Income Tax Assessment Act 1936

PART IVA - SCHEMES TO REDUCE INCOME TAX  

SECTION 177A   INTERPRETATION  

177A(1)    

In this Part, unless the contrary intention appears:

associate
has the same meaning as in Part X .

Australian customer
, of a foreign entity, means another entity who:

(a) is in Australia, or is an Australian entity; and

(b) if the foreign entity is a member of a global group - is not a member of that global group.

Australian entity
has the same meaning as in Part X .

Australian permanent establishment
of an entity means:

(a) if:

(i) the entity is a resident in a country that has entered into an international tax agreement (within the meaning of subsection 995-1(1) of the Income Tax Assessment Act 1997 ) with Australia; and

(ii) that agreement contains a permanent establishment article (within the meaning of that subsection);

a permanent establishment (within the meaning of that agreement) in Australia; or

(b) otherwise - a permanent establishment of the person in Australia.

capital loss
has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 .

DPT base amount
has the meaning given by subsection 177P(2) .

DPT provisions
means sections 177H , 177J , 177K , 177L , 177M , 177N , 177P , 177Q and 177R .

DPT tax benefit
has the meaning given by subsection 177J(1) .

entity
has the meaning given by section 960-100 of the Income Tax Assessment Act 1997 .

foreign entity
has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 .

foreign entity participant
:

(a) if a beneficiary of a trust estate or a partner in a partnership is a foreign entity, the trust estate or partnership has a foreign entity participant ; and

(b) if a trust estate or partnership has a foreign entity participant (including through a previous operation of this paragraph):

(i) a trust of which the trust estate or partnership is a beneficiary also has a foreign entity participant ; and

(ii) a partnership in which the trust estate or partnership is a partner also has a foreign entity participant .

foreign income tax offset
means a tax offset allowed under Division 770 of the Income Tax Assessment Act 1997 .

foreign law
has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 .

foreign tax credit
(Repealed by No 143 of 2007 )

global group
means a group of entities, at least one of which is a foreign entity, that are consolidated for accounting purposes as a single group.

innovation tax offset
means a tax offset allowed under:

(a) Subdivision 61-P (about early stage venture capital limited partnerships) of the Income Tax Assessment Act 1997 ; or

(b) Subdivision 360-A (about early stage investors in innovation companies) of that Act.

non-refundable R & D tax offset
means a tax offset allowed under Division 355 of the Income Tax Assessment Act 1997 , other than a refundable R & D tax offset.

refundable R & D tax offset
means a tax offset allowed under Division 355 of the Income Tax Assessment Act 1997 that is subject to the refundable tax offset rules under section 67-30 of that Act.

scheme
means:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct.

section 159TL rebate
(Omitted by No 208 of 1992)

significant global entity
has the meaning given by section 960-555 of the Income Tax Assessment Act 1997 .

standard corporate tax rate
means the rate of tax in respect of the taxable income of a company covered by paragraph 23(2)(b) of the Income Tax Rates Act 1986 .

supply
has the meaning given by section 9-10 of the GST Act, but does not include any of the following, or of any combination of 2 or more of the following:

(a) a supply of an equity interest in an entity;

(b) a supply of a debt interest in an entity;

(c) a supply of an option for:

(i) a supply of a kind referred to in paragraph (a) or (b); or

(ii) any combination of 2 or more such supplies.

taxpayer
includes a taxpayer in the capacity of a trustee.

177A(2)    
The definition of taxpayer in subsection (1) shall not be taken to affect in any way the interpretation of that expression where it is used in this Act other than this Part.

177A(3)    
The reference in the definition of scheme in subsection (1) to a scheme, plan, proposal, action, course of action or course of conduct shall be read as including a reference to a unilateral scheme, plan, proposal, action, course of action or course of conduct, as the case may be.

177A(4)    
A reference in this Part to the carrying out of a scheme by a person shall be read as including a reference to the carrying out of a scheme by a person together with another person or other persons.

177A(5)    

A reference in this Part (other than sections 177DA and 177J ) to a scheme or a part of a scheme being entered into or carried out by a person for a particular purpose shall be read as including a reference to the scheme or the part of the scheme being entered into or carried out by the person for 2 or more purposes of which that particular purpose is the dominant purpose.

177A(6)    
(Omitted by No 208 of 1992)

SECTION 177B   OPERATION OF PART  

177B(1)    

Nothing in the following limit the operation of this Part:

(a) the provisions of this Act (other than this Part);

(b) the International Tax Agreements Act 1953 .

(c) (Repealed by No 59 of 2019)

177B(2)    

This Part does not affect the operation of Division 393 of the Income Tax Assessment Act 1997 (Farm management deposits).

177B(3)    
Where a provision of this Act other than this Part is expressed to have effect where a deduction would be allowable to a taxpayer but for or apart from a provision or provisions of this Act, the reference to that provision or to those provisions, as the case may be, shall be read as including a reference to subsection 177F(1) .

177B(4)    
Where a provision of this Act other than this Part is expressed to have effect where a deduction would otherwise be allowable to a taxpayer, that provision shall be deemed to be expressed to have effect where a deduction would, but for subsection 177F(1) , be otherwise allowable to the taxpayer.

177B(5)    
(Omitted by No 208 of 1992)

177B(6)    
(Omitted by No 208 of 1992)

SECTION 177C   TAX BENEFITS  

177C(1)    
Subject to this section, a reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to:

(a)    an amount not being included in the assessable income of the taxpayer of a year of income where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out; or

(b)    

a deduction being allowable to the taxpayer in relation to a year of income where the whole or a part of that deduction would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out; or

(ba)    

a capital loss being incurred by the taxpayer during a year of income where the whole or a part of that capital loss would not have been, or might reasonably be expected not to have been, incurred by the taxpayer during the year of income if the scheme had not been entered into or carried out; or

(baa)    

a loss carry back tax offset being allowable to the taxpayer where the whole or a part of that loss carry back tax offset would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer if the scheme had not been entered into or carried out; or

(bb)    

a foreign income tax offset being allowable to the taxpayer where the whole or a part of that foreign income tax offset would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer if the scheme had not been entered into or carried out; or

(bbaa)    

an innovation tax offset being allowable to the taxpayer where the whole or a part of that innovation tax offset would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer if the scheme had not been entered into or carried out; or

(bba)    

an exploration credit being issued to the taxpayer where the whole or a part of that exploration credit would not have been issued, or might reasonably be expected not to have been issued, to the taxpayer if the scheme had not been entered into or carried out; or

(bc)    

the taxpayer not being liable to pay withholding tax on an amount where the taxpayer either would have, or might reasonably be expected to have, been liable to pay withholding tax on the amount if the scheme had not been entered into or carried out; or

(bd)    

a refundable R & D tax offset, or a non-refundable R & D tax offset, being allowable to the taxpayer in relation to a year of income where the whole or a part of the offset would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out;

and, for the purposes of this Part, the amount of the tax benefit shall be taken to be:

(c)    in a case to which paragraph (a) applies - the amount referred to in that paragraph; and

(d)    

in a case to which paragraph (b) applies - the amount of the whole of the deduction or of the part of the deduction, as the case may be, referred to in that paragraph; and

(e)    

in a case to which paragraph (ba) applies - the amount of the whole of the capital loss or of the part of the capital loss, as the case may be, referred to in that paragraph; and

(ea)    

in a case where paragraph (baa) applies - the amount of the whole of the loss carry back tax offset or of the part of the loss carry back tax offset, as the case may be, referred to in that paragraph; and

(f)    

in a case where paragraph (bb) applies - the amount of the whole of the foreign income tax offset or of the part of the foreign income tax offset, as the case may be, referred to in that paragraph; and

(faa)    

in a case where paragraph (bbaa) applies - the amount of the whole of the innovation tax offset or of the part of the innovation tax offset, as the case may be, referred to in that paragraph; and

(fa)    

in a case where paragraph ( (bba) applies - the amount of the whole of the exploration credit or of the part of the exploration credit, as the case may be, referred to in that paragraph; and

(g)    

in a case to which paragraph (bc) applies - the amount referred to in that paragraph; and

(h)    

in a case to which paragraph (bd) applies - the amount of the whole of the offset or of the part of the offset, as the case may be, referred to in that paragraph.

177C(2)    
A reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as not including a reference to:

(a)    

the assessable income of the taxpayer of a year of income not including an amount that would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out where:

(i) the non-inclusion of the amount in the assessable income of the taxpayer is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option (expressly provided for by this Act or the Income Tax Assessment Act 1997 ) by any person, except one under Subdivision 126-B , 170-B or 960-D of the Income Tax Assessment Act 1997 ; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be; or

(b)    

a deduction being allowable to the taxpayer in relation to a year of income the whole or a part of which would not have been, or might reasonably be expected not to have been, allowable to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out where:

(i) the allowance of the deduction to the taxpayer is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person, being a declaration, agreement, election, selection, choice, notice or option expressly provided for by this Act or the Income Tax Assessment Act 1997 , except one under Subdivision 960-D of the Income Tax Assessment Act 1997 ; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be; or

(c)    

a capital loss being incurred by the taxpayer during a year of income the whole or part of which would not have been, or might reasonably be expected not to have been, incurred by the taxpayer during the year of income if the scheme had not been entered into or carried out where:

(i) the incurring of the capital loss by the taxpayer is attributable to the making of a declaration, agreement, choice, election or selection, the giving of a notice or the exercise of an option (expressly provided for by this Act or the Income Tax Assessment Act 1997 ) by any person, except one under Subdivision 126-B , 170-B or 960-D of the Income Tax Assessment Act 1997 ; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, notice or option to be made, given or exercised, as the case may be; or

(ca)    

a loss carry back tax offset being allowable to the taxpayer the whole or a part of which would not have been, or might reasonably be expected not to have been, allowable to the taxpayer if the scheme had not been entered into or carried out, where:

(i) the allowance of the loss carry back tax offset to the taxpayer is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person, being a declaration, agreement, election, selection, choice, notice or option expressly provided for by this Act; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be; or

(d)    

a foreign income tax offset being allowable to the taxpayer the whole or a part of which would not have been, or might reasonably be expected not to have been, allowable to the taxpayer if the scheme had not been entered into or carried out, where:

(i) the allowance of the foreign income tax offset to the taxpayer is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person, being a declaration, agreement, election, selection, choice, notice or option expressly provided for by this Act; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be; or

(e)    

an innovation tax offset being allowable to the taxpayer the whole or a part of which would not have been, or might reasonably be expected not to have been, allowable to the taxpayer if the scheme had not been entered into or carried out, where:

(i) the allowance of the innovation tax offset to the taxpayer is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person, being a declaration, agreement, election, selection, choice, notice or option expressly provided for by this Act; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be; or

(f)    

a refundable R & D tax offset, or a non-refundable R & D tax offset, being allowable to the taxpayer in relation to a year of income the whole or a part of which offset would not have been, or might reasonably be expected not to have been, allowable to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out, where:

(i) the allowance of the offset to the taxpayer is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person, being a declaration, agreement, election, selection, choice, notice or option expressly provided for by this Act; and

(ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be.

177C(2A)    

A reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme is to be read as not including a reference to:

(a)    

the assessable income of the taxpayer of a year of income not including an amount that would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out where:

(i) the non-inclusion of the amount in the assessable income of the taxpayer is attributable to the making of a choice under Subdivision 126-B of the Income Tax Assessment Act 1997 or an agreement under Subdivision 170-B of that Act; and

(ii) the scheme consisted solely of the making of the agreement or election; or

(b)    

a capital loss being incurred by the taxpayer during a year of income the whole or part of which would not have been, or might reasonably be expected not to have been, incurred by the taxpayer during the year of income if the scheme had not been entered into or carried out where:

(i) the incurring of the capital loss by the taxpayer is attributable to the making of a choice under Subdivision 126-B of the Income Tax Assessment Act 1997 or an agreement under Subdivision 170-B of that Act; and

(ii) the scheme consisted solely of the making of the agreement or election; or

(c)    

an exploration credit being issued to the taxpayer the whole or a part of which would not have been, or might reasonably be expected not to have been, issued to the taxpayer if the scheme had not been entered into or carried out, where:

(i) the issuing of the exploration credit to the taxpayer is attributable to the making of a choice under Division 418 of the Income Tax Assessment Act 1997 ; and

(ii) the scheme consisted solely of the making of the choice.

177C(3)    

For the purposes of subparagraph (2)(a)(i), (b)(i), (c)(i), (ca)(i), (d)(i), (e)(i) or (f)(i) or (2A)(a)(i), (b)(i) or (c)(i):

(a)    the non-inclusion of an amount in the assessable income of a taxpayer; or

(b)    the allowance of a deduction to a taxpayer; or

(c)    

the incurring of a capital loss by a taxpayer; or

(ca)    

the allowance of a foreign income tax offset to a taxpayer; or

(caa)    

the allowance of an innovation tax offset to a taxpayer; or

(cab)    

the allowance of a loss carry back tax offset to a taxpayer; or

(cb)    

the issuing of an exploration credit to a taxpayer; or

(cc)    

the allowance of a refundable R & D tax offset, or a non-refundable R & D tax offset, to a taxpayer;

is taken to be attributable to the making of a declaration, election, agreement or selection, the giving of a notice or the exercise of an option where, if the declaration, election, agreement, selection, notice or option had not been made, given or exercised, as the case may be:

(d)    the amount would have been included in that assessable income; or

(e)    the deduction would not have been allowable; or

(f)    the capital loss would not have been incurred; or

(fa)    

the loss carry back tax offset would not have been allowable; or

(g)    

the foreign income tax offset would not have been allowable; or

(ga)    

the innovation tax offset would not have been allowable; or

(h)    

the exploration credit would not have been issued; or

(i)    

the refundable R & D tax offset, or non-refundable R & D tax offset, would not have been allowable.

177C(4)    

To avoid doubt, paragraph (1)(a) applies to a scheme if:

(a)    an amount of income is not included in the assessable income of the taxpayer of a year of income; and

(b)    an amount would have been included, or might reasonably be expected to have been included, in the assessable income if the scheme had not been entered into or carried out; and

(c)    instead, the taxpayer or any other taxpayer makes a discount capital gain (within the meaning of the Income Tax Assessment Act 1997 ) for that or any other year of income.

177C(5)    

Subsection (4) does not limit the generality of any other provision of this Part.

FORMER SECTION 177CA  

177CA   WITHHOLDING TAX AVOIDANCE  
(Repealed by No 101 of 2013)

SECTION 177CB   THE BASES FOR IDENTIFYING TAX BENEFITS  

177CB(1)    
This section applies to deciding, under section 177C , whether any of the following ( tax effects ) would have occurred, or might reasonably be expected to have occurred, if a scheme had not been entered into or carried out:

(a)    an amount being included in the assessable income of the taxpayer;

(b)    the whole or a part of a deduction not being allowable to the taxpayer;

(c)    the whole or a part of a capital loss not being incurred by the taxpayer;

(ca)    

the whole or a part of a loss carry back tax offset not being allowable to the taxpayer;

(d)    the whole or a part of a foreign income tax offset not being allowable to the taxpayer;

(daa)    

the whole or a part of an innovation tax offset not being allowable to the taxpayer;

(da)    

the whole or a part of an exploration credit not being issued to the taxpayer;

(e)    the taxpayer being liable to pay withholding tax on an amount;

(f)    

the whole or a part of a refundable R & D tax offset, or of a non-refundable tax offset, not being allowable to the taxpayer.

