Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 764 - Source rules  

Guide to Division 764  

SECTION 764-1   What this Division is about  

Subdivision 764-A - Source rules  

SECTION 764-5   Source rule for international tax agreements  

764-5(1)    
For the purposes of this Act, income, profits or gains have a source in Australia if:

(a) for the purposes of an *international tax agreement, the income, profits or gains are those of a person who is a resident of a foreign country or foreign territory; and

(b) the effect of the agreement is that the income, profits or gains may be taxed in Australia.

764-5(2)    
Subsection (1) applies in relation to *international tax agreements made on or after 28 March 2019.

Note:

An international tax agreement not covered by this section may be subject to specific source rules contained in the International Tax Agreements Act 1953 or in the international tax agreement itself.

764-5(3)    
This section has effect despite any other provision of this Act (other than Part IVA of the Income Tax Assessment Act 1936 ).

Division 768 - Foreign non-assessable income and gains  

Subdivision 768-A - Returns on foreign investment  

SECTION 768-1   What this Subdivision is about  

Foreign equity distributions on participation interests

SECTION 768-5   Foreign equity distributions on participation interests  

Foreign equity distributions received directly

768-5(1)    
A *foreign equity distribution is not assessable income, and is not *exempt income, of the entity to which it is made if:

(a) the entity is an Australian resident and a *corporate tax entity; and

(b) at the time the distribution is made, the entity satisfies the participation test in section 768-15 in relation to the company that made the distribution; and

(c) the entity:

(i) does not receive the distribution in the capacity of a trustee; or

(ii) receives the distribution in the capacity of a trustee of a *public trading trust; and

(d) the distribution is not one to which section 768-7 (which is about foreign income tax deductions) applies.

Foreign equity distributions received through interposed trusts and partnerships

768-5(2)    
An amount is not assessable income, and is not *exempt income, of an entity if:

(a) the entity is a beneficiary of a trust or a partner in a partnership, an Australian resident and a *corporate tax entity; and

(b) the amount is all or part of the *net income of the trust or partnership that would, apart from this subsection, be included in the entity ' s assessable income because of:

(i) Division 276 ; or

(ii) Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 ; and

(c) the amount can be attributed (either directly or indirectly through one or more interposed trusts or partnerships that are not *corporate tax entities) to a *foreign equity distribution; and

(d) at the time the distribution is made, the entity satisfies the participation test in section 768-15 in relation to the company that made the distribution; and

(e) the entity:

(i) does not receive the distribution in the capacity of a trustee; or

(ii) receives the distribution in the capacity of a trustee of a *public trading trust; and

(f) the distribution is not one to which section 768-7 (which is about foreign income tax deductions) applies.

768-5(3)    
An amount that is *non-assessable non-exempt income under subsection (2) is taken, for the purpose of section 25-90 (about deductions relating to foreign non-assessable non-exempt income) to be derived from the same source as the *foreign equity distribution.

SECTION 768-7   Foreign equity distributions entitled to a foreign income tax deduction  

768-7(1)    
This section applies to a *foreign equity distribution if:

(a) all or part of the distribution gives rise to a *foreign income tax deduction; and

(b) the exception in subsection (2) does not apply to the distribution.

Exception for foreign corporate collective investment vehicles

768-7(2)    
This subsection applies to a *foreign equity distribution if:

(a) the *foreign income tax deduction arises because the company that made the distribution is recognised under the law of the foreign country in which the deduction arises as being used for collective investment; and

(b) *foreign income tax or a withholding-type tax was payable in respect of the distribution.

SECTION 768-10  

768-10   Meaning of foreign equity distribution  

A foreign equity distribution is a *distribution or *non-share dividend made by a company that is not a Part X Australian resident (within the meaning of Part X of the Income Tax Assessment Act 1936 ) in respect of an *equity interest in the company.

SECTION 768-15  

768-15   Participation test - minimum 10% participation  

An entity satisfies the participation test in this section in relation to another entity at a time if, at that time, the sum of the following is at least 10%:

(a) the *direct participation interest the entity would have in the other entity if rights on winding-up were disregarded;

(b) the *indirect participation interest the entity would have in the other entity if:

(i)rights on winding-up were disregarded; and

(ii) section 960-185 only applied to intermediate entities that are not *corporate tax entities.

Subdivision 768-B - