(c)(ii);

'Notional income of the second tier FIF' means the notional income of the second tier FIF referred to in subparagraph (1)(c)(ii) under the calculation method for the notional accounting period of the first tier FIF referred to in subparagraph (1)(c)(i);

'Section 529 amount' means the section 529 amount referred to in subparagraph (1)(c)(i);

'Notional income of the first tier FIF' means the notional income of the first tier FIF referred to in subparagraph (1)(c)(i) under the calculation method for the notional accounting period referred to in that subparagraph.

"(5) If subsection (3) applies to a taxpayer in respect of one or more eligible entities in respect of a particular section 529 amount, the amount of the FIF attribution credit arising under paragraph (1)(a) for the other entity referred to in paragraph (1)(b) is reduced by the FIF attribution credit or the sum of the FIF attribution credits that, except for subsection (6), would arise to the eligible entity or eligible entities under subsection (3).

"(6) If subsection (4) applies to a taxpayer in respect of one or more eligible entities in respect of a particular amount included in the notional income of the second tier FIF referred to in subparagraph (1)(c)(ii), the amount of the FIF attribution credit arising under paragraph (1)(b) for the second tier FIF is to be reduced by the FIF attribution credit or the sum of the FIF attribution credits arising for the eligible entity or eligible entities under subsection (4).

"(7) The FIF attribution credit arises:

(a) in a paragraph (1)(a) case-at the end of the notional accounting period referred to in that paragraph; or

(b) in a paragraph (1)(b) case-at the end of the notional accounting period of the eligible entity that gave rise to the section 576 amount referred to in subparagraph (1)(b)(ii); or

(c) in a paragraph (1)(c) case-at the end of the notional accounting period of the eligible entity that gave rise to the section 579 amount referred to in subparagraph (1)(c)(iii); or

(d) in a paragraph (1)(d) case-when the FIF attribution account payment referred to in that paragraph is made.

"(8) If, apart from this subsection, a FIF attribution credit would arise in relation to a FIF attribution account entity for an Australian partnership or an Australian trust in respect of an amount included in the assessable income of the partnership or trust of a year of income under section 529, then, subject to subsection (11):

(a) the FIF attribution credit does not arise for the partnership or trust; and

(b) a FIF attribution credit arises in relation to the FIF attribution account entity for:

(i) any taxpayer for whom, as a result of the amount being so included, a tax detriment would arise in circumstances set out in subsection (9); and

(ii) any taxpayer if, as a result of the amount being so included, a tax detriment would arise for the trustee of a trust in which the taxpayer is a beneficiary, in respect of an amount assessable to the trustee under section 98 in respect of the taxpayer's share of the net income of the trust, in circumstances set out in subsection (10); and

(iii) any taxpayer in the capacity of trustee of a trust if, as a result of the amount being so included, a tax detriment would arise for the taxpayer in respect of an amount assessable to the taxpayer under section 99 or 99A, in circumstances set out in subsection (10); and

(d) the FIF attribution credit referred to in paragraph (b) arises at the time when the FIF attribution credit referred to in paragraph (a) would, apart from this subsection, have arisen.

"(9) The circumstances referred to in subparagraph (8)(b)(i) are:

(a) the circumstances set out in the following subparagraphs:

(i) as a result of the amount being included as mentioned in subsection (1), there is a tax detriment for:

(A) a partner in the Australian partnership; or

(B) a partner in another partnership ('the ultimate partnership'), if the tax detriment occurred because there were one or more partnerships or trusts (but not companies) interposed between the partner and the Australian partnership or the Australian trust; and

(ii) the partner is not, in respect of his or her interest in the net income or partnership loss of the Australian partnership or the ultimate partnership, in the capacity of trustee of a trust; or

(b) the circumstances set out in the following subparagraphs:

(i) as a result of the amount being included as mentioned in subsection (1), there is a tax detriment for:

(A) a beneficiary in the Australian trust; or

(B) a beneficiary in another trust ('the ultimate trust'), if the tax detriment occurred because there were one or more partnerships or trusts (but not companies) interposed between the beneficiary and the Australian partnership or the Australian trust; and

(ii) the beneficiary is not a partnership and is not, in respect of his or her share of the net income of the Australian trust or the ultimate trust, in the capacity of trustee of another trust.

"(10) The circumstances referred to in subparagraph (8)(b)(ii) or (iii) are that, as a result of the amount being included as mentioned in subsection (1), there is a tax detriment for:

(a) the trustee of the Australian trust; or

(b) the trustee of another trust ('the ultimate trust'), if the tax detriment occurred because there were one or more partnerships or trusts (but not companies) interposed between the trustee and the Australian partnership or the Australian trust.

"(11) Subsection (8) does not apply to an Australian trust that is, in relation to the year of income referred to in that subsection:

(a) a corporate unit trust within the meaning of Division 6B of Part III; or

(b) a public trading trust within the meaning of Division 6C of that Part; or

(d) a resident public unit trust within the meaning of subsection 96A(4).

FIF attribution debit

"606.(1) A FIF attribution debit arises for a FIF attribution account entity ('the eligible entity') in relation to a taxpayer if:

(a) the eligible entity makes a FIF attribution account payment to the taxpayer or to a FIF attribution account entity; and

(b) immediately before the eligible entity makes the FIF attribution account payment, there is a FIF attribution surplus for the eligible entity in relation to the taxpayer.

"(2) The amount of the FIF attribution debit is the lesser of:

(a) the FIF attribution surplus; and

(b) whichever of the following is applicable:

(i) if the attribution account payment is made to the taxpayer-the FIF attribution account payment;

(ii) in any other case-the taxpayer's FIF attribution account percentage (for the FIF attribution account entity to which the payment is made) of the FIF attribution account payment.

"(3) The FIF attribution debit arises when the FIF attribution account payment is made.

Additional FIF attribution debit

"607.(1) A FIF attribution debit also arises for a FIF attribution account entity in relation to a taxpayer if the whole or a part of a foreign investment fund loss incurred by the taxpayer under section 541 or 599 in respect of a notional accounting period is an allowable deduction from the taxpayer's assessable income of a year of income.

"(2) The amount of the FIF attribution debit is the amount of the allowable deduction.

"(3) The FIF attribution debit arises at the end of the notional accounting period.

"Division 20-FIF Attributed Tax Accounts

FIF attributed tax account surplus

"608. A FIF attributed tax account surplus for a FIF in relation to a taxpayer exists at a particular time if the FIF's total attributed tax account credits arising before that time in relation to the taxpayer exceed its total FIF attributed tax account debits arising before that time in relation to the taxpayer.

FIF attributed tax account credit

"609.(1) A FIF attributed tax account credit arises for a FIF in relation to a taxpayer if, on the assumption that the references in sections 160AFCE and 160AFCG to a notional deduction under Subdivision D of Division 18 did not include a reference to a deduction in respect of Australian tax, the taxpayer would be taken by those sections to have paid, and to have been personally liable for, an amount of foreign tax in respect of an amount included in the taxpayer's assessable income under section 529 in respect of a notional accounting period of the FIF.

"(2) The amount of the credit is equal to the amount of the foreign tax.

"(3) The FIF attributed tax account credit arises at the end of the notional accounting period referred to in subsection (1).

Further FIF attributed tax account credit

"610.(1) A FIF attributed tax account credit arises in relation to a taxpayer for a FIF that is the second tier foreign company referred to in section 160AFCF or the second tier foreign trust referred to in section 160AFCH if, on the assumption that the references in those sections to a notional deduction under Subdivision D of Division 18 did not include a reference to a deduction in respect of Australian tax, the taxpayer would be taken by those sections to have paid, and to have been personally liable for, an amount of foreign tax in respect of an amount included in the taxpayer's assessable income under section 529 in respect of a notional accounting period of a FIF that is the first tier foreign company referred to in section 160AFCF or the first tier foreign trust referred to in section 160AFCH, as the case may be.

"(2) The amount of the credit is equal to the amount of the foreign tax.

"(3) The FIF attributed tax account credit arises at the end of the notional accounting period referred to in subsection (1).

FIF attributed tax account credit flowing through more than one FIF

"611.(1) A FIF attributed tax account credit arises for a FIF attribution account entity ('the eligible entity') in relation to a taxpayer if, as a result of a FIF attribution account payment made to the eligible entity, a FIF attributed tax account debit arises for another entity in relation to the taxpayer.

"(2) The amount of the credit is equal to the amount of the FIF attributed tax account debit.

"(3) The FIF attributed tax account credit arises when the FIF attribution account payment is made.

FIF attributed tax account debit

"612.(1) A FIF attributed tax account debit arises for a FIF in relation to another FIF attribution account entity or in relation to a taxpayer if:

(a) the FIF makes a FIF attribution account payment to the taxpayer or to another FIF attribution account entity; and

(b) the FIF attribution account payment requires a FIF attribution debit for the FIF in relation to the taxpayer.

"(2) The amount of the FIF attributed tax account debit is the amount worked out using the formula:

(FIF attribution debit / FIF attribution surplus) * FIF attributed tax account surplus.

In the formula:

'FIF attribution debit' means the amount of the FIF attribution debit;

'FIF attribution surplus' means the amount of the FIF attribution surplus, for the FIF making the FIF attribution account payment, in relation to the taxpayer immediately before the FIF attribution debit arose;

'FIF attributed tax account surplus' means the amount of the FIF attributed tax account surplus.

"(3) The FIF attributed tax account debit arises when the FIF attribution account payment is made.

"Division 21-Post-attribution Asset Disposals

Reduction of disposal consideration if FIF attributed income not distributed

"613.(1) If:

(a) it is necessary, for the purposes of applying a provision of this Act in the assessment of a taxpayer for a year of income, to take into account the amount of consideration received, entitled to be received or taken to have been received, by the taxpayer in respect of the disposal of an asset, being an interest in a FIF attribution account entity; and

(b) immediately before the disposal takes place there is a FIF attribution surplus for the FIF attribution account entity in relation to the taxpayer;

then, for the purposes of this Act:

(c) the consideration that, apart from this section, would be taken into account under the provision referred to in paragraph (a) in respect of the disposal is taken to be reduced by so much of the amount of the FIF attribution surplus as does not exceed the consideration; and

(d) a FIF attribution debit is taken to arise at the time of the disposal under section 606, in relation to the taxpayer, for the FIF attribution account entity; and

(e) the amount of the FIF attribution debit is equal to so much of the surplus as is taken into account under paragraph (c).

"(2) For the purposes of this section, if the provision referred to in paragraph (1)(a) is in Part IIIA, references in this section to the disposal of an asset are references to the disposal of an asset within the meaning of that Part.

"(3) For the purposes of paragraph (1)(c), if the disposal of the asset causes the taxpayer's FIF attribution account percentage for the FIF attribution account entity to be reduced by a proportion, then only that proportion of the FIF attribution surplus for the entity is to be taken into account under that paragraph.

"Division 22-Keeping of Records

Application of Division

"614. This Division applies to a taxpayer who:

(a) had an interest or interests in a FIF at the end of a year of income ending on or after 1 January 1993; or

(b) had an interest in a FLP at any time during a year of income ending on or after that date.

Records of acts, transactions etc.

"615. The taxpayer must make and keep records in Australia containing particulars of:

(a) the acts, transactions and other circumstances that resulted in the taxpayer having:

(i) the interest or interests in the FIF at the end of the year of income; or

(ii) the interest in the FLP during the year of income; and

(b) except in the case of a taxpayer who, because of any of Divisions 2 to 15, is wholly exempt from taxation in respect of the interest or interests in respect of the notional accounting period of the FIF or FLP that ended in the year of income-the basis of the calculation of the interest or the interests at that time.

Interest in FIF-if market value method was applied

"616. If, in the case of an interest or interests in a FIF, the market value method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FIF in respect of the notional accounting period of the FIF that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of:

(a) if any foreign investment fund income accrued to the taxpayer from the FIF in respect of that notional accounting period-the basis of the calculation of:

(i) that foreign investment fund income; and

(ii) any unapplied previous foreign investment fund loss referred to in subsection 542(2); or

(b) if any foreign investment fund loss was incurred by the taxpayer from the FIF in respect of that notional accounting period-the basis of the calculation of that foreign investment fund loss.

Interest in FIF-if deemed rate of return method was applied

"617. If, in the case of an interest or interests in a FIF, the deemed rate of return method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FIF in respect of the notional accounting period of the FIF that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of the basis of the calculation of the foreign investment fund income that accrued to the taxpayer from the FIF in respect of that period.

Interest in FIF-if calculation method was applied

"618. If, in the case of an interest or interests in a FIF, the calculation method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FIF in respect of the notional accounting period of the FIF that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of:

(a) if there is a calculated profit in respect of the FIF in respect of that notional accounting period-the basis of the calculation of:

(i) that calculated profit; and

(ii) so much (if any) of any calculated loss or calculated losses in respect of a preceding notional accounting period or preceding notional accounting periods of the FIF as was taken into account under section 572 in determining that calculated profit; and

(b) the basis of the calculation of any foreign investment fund income that accrued to the taxpayer from the FIF in respect of that period.

Interest in FLP

"619. In the case of an interest in a FLP, the taxpayer must make and keep records in Australia containing particulars of:

(a) if the cash surrender value method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FLP in respect of the notional accounting period of the FLP that ended in the year of income:

(i) if any foreign investment fund income accrued to the taxpayer from the FLP in respect of that notional accounting period-the basis of the calculation of:

(A) that foreign investment fund income; and

(B) any unapplied previous foreign investment fund loss referred to in subsection 600(2); or

(ii) if any foreign investment fund loss was incurred by the taxpayer from the FLP in respect of that notional accounting period-the basis of the calculation of that foreign investment fund loss.

(b) if the deemed rate of return method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FLP in respect of the notional accounting period of the FLP that ended in the year of income-the basis of the calculation of the foreign investment fund income that accrued to the taxpayer from the FLP in respect of that period.

Interest in FIF or FLP-if exemption applied

"620. If the taxpayer is wholly or partly exempt from taxation under this Part in respect of the interest or interests in a FIF or a FLP in respect of the notional accounting period of the FIF or FLP that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of the basis on which the exemption applied, including any acts, transactions, calculations and other circumstances relevant to the application of the exemption.

Offence of failing to keep records

"621. A person who contravenes section 615, 616, 617, 618, 619 or 620 is guilty of an offence punishable on conviction by a fine not exceeding $3,000.

Manner in which records required to be kept

"622. A person who is required by this Division to make and keep records must:

(a) make and keep the records in writing in the English language or so as to enable the records to be readily accessible and convertible into writing in the English language; and

(b) make and keep the records so as to enable the person's liability under this Act to be readily ascertained.

If calculation method was applied-defence for failing to keep records if information unobtainable

"623. In a prosecution of a person for an offence against section 618 for failing to keep a record containing particulars of the basis of a calculation, it is a defence if the person proves that the calculation was based on information that the person believed to be contained in the accounts (other than published accounts) of a FIF and that the person made all reasonable efforts to obtain particulars of the accounts or the relevant parts of the accounts but was unable to obtain them.

Treatment of partnerships

"624.(1) Subject to subsections (2) and (3), the following provisions apply to a partnership as if the partnership were a person:

(a) sections 614 to 623;

(b) subsections 262A(4) and (5), in so far as those subsections apply to records kept under or for the purposes of this Division;

(c) Part III of the Taxation Administration Act 1953, in so far as that Part of that Act relates to the provisions covered by paragraph (a) or (b) of this subsection.

"(2) If, because of subsection (1), an offence is taken to have been committed by a partnership, that offence is taken to have been committed by each of the partners.

"(3) In a prosecution of a person for an offence because of subsection (2), it is a defence if the person proves that the person:

(a) did not aid, abet, counsel or procure the act or omission because of which the offence was taken to have been committed; and

(b) was not in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, an act or omission because of which the offence is taken to have been committed.".

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Income Tax Assessment Amendment (Foreign Investment) Act 1992 (190 of 1992)

27 After Part X of the Principal Act the following Part is inserted

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