177CB(2)    
A decision that a tax effect would have occurred if the scheme had not been entered into or carried out must be based on a postulate that comprises only the events or circumstances that actually happened or existed (other than those that form part of the scheme).

177CB(3)    
A decision that a tax effect might reasonably be expected to have occurred if the scheme had not been entered into or carried out must be based on a postulate that is a reasonable alternative to entering into or carrying out the scheme.

177CB(4)    
In determining for the purposes of subsection (3) whether a postulate is such a reasonable alternative:

(a)    have particular regard to:

(i) the substance of the scheme; and

(ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but

(b)    disregard any result in relation to the operation of this Act that would be achieved by the postulate for any person (whether or not a party to the scheme).

177CB(5)    

Subsection (4) applies in relation to the scheme as if references in that subsection to the operation of this Act included references to the operation of any foreign law relating to taxation:

(a)    

if this Part applies to the scheme because of section 177DA or 177J ; or

(b)    

for the purposes of determining whether this Part applies to the scheme because of section 177DA or 177J .

SECTION 177D   SCHEMES TO WHICH THIS PART APPLIES  

Scheme for purpose of obtaining a tax benefit

177D(1)    
This Part applies to a scheme if it would be concluded (having regard to the matters in subsection (2)) that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of:

(a) enabling a taxpayer (a relevant taxpayer ) to obtain a tax benefit in connection with the scheme; or

(b) enabling the relevant taxpayer and another taxpayer (or other taxpayers) each to obtain a tax benefit in connection with the scheme;

whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers.

Have regard to certain matters

177D(2)    
For the purpose of subsection (1), have regard to the following matters:

(a) the manner in which the scheme was entered into or carried out;

(b) the form and substance of the scheme;

(c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

(d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme;

(e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;

(f) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme;

(g) any other consequence for the relevant taxpayer, or for any person referred to in paragraph (f), of the scheme having been entered into or carried out;

(h) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in paragraph (f).

Note:

Section 960-255 of the Income Tax Assessment Act 1997 may be relevant to determining family relationships for the purposes of paragraphs (f) and (h).

Tax benefit

177D(3)    
Despite subsection (1), this Part applies to the scheme only if the relevant taxpayer has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme.

When schemes entered into etc.

177D(4)    
Despite subsection (1), this Part applies to the scheme only if:

(a) the scheme has been or is entered into after 27 May 1981; or

(b) the scheme has been or is carried out or commenced to be carried out after that day (and is not a scheme that was entered into on or before that day).

Schemes outside Australia

177D(5)    
This section applies whether or not the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

SECTION 177DA   SCHEMES THAT LIMIT A TAXABLE PRESENCE IN AUSTRALIA  

Scheme for a purpose including obtaining a tax benefit etc.

177DA(1)    
Without limiting section 177D , this Part also applies to a scheme if:

(a) under, or in connection with, the scheme:

(i) a foreign entity makes a supply to an Australian customer of the foreign entity; and

(ii) activities are undertaken in Australia directly in connection with the supply; and

(iii) some or all of those activities are undertaken by an Australian entity who, or are undertaken at or through an Australian permanent establishment of an entity who, is an associate of or is commercially dependent on the foreign entity; and

(iv) the foreign entity derives ordinary income, or statutory income, from the supply; and

(v) some or all of that income is not attributable to an Australian permanent establishment of the foreign entity; and

(b) it would be concluded (having regard to the matters in subsection (2)) that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a principal purpose of, or for more than one principal purpose that includes a purpose of:

(i) enabling a taxpayer (a relevant taxpayer ) to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of the relevant taxpayer ' s liabilities to tax under a foreign law, in connection with the scheme; or

(ii) enabling the relevant taxpayer and another taxpayer (or other taxpayers) each to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of their liabilities to tax under a foreign law, in connection with the scheme;

whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers; and

(c) the foreign entity is a significant global entity for a year of income in which the relevant taxpayer, or one or more other taxpayers, would (but for this Part):

(i) obtain a tax benefit; or

(ii) reduce one or more of their liabilities to tax under a foreign law;

in connection with the scheme.

Have regard to certain matters

177DA(2)    
For the purposes of paragraph (1)(b), have regard to the following matters:

(a) the matters in subsection 177D(2) ;

(b) the extent to which the activities that contribute to bringing about the contract for the supply are performed, and are able to be performed, by:

(i) the foreign entity; or

(ii) another entity referred to in subparagraph (1)(a)(iii); or

(iii) any other entities;

(c) the result, in relation to the operation of any foreign law relating to taxation, that (but for this Part) would be achieved by the scheme.

Deferral of foreign tax liabilities

177DA(3)    
For the purposes of paragraph (1)(b), a deferral of a taxpayer ' s liabilities to tax under a foreign law is taken to be a reduction of those liabilities, unless there are reasonable commercial grounds for the deferral.

Tax benefit

177DA(4)    
Despite subsection (1), this Part applies to the scheme because of this section only if the relevant taxpayer has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme.

Commissioner not required to enquire into foreign tax matters

177DA(5)    
The Commissioner is required to have regard to a matter referred to in paragraph (2)(c) only so far as information relevant to that matter is available to the Commissioner, and is not required to acquire further information in order to have regard to that matter.

Schemes outside Australia

177DA(6)    
This section applies whether or not the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

Income from supply by trust estate or partnership

177DA(7)    

Subsection (8) applies if:

(a) both of the following conditions are satisfied:

(i) a trust estate or partnership makes a supply to an entity;

(ii) that entity would be an Australian customer of the trust estate or partnership if the trust estate or partnership were a foreign entity; and

(b) because of the supply, an amount of ordinary income, or statutory income, is included in the assessable income of the trust estate or partnership (as worked out for the purposes of working out its net income for a year of income); and

(c) the trust estate or partnership has a foreign entity participant at any time in that year of income; and

(d) any of the following conditions are satisfied at the time the supply is made:

(i) the trust estate or partnership is connected with (within the meaning of the Income Tax Assessment Act 1997 ) a foreign entity;

(ii) the trust estate or partnership would be an affiliate (within the meaning of that Act) of a foreign entity if the trust estate or partnership were an individual or a company;

(iii) the trust estate or partnership and a foreign entity are members of the same global group.

177DA(8)    

For the purposes of this section:

(a) treat the foreign entity mentioned in paragraph (7)(d) as having made the supply; and

(b) treat the entity mentioned in subparagraph (7)(a)(ii) as being an Australian customer of the foreign entity; and

(c) treat the foreign entity as having derived the ordinary income, or statutory income, from the supply.

SECTION 177E   STRIPPING OF COMPANY PROFITS  

177E(1)    
Where:

(a) as a result of a scheme that is, in relation to a company:

(i) a scheme by way of or in the nature of dividend stripping; or

(ii) a scheme having substantially the effect of a scheme by way of or in the nature of a dividend stripping;

any property of the company is disposed of;

(b) in the opinion of the Commissioner, the disposal of that property represents, in whole or in part, a distribution (whether to a shareholder or another person) of profits of the company (whether of the accounting period in which the disposal occurred or of any earlier or later accounting period);

(c) if, immediately before the scheme was entered into, the company had paid a dividend out of profits of an amount equal to the amount determined by the Commissioner to be the amount of profits the distribution of which is, in his or her opinion, represented by the disposal of the property referred to in paragraph (a), an amount (in this subsection referred to as the notional amount ) would have been included, or might reasonably be expected to have been included, by reason of the payment of that dividend, in the assessable income of a taxpayer of a year of income; and

(d) the scheme has been or is entered into after 27 May 1981, whether in Australia or outside Australia;

the following provisions have effect:

(e) the scheme shall be taken to be a scheme to which this Part applies;

(f) for the purposes of section 177F , the taxpayer shall be taken to have obtained a tax benefit in connection with the scheme that is referable to the notional amount not being included in the assessable income of the taxpayer of the year of income; and

(g) the amount of that tax benefit shall be taken to be the notional amount.

177E(2)    
Without limiting the generality of subsection (1), a reference in that subsection to the disposal of property of a company shall be read as including a reference to:

(a) the payment of a dividend by the company;

(b) the making of a loan by the company (whether or not it is intended or likely that the loan will be repaid);

(c) a bailment of property by the company; and

(d) any transaction having the effect, directly or indirectly, of diminishing the value of any property of the company.

177E(2A)    

This section:

(a) applies to a non-share equity interest in the same way as it applies to a share; and

(b) applies to an equity holder in the same way as it applies to a shareholder; and

(c) applies to a non-share dividend in the same way as it applies to a dividend.

177E(3)    
In this section, property includes a chose in action and also includes any estate, interest, right or power, whether at law or in equity, in or over property.

SECTION 177EA   CREATION OF FRANKING DEBIT OR CANCELLATION OF FRANKING CREDITS  

177EA(1)    

In this section, unless the contrary intention appears:

relevant circumstances
has a meaning affected by subsection (17) .

relevant taxpayer
has the meaning given by subsection (3) .

scheme for a disposition
, in relation to membership interests or an interest in membership interests, has a meaning affected by subsection (14) .

177EA(2)    
An expression used in this section that is defined in the Income Tax Assessment Act 1997 has the same meaning as in that Act, except to the extent that its meaning is extended by subsection (16) , (18) or (19) , or affected by subsection (15) .

Application of section

177EA(3)    
This section applies if:

(a)    there is a scheme for a disposition of membership interests, or an interest in membership interests, in a corporate tax entity; and

(b)    either:

(i) a frankable distribution has been paid, or is payable or expected to be payable, to a person in respect of the membership interests; or

(ii) a frankable distribution has flowed indirectly, or flows indirectly or is expected to flow indirectly, to a person in respect of the interest in membership interests, as the case may be; and

(c)    the distribution was, or is expected to be, a franked distribution or a distribution franked with an exempting credit; and

(d)    except for this section, the person (the relevant taxpayer ) would receive, or could reasonably be expected to receive, imputation benefits as a result of the distribution; and

(e)    having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain an imputation benefit.

Bare acquisition of membership interests or interest in membership interests

177EA(4)    
It is not to be concluded for the purposes of paragraph (3)(e) that a person entered into or carried out a scheme for a purpose mentioned in that paragraph merely because the person acquired membership interests, or an interest in membership interests, in the entity.

Commissioner to determine franking debit or deny franking credit

177EA(5)    
The Commissioner may make, in writing, either of the following determinations:

(a)    

if the corporate tax entity is a party to the scheme, a determination that a franking debit or exempting debit of the entity arises in respect of each distribution made to the relevant taxpayer or that flows indirectly to the relevant taxpayer;

(b)    a determination that no imputation benefit is to arise in respect of a distribution or a specified part of a distribution that is made, or that flows indirectly, to the relevant taxpayer.

A determination does not form part of an assessment.

Notice of determination

177EA(6)    

If the Commissioner makes a determination under subsection (5) , the Commissioner must:

(a)    in respect of a determination made under paragraph (5)(a) - serve notice in writing of the determination on the corporate tax entity; or

(b)    in respect of a determination made under paragraph (5)(b) - serve notice in writing of the determination on the relevant taxpayer.

Publication of determination in relation to listed public company denying imputation benefit

177EA(7)    

If the Commissioner makes a determination under paragraph (5)(b) , in respect of a distribution made by a listed public company, the Commissioner is taken to have served notice in writing of the determination on the relevant taxpayer if the Commissioner causes the notice to be published in a manner that results in the notice being accessible to the public and reasonably prominent. The notice is taken to have been served on the day on which the publication takes place.

177EA(8)    
(Repealed by No 2 of 2015)

Objections

177EA(9)    
If a taxpayer to whom a determination relates is dissatisfied with the determination, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 .

Effect of determination of franking debit or exempting debit

177EA(10)    

If the Commissioner makes a determination under paragraph (5)(a) :

(a)    on the day on which notice in writing of the determination is served on the entity, a franking debit or exempting debit of the corporate tax entity arises in respect of the distribution; and

(b)    the amount of the franking debit or exempting debit is such amount as is stated in the Commissioner ' s determination, being an amount that:

(i) the Commissioner considers reasonable in the circumstances; and

(ii) does not exceed the amount of the franking debit or exempting debit of the entity arising under item 1 of the table in section 205-30 of the Income Tax Assessment Act 1997 or item 2 of the table in section 208-120 of that Act in respect of the distribution.

Effect of determination that no imputation benefit is to arise

177EA(11)    
If the Commissioner makes a determination under paragraph (5)(b) , the determination has effect according to its terms.

Application of section to non-share dividends

177EA(12)    
This section:

(a)    applies to a non-share equity interest in the same way as it applies to a membership interest; and

(b)    applies to an equity holder in the same way as it applies to a member; and

(c)    applies to a non-share dividend in the same way as it applies to a distribution.

Meaning of interest in membership interests

177EA(13)    
A person has an interest in membership interests if:

(a)    the person has any legal or equitable interest in the membership interests; or

(b)    the person is a partner in a partnership and:

(i) the assets of the partnership include, or will include, the membership interests; or

(ii) the partnership derives, or will derive, income indirectly through interposed companies, trusts or partnerships, from distributions made on the membership interests; or

(c)    the person is a beneficiary of a trust (including a potential beneficiary of a discretionary trust) and:

(i) the membership interests form, or will form, part of the trust estate; or

(ii) the trust derives, or will derive, income indirectly through interposed companies, trusts or partnerships, from distributions made on the membership interests.

Meaning of scheme for a disposition

177EA(14)    
A scheme for a disposition of membership interests or an interest in membership interests includes, but is not limited to, a scheme that involves any of the following:

(a)    issuing the membership interests or creating the interest in membership interests;

(b)    entering into any contract, arrangement, transaction or dealing that changes or otherwise affects the legal or equitable ownership of the membership interests or interest in membership interests;

(c)    creating, varying or revoking a trust in relation to the membership interests or interest in membership interests;

(d)    creating, altering or extinguishing a right, power or liability attaching to, or otherwise relating to, the membership interests or interest in membership interests;

(e)    substantially altering any of the risks of loss, or opportunities for profit or gain, involved in holding or owning the membership interests or having the interest in membership interests;

(f)    the membership interests or interest in membership interests beginning to be included, or ceasing to be included, in any of the insurance funds of a life assurance company.

177EA(15)    

In determining whether a distribution flows indirectly to a person, assume that the following provisions of the Income Tax Assessment Act 1997 had not been enacted:

(a)    

section 295-385 (about income from assets set aside to meet current pension liabilities), section 295-390 (about income from other assets used to meet current pension liabilities) and 295-400 (about income of a PST attributable to current pension liabilities); or

(b)    

paragraph 320-37(1)(a) (about segregated exempt assets) or paragraph 320-37(1)(d) (about income bonds, funeral policies and scholarship plans).

When imputation benefit is received

177EA(16)    

A taxpayer to whom a distribution flows indirectly receives an imputation benefit as a result of the distribution if:

(a)    the taxpayer is entitled to a tax offset under Division 207 of the Income Tax Assessment Act 1997 as a result of the distribution; or

(b)    where the taxpayer is a corporate tax entity - a franking credit would arise in the franking account of the taxpayer as a result of the distribution.

Note:

Where the distribution is made directly to the taxpayer, see subsection 204-30(6) of the Income Tax Assessment Act 1997 for a definition of imputation benefit .

Meaning of relevant circumstances of scheme

177EA(17)    
The relevant circumstances of a scheme include the following:

(a)    the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding membership interests, or having interests in membership interests, in the corporate tax entity that are respectively borne by or accrue to the parties to the scheme, and whether there has been any change in those risks and opportunities for the relevant taxpayer or any other party to the scheme (for example, a change resulting from the making of any contract, the granting of any option or the entering into of any arrangement with respect to any membership interests, or interests in membership interests, in the corporate tax entity);

(b)    whether the relevant taxpayer would, in the year of income in which the distribution is made, or if the distribution flows indirectly to the relevant taxpayer, in the year in which the distribution flows indirectly to the relevant taxpayer, derive a greater benefit from franking credits than other entities who hold membership interests, or have interests in membership interests, in the corporate tax entity;

(c)    whether, apart from the scheme, the corporate tax entity would have retained the franking credits or exempting credits or would have used the franking credits or exempting credits to pay a franked distribution to another entity referred to in paragraph (b) ;

(d)    whether, apart from the scheme, a franked distribution would have flowed indirectly to another entity referred to in paragraph (b) ;

(e)    if the scheme involves the issue of a non-share equity interest to which section 215-10 of the Income Tax Assessment Act 1997 applies - whether the corporate tax entity has issued, or is likely to issue, equity interests in the corporate tax entity:

(i) that are similar, from a commercial point of view, to the non-share equity interest; and

(ii) distributions in respect of which are frankable;

(f)    whether any consideration paid or given by or on behalf of, or received by or on behalf of, the relevant taxpayer in connection with the scheme (for example, the amount of any interest on a loan) was calculated by reference to the imputation benefits to be received by the relevant taxpayer;

(g)    whether a deduction is allowable or a capital loss is incurred in connection with a distribution that is made or that flows indirectly under the scheme;

(ga)    

whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is sourced, directly or indirectly, from unrealised or untaxed profits;

(h)    whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is equivalent to the receipt by the relevant taxpayer of interest or of an amount in the nature of, or similar to, interest;

(i)    the period for which the relevant taxpayer held membership interests, or had an interest in membership interests, in the corporate tax entity;

(j)    

any of the matters referred to in subsection 177D(2) .

Meaning ofgreater benefit from franking credits

177EA(18)    
The following subsection lists some of the cases in which a taxpayer to whom a distribution flows indirectly receives a greater benefit from franking credits than an entity referred to in paragraph (17)(b) . It is not an exhaustive list.

177EA(19)    

A taxpayer to whom a distribution flows indirectly receives a greater benefit from franking credits than an entity referred to in paragraph (17)(b) if any of the following circumstances exist in relation to that entity in the year of income in which the distribution giving rise to the benefit is made, and not in relation to the taxpayer if:

(a)    the entity is not an Australian resident; or

(b)    the entity would not be entitled to any tax offset under Division 207 of the Income Tax Assessment Act 1997 because of the distribution; or

(c)    

the amount of income tax that would be payable by the entity because of the distribution is less than the tax offset to which the entity would be entitled; or

(d)    the entity is a corporate tax entity at the time the distribution is made, but no franking credit arises for the entity as a result of the distribution; or

(e)    the entity is a corporate tax entity at the time the distribution is made, but cannot use franking credits received on the distribution to frank distributions to its own members because:

(i) it is not a franking entity; or

(ii) it is unable to make frankable distributions.

Note:

Where the distribution is made directly to the taxpayer, see subsections 204-30(7) , (8) , (9) and (10) of the Income Tax Assessment Act 1997 for a list of circumstances in which the taxpayer will be treated as deriving a greater benefit from franking credits than another entity.

SECTION 177EB   CANCELLATION OF FRANKING CREDITS - CONSOLIDATED GROUPS  

177EB(1)   Expressions to have same meanings as in section 177EA and Income Tax Assessment Act 1997.  

Unless the contrary intention appears, expressions used in this section:

(a) if those expressions are defined in section 177EA - have the same meanings as in that section (subject to subsection (10) of this section); and

(b) otherwise - have the same meanings as in the Income Tax Assessment Act 1997 .

177EB(2)   This section andsection 177EA do not limit each other.  

This section does not limit the operation of section 177EA , and section 177EA does not limit the operation of this section.

177EB(3)   Application of section.  

This section applies if:

(a) there is a scheme for a disposition of membership interests in an entity (the joining entity ); and

(b) as a result of the disposition, the joining entity becomes a subsidiary member of a consolidated group; and

(c) a credit arises in the franking account of the head company of the group because of the joining entity becoming a subsidiary member of the group; and

(d) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the credit referred to in paragraph (c) to arise in the head company ' s franking account.

177EB(4)   Bare acquisition of membership interests.  

It is not to be concluded for the purposes of paragraph (3)(d) that a person entered into or carried out a scheme for a purpose mentioned in that paragraph merely because the person acquired membership interests in the joining entity.

177EB(5)   Commissioner to determine no franking credit.  

The Commissioner may make, in writing, a determination that no credit is to arise in the head company ' s franking account because of the joining entity becoming a subsidiary member of the consolidated group. A determination does not form part of an assessment.

177EB(6)   Effect of determination.  

A determination under subsection (5) has effect according to its terms.

177EB(7)   Notice of determination.  

If the Commissioner makes a determination under subsection (5), the Commissioner must serve notice in writing of the determination on the head company.

177EB(8)    
(Repealed by No 2 of 2015)

177EB(9)   Objections.  

If a taxpayer to whom a determination relates is dissatisfied with the determination, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 .

177EB(10)   Relevant circumstances.  

The relevant circumstances of a scheme include the following:

(a) the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding membership interests in the joining entity that are respectively borne by or accrue to the parties to the scheme, and whether there has been any change in those risks and opportunities for the head company or any other party to the scheme (for example, a change resulting from the making of any contract, the granting of any option or the entering into of any arrangement with respect to any membership interests in the joining entity);

(b) whether the head company, or a person holding membership interests in the head company, would, in the year of income in which the joining entity became a subsidiary member of the group or any later year of income, derive a greater benefit from franking credits than other persons who held membership interests in the joining entity immediately before it became a subsidiary member of the group;

(c) the extent (if any) to which the joining entity was able to pay a franked dividend or distribution immediately before it became a subsidiary member of the group;

(d) whether any consideration paid or given by or on behalf of, or received by or on behalf of, the head company in connection with the scheme (for example, the amount of any interest on a loan) was calculated by reference to the franking credit benefits to be received by the head company;

(e) the period for which the head company held membership interests in the joining entity;

(f) any of the matters referred to in subsection 177D(2).

177EB(11)   Section to apply to exempting credits.  

This section applies to exempting credits arising in the exempting account of the head company of a consolidated group in the same way that it applies to credits arising in the head company ' s franking account.

SECTION 177F   CANCELLATION OF TAX BENEFITS ETC.  

177F(1)    

Where this Part applies to a scheme in connection with which a tax benefit has been obtained, or would but for this section be obtained, the Commissioner may:

(a)    in the case of a tax benefit that is referable to an amount not being included in the assessable income of the taxpayer of a year of income - determine that the whole or a part of that amount shall be included in the assessable income of the taxpayer of that year of income; or

(b)    

in the case of a tax benefit that is referable to a deduction or a part of a deduction being allowable to the taxpayer in relation to a year of income - determine that the whole or a part of the deduction or of the part of the deduction, as the case may be, shall not be allowable to the taxpayer in relation to that year of income; or

(c)    

in the case of a tax benefit that is referable to a capital loss or a part of a capital loss being incurred by the taxpayer during a year of income - determine that the whole or a part of the capital loss or of the part of the capital loss, as the case may be, was not incurred by the taxpayer during that year of income; or

(ca)    

in the case of a tax benefit that is referable to a loss carry back tax offset, or a part of a loss carry back tax offset, being allowable to the taxpayer - determine that the whole or a part of the loss carry back tax offset, or the part of the loss carry back tax offset, as the case may be, is not to be allowable to the taxpayer; or

(d)    

in the case of a tax benefit that is referable to a foreign income tax offset, or a part of a foreign income tax offset, being allowable to the taxpayer - determine that the whole or a part of the foreign income tax offset, or the part of the foreign income tax offset, as the case may be, is not to be allowable to the taxpayer; or

(da)    

in the case of a tax benefit that is referable to an innovation tax offset, or a part of an innovation tax offset, being allowable to the taxpayer - determine that the whole or a part of the innovation tax offset, or the part of the innovation tax offset, as the case may be, is not to be allowable to the taxpayer; or

(e)    

in the case of a tax benefit that is referable to an exploration credit, or a part of an exploration credit, being issued to the taxpayer - determine that:

(i) the whole or a part of a junior minerals exploration incentive tax offset that would otherwise be allowable to the taxpayer in relation to the exploration credit, or the part of the exploration credit, as the case may be, is not to be allowable to the taxpayer; or

(ii) the whole or a part of a franking credit that would otherwise arise in the franking account of the taxpayer in relation to the exploration credit, or the part of the exploration credit, as the case may be, is not to arise in the franking account of the taxpayer; or

(f)    

in the case of a tax benefit that is referable to:

(i) a refundable R & D tax offset; or

(ii) a non-refundable R & D tax offset; or

(iii) a part of a refundable R & D tax offset; or

(iv) a part of a non-refundable R & D tax offset;

being allowable to the taxpayer in relation to a year of income - determine that the whole or a part of the offset, or the part of the offset, as the case may be, is not to be allowable to the taxpayer in relation to that year of income;

and, where the Commissioner makes such a determination, he or she shall take such action as he or she considers necessary to give effect to that determination.

177F(2)    
Where the Commissioner determines under paragraph (1)(a) that an amount is to be included in the assessable income of a taxpayer of a year of income, that amount shall be deemed to be included in that assessable income by virtue of such provision of this Act as the Commissioner determines.

177F(2A)    

Where a tax benefit that is covered by paragraph 177C(1)(bc) has been obtained, or would but for this section be obtained, by a taxpayer in connection with a scheme to which this Part applies:

(a)    the Commissioner may determine that the taxpayer is subject to withholding tax under section 128B on the whole or a part of that amount; and

(b)    if the Commissioner makes such a determination, he or she must take such action as he or she considers necessary to give effect to that determination.

177F(2B)    

A determination under paragraph (1)(c) or subsection (2A) must be in writing.

177F(2C)    

Notice of the determination must be given to the taxpayer and, in the case of a determination under subsection (2A) , to the person who paid the amount.

177F(2D)    
(Repealed by No 81 of 2016)

177F(2E)    

A failure to comply with subsection (2C) does not affect the validity of a determination.

177F(2F)    

If the Commissioner makes a determination under subsection (2A) , the amount that the Commissioner determines is taken to be subject to withholding tax is taken to have been subject to withholding tax at all times by virtue of such provision of section 128B as the Commissioner determines.

177F(2G)    

If the taxpayer is dissatisfied with a determination under paragraph (1)(c) or subsection (2A) , the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 .

177F(3)    

Where the Commissioner has made a determination under subsection (1) or (2A) in respect of a taxpayer in relation to a scheme to which this Part applies, or the Commissioner has made a DPT assessment in respect of a taxpayer in relation to a scheme to which this Part applies, the Commissioner may, in relation to any taxpayer (in this subsection referred to as the relevant taxpayer ):

(a)    if, in the opinion of the Commissioner:

(i) there has been included, or would but for this subsection be included, in the assessable income of the relevant taxpayer of a year of income an amount that would not have been included or would not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income if the scheme had not been entered into or carried out; and

(ii) it is fair and reasonable that that amount or a part of that amount should not be included in the assessable income of the relevant taxpayer of that year of income;

determine that that amount or that part of that amount, as the case may be, should not have been included or shall not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income; or

(b)    

if, in the opinion of the Commissioner:

(i) an amount would have been allowed or would be allowable to the relevant taxpayer as a deduction in relation to a year of income if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, but for this subsection, be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income; and

(ii) it is fair and reasonable that that amount or a part of that amount should be allowable as a deduction to the relevant taxpayer in relation to that year of income;

determine that that amount or that part, as the case may be, should have been allowed or shall be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income; or

(c)    

if, in the opinion of the Commissioner:

(i) a capital loss would have been incurred by the relevant taxpayer during a year of income if the scheme had not been entered into or carried out, being a capital loss that was not incurred or would not, but for this subsection, be incurred, as the case may be, by the relevant taxpayer during that year of income; and

(ii) it is fair and reasonable that the capital loss or a part of that capital loss should be incurred by the relevant taxpayer during that year of income;

determine that the capital loss or the part, as the case may be, should be incurred by the relevant taxpayer during that year of income; or

(ca)    

if, in the opinion of the Commissioner:

(i) an amount would have been allowed, or would be allowable, to the relevant taxpayer as a loss carry back tax offset if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, apart from this subsection, be allowable, as the case may be, as a loss carry back tax offset to the relevant taxpayer; and

(ii) it is fair and reasonable that the amount, or a part of the amount, should be allowable as a loss carry back tax offset to the relevant taxpayer;

determine that that amount or that part, as the case may be, should have been allowed or is allowable, as the case may be, as a loss carry back tax offset to the relevant taxpayer; or

(d)    

if, in the opinion of the Commissioner:

(i) an amount would have been allowed, or would be allowable, to the relevant taxpayer as a foreign income tax offset if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, apart from this subsection, be allowable, as the case may be, as a foreign income tax offset to the relevant taxpayer; and

(ii) it is fair and reasonable that the amount, or a part of the amount, should be allowable as a foreign income tax offset to the relevant taxpayer;

determine that that amount or that part, as the case may be, should have been allowed or is allowable, as the case may be, as a foreign income tax offset to the relevant taxpayer; or

(da)    

if, in the opinion of the Commissioner:

(i) an amount would have been allowed, or would be allowable, to the relevant taxpayer as an innovation tax offset if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, apart from this subsection, be allowable, as the case may be, as an innovation tax offset to the relevant taxpayer; and

(ii) it is fair and reasonable that the amount, or a part of the amount, should be allowable as an innovation tax offset to the relevant taxpayer;

determine that that amount or that part, as the case may be, should have been allowed or is allowable, as the case may be, as an innovation tax offset to the relevant taxpayer; or

(e)    

if, in the opinion of the Commissioner:

(i) an amount would have been allowed, or would be allowable, to the relevant taxpayer as a junior minerals exploration incentive tax offset if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, apart from this subsection, be allowable, as the case may be, as a junior minerals exploration incentive tax offset to the relevant taxpayer; and

(ii) it is fair and reasonable that the amount, or a part of the amount, should be allowable as a junior minerals exploration incentive tax offset to the relevant taxpayer;

determine that that amount or that part, as the case may be, should have been allowed or is allowable, as the case may be, as an exploration development incentive tax offset to the relevant taxpayer; or

(f)    

if, in the opinion of the Commissioner:

(i) an amount of a franking credit would have arisen, or would arise, in the franking account of the relevant taxpayer in relation to an exploration credit, being an amount that did not arise, or would not, apart from this subsection, have arisen, as the case may be, in the franking account of the relevant taxpayer in relation to the exploration credit; and

(ii) it is fair and reasonable that the amount, or a part of the amount, should arise, in the franking account of the relevant taxpayer in relation to the exploration credit;

determine that that amount or that part, as the case may be, should have arisen, or arises, as the case may be, in the franking account of the relevant taxpayer in relation to the exploration credit; or

(g)    

if, in the opinion of the Commissioner:

(i) an amount would have been allowed, or would be allowable, to the relevant taxpayer as a refundable R & D tax offset, or a non-refundable R & D tax offset, in relation to a year of income if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, apart from this subsection, be allowable, as the case may be, as a refundable R & D tax offset, or a non-refundable R & D tax offset, as the case may be, to the relevant taxpayer in relation to that year of income; and

(ii) it is fair and reasonable that the amount, or a part of the amount, should be allowable as a refundable R & D tax offset, or a non-refundable R & D tax offset, as the case may be, to the relevant taxpayer;

determine that that amount or that part, as the case may be, should have been allowed or is allowable, as the case may be, as a refundable R & D tax offset, or a non-refundable R & D tax offset, as the case may be, to the relevant taxpayer in relation to that year of income;

and the Commissioner shall take such action as he or she considers necessary to give effect to any such determination.

177F(4)    
Where the Commissioner makes a determination under subsection (3) by virtue of which an amount is allowed as a deduction to a taxpayer in relation to a year of income, that amount shall be deemed to be so allowed as a deduction by virtue of such provision of this Act as the Commissioner determines.

177F(5)    
Where, at any time, a taxpayer considers that the Commissioner ought to make a determination under subsection (3) in relation to the taxpayer in relation to a year of income, the taxpayer may post to or lodge with the Commissioner a request in writing for the making by the Commissioner of a determination under that subsection.

177F(5A)    

Subsection (5B) applies if the taxpayer considers that the Commissioner ought to make the determination under subsection (3) because the Commissioner has made a DPT assessment in respect of a taxpayer in relation to a scheme to which this Part applies.

177F(5B)    

Despite subsection (5) , the request may be posted to or lodged with the Commissioner only after the end of the period of review (within the meaning of section 145-15 in Schedule 1 to the Taxation Administration Act 1953 ) for the DPT assessment.

177F(6)    

The Commissioner shall consider the request and serve on the taxpayer, by post or otherwise, a written notice of the Commissioner ' s decision on the request.

177F(7)    

If the taxpayer is dissatisfied with the Commissioner ' s decision on the request, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 .

177F(8)    
(Omitted by No 216 of 1991)

SECTION 177G  

177G   AMENDMENT OF ASSESSMENTS  

Nothing in section 170 prevents the amendment of an assessment at any time if the amendment is for the purpose of giving effect to subsection 177F(3) .

SECTION 177H   DIVERTED PROFITS TAX - OBJECTS  

177H(1)    
The primary objects of the DPT provisions are:

(a) to ensure that the Australian tax payable by significant global entities properly reflects the economic substance of the activities that those entities carry on in Australia; and

(b) to prevent those entities from reducing the amount of Australian tax they pay by diverting profits offshore through contrived arrangements between related parties.

177H(2)    
In addition, the DPT provisions (in combination with Division 145 in Schedule 1 to the Taxation Administration Act 1953 ) have the object of encouraging significant global entities to provide sufficient information to the Commissioner to allow for the timely resolution of disputes about Australian tax.

SECTION 177J   DIVERTED PROFITS TAX - APPLICATION  

Scheme for a purpose including obtaining a tax benefit etc.

177J(1)    
This Part also applies to a scheme, in relation to a tax benefit (the DPT tax benefit ) if:

(a) a taxpayer (a relevant taxpayer ) has obtained, or would but for section 177F obtain, the DPT tax benefit in connection with the scheme, in a year of income; and

(b) it would be concluded (having regard to the matters in subsection (2)) that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a principal purpose of, or for more than one principal purpose that includes a purpose of:

(i) enabling the relevant taxpayer to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of the relevant taxpayer ' s liabilities to tax under a foreign law, in connection with the scheme; or

(ii) enabling the relevant taxpayer and another taxpayer (or other taxpayers) each to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of their liabilities to tax under a foreign law, in connection with the scheme;

whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers; and

(c) the relevant taxpayer is a significant global entity for the year of income mentioned in paragraph (a); and

(d) a foreign entity is an associate (within the meaning of section 318 ) of the relevant taxpayer at any time in the year of income mentioned in paragraph (a); and

(e) that foreign entity:

(i) is the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme; or

(ii) is otherwise connected with the scheme or any part of the scheme; and

(f) the relevant taxpayer is not any of the following:

(i) a managed investment trust (within the meaning of the Income Tax Assessment Act 1997 );

(ii) an entity covered by paragraph 275-20(4)(f) of that Act (foreign collective investment vehicle with a wide membership);

(iii) an entity covered by paragraph 275-20(4)(h) of that Act (entity owned by foreign government etc.) that is a foreign entity;

(iv) a complying superannuation entity (within the meaning of that Act);

(v) a foreign pension fund (within the meaning of that Act); and

(g) it is reasonable to conclude that none of the following sections apply in relation to the relevant taxpayer, in relation to the DPT tax benefit:

(i) section 177K ($25 million income test);

(ii) section 177L (sufficient foreign tax test);

(iii) section 177M (sufficient economic substance test).

Have regard to certain matters

177J(2)    
For the purposes of paragraph (1)(b), have regard to the following matters:

(a) the matters in subsection 177D(2) ;

(b) without limiting subsection 177D(2) , the extent to which non-tax financial benefits that are quantifiable have resulted, will result, or may reasonably be expected to result, from the scheme;

(c) the result, in relation to the operation of any foreign law relating to taxation, that (but for this Part) would be achieved by the scheme;

(d) the amount of the tax benefit mentioned in paragraph (1)(b).

Deferral of foreign tax liabilities

177J(3)    
For the purposes of paragraph (1)(b), a deferral of a taxpayer ' s liabilities to tax under a foreign law is taken to be a reduction of those liabilities, unless there are reasonable commercial grounds for the deferral.

Modification where thin capitalisation provisions apply

177J(4)    
Subsection (5) applies if:

(a) Division 820 of the Income Tax Assessment Act 1997 (about thin capitalisation) applies to the relevant taxpayer for the year of income mentioned in paragraph (1)(a); and

(b) the DPT tax benefit includes all or part of a debt deduction (within the meaning of that Act); and

(c) the calculation of the amount of the DPT tax benefit involves applying a rate to a debt interest (within the meaning of that Act).

177J(5)    
For the purposes of the DPT provisions, in calculating the amount of the DPT tax benefit, apply the rate to the debt interest the entity actually issued (rather than the debt interest that would have existed if the scheme had not been entered into or carried out).

Modification where foreign entity is CFC

177J(6)    
Subsection (6A) applies if:

(a) the foreign entity mentioned in paragraph (1)(d) is a CFC (within the meaning of Part X ); and

(b) an amount of attributable income (within the meaning of that Part) of the foreign entity has been included as a result of the operation of that Part in the assessable income of:

(i) the relevant taxpayer; or

(ii) an associate (within the meaning given by section 318 ) of the relevant taxpayer, if the associate is a Part X Australian resident (within the meaning of that Part) and is not a trust or partnership.

177J(6A)    
For the purposes of the DPT provisions, reduce the DPT tax benefit to the extent to which the amount included in assessable income as mentioned in paragraph (6)(b):

(a) would not have been so included if the scheme had not been entered into or carried out; and

(b) is directly referable to the DPT tax benefit.

Schemes outside Australia

177J(7)    
This section applies whether or not the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

Non-limitation in relation to other provisions in this Part

177J(8)    
This section:

(a) does not limit section 177D , 177DA , 177E , 177EA or 177EB ; and

(b) is not limited by those sections.

SECTION 177K   DIVERTED PROFITS TAX - $25 MILLION INCOME TEST  

177K(1)    
This section applies in relation to the relevant taxpayer, in relation to the DPT tax benefit, if the sum of the following does not exceed $25 million:

(a) the assessable income of the relevant taxpayer for the year of income mentioned in paragraph 177J(1)(a) ;

(b) the exempt income of the relevant taxpayer for that year of income;

(c) the non-assessable non-exempt income of the relevant taxpayer for that year of income;

(d) the assessable income of each entity covered by subsection (2) for that year of income;

(e) if the DPT tax benefit is a tax benefit mentioned in paragraph 177C(1)(a) - the amount of the DPT tax benefit.

177K(2)    
An entity is covered by this subsection if for the year of income mentioned in paragraph 177J(1)(a) :

(a) the entity is an associate (within the meaning given by section 318 ) of the relevant taxpayer; and

(b) both the entity and the relevant taxpayer:

(i) are members of the same global group; and

(ii) are significant global entities because they are members of that group.

SECTION 177L   DIVERTED PROFITS TAX - SUFFICIENT FOREIGN TAX TEST  

177L(1)    
This section applies in relation to the relevant taxpayer, in relation to the DPT tax benefit, if the amount worked out under subsection (2) (foreign tax liability) equals or exceeds 80% of the amount worked out under subsection (6) (reduced Australian tax liability).

Foreign tax liability

177L(2)    
The amount is the total of the increases in liability for foreign income tax (within the meaning of the Income Tax Assessment Act 1997 ) of each entity covered by subsection (5) that results, will result, or may reasonably be expected to result, from the scheme during a foreign tax period that corresponds to the year of income mentioned in paragraph 177J(1)(a) .

177L(3)    
The regulations may provide for a method of working out increases in foreign tax liability for the purposes of subsection (2):

(a) for all situations; or

(b) for specified situations.

177L(4)    
If the regulations provide for such a method, apply that method in working out increases in foreign tax liability for the purposes of subsection (2) in relevant situations.

177L(5)    
An entity is covered by this subsection if:

(a) the entity is a foreign entity; and

(b) the entity is the relevant taxpayer or an associate (within the meaning given by section 318 ) of the relevant taxpayer; and

(c) the entity:

(i) is the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme; or

(ii) is otherwise connected with the scheme or any part of the scheme.

Reduced Australian tax liability

177L(6)    
The amount is:

(a) if the DPT tax benefit is a tax benefit mentioned in paragraph 177C(1)(a) , (b), (ba) or (bc) - the amount of the tax benefit multiplied by the standard corporate tax rate; or

(b) otherwise - the amount of the DPT tax benefit.

177L(7)    
If the relevant taxpayer must withhold an amount in respect of withholding tax as a result of the tax benefit, reduce the amount worked out under subsection (6) by the amount withheld.

SECTION 177M   DIVERTED PROFITS TAX - SUFFICIENT ECONOMIC SUBSTANCE TEST  

177M(1)    
This section applies in relation to the relevant taxpayer, in relation to the DPT tax benefit, if the profit made as a result of the scheme by each entity covered by subsection (2) reasonably reflects the economic substance of the entity ' s activities in connection with the scheme.

177M(2)    
This subsection covers an entity if:

(a) the entity is the relevant taxpayer or an associate (within the meaning given by section 318 ) of the relevant taxpayer; and

(b) any of the following apply:

(i) the entity entered into or carried out the scheme or any part of the scheme;

(ii) the entity is otherwise connected with the scheme or any part of the scheme.

177M(3)    
However, subsection (2) does not cover an entity if the entity ' s role in the scheme is minor or ancillary.

177M(4)    
In determining whether the profit made as a result of the scheme by an entity reasonably reflects the economic substance of the entity ' s activities in connection with the scheme, have regard to:

(a) the functions that the entity performs in connection with the scheme, taking into account assets used and risks assumed by the entity in connection with the scheme; and

(b) the documents covered by section 815-135 of the Income Tax Assessment Act 1997 , to the extent that they are relevant to the matters mentioned in paragraph (a) or to any other aspect of the determination; and

(c) any other relevant matters.

SECTION 177N  

177N   DIVERTED PROFITS TAX - CONSEQUENCES  

If this Part applies to a scheme because of section 177J :

(a) section 177P applies to the relevant taxpayer mentioned in section 177J ; and

(b) the Commissioner cannot make a determination under subsection 177F(1) or (2A) in relation to the scheme merely because of section 177J .

SECTION 177P   DIVERTED PROFITS TAX - LIABILITY  

177P(1)    
The relevant taxpayer is liable to pay tax at the rate declared by the Parliament on:

(a) if this Part applies to a scheme in respect of the relevant taxpayer for the year of income mentioned in paragraph 177J(1)(a) , in relation to one DPT tax benefit - the DPT base amount for that DPT tax benefit; or

(b) if this Part applies to a scheme in respect of the relevant taxpayer for the year of income mentioned in paragraph 177J(1)(a) , in relation to more than one DPT tax benefit - the sum of the DPT base amounts for those DPT tax benefits.

Note:

The tax is imposed by the Diverted Profits Tax Act 2017 and the rate of the tax is set out in that Act.

177P(2)    
The DPT base amount for a DPT tax benefit is:

(a) if the DPT tax benefit is a tax benefit mentioned in paragraph 177C(1)(a) , (b), (ba) or (bc) - the amount of the DPT tax benefit; or

(b) otherwise - the amount of the DPT tax benefit divided by the standard corporate tax rate.

177P(3)    
The tax is due and payable at the end of 21 days after the Commissioner gives the relevant taxpayer notice of the assessment of the amount of the tax for the year of income mentioned in paragraph 177J(1)(a) .

Note:

For assessments of the amount of the tax see Divisions 145 and 155 in Schedule 1 to the Taxation Administration Act 1953 .

SECTION 177Q  

177Q   DIVERTED PROFITS TAX - GENERAL INTEREST CHARGE ON UNPAID DIVERTED PROFITS TAX OR SHORTFALL INTEREST CHARGE  

If an amount of diverted profits tax or shortfall interest charge that an entity is liable to pay remains unpaid after the time by which it is due to be paid, the entity is liable to pay the general interest charge on the unpaid amount for each day in the period that:

(a) starts at the beginning of the day by which the amount was due to be paid; and

(b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

(i) the diverted profits tax or shortfall interest charge;

(ii) general interest charge on any of the diverted profits tax or shortfall interest charge.

Note:

The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953 .

SECTION 177R  

177R   DIVERTED PROFITS TAX - WHEN SHORTFALL INTEREST CHARGE IS PAYABLE  

An amount of shortfall interest charge that an entity is liable to pay under section 280-102C in Schedule 1 to the Taxation Administration Act 1953 is due and payable 21 days after the day on which the Commissioner gives the entity notice of the charge.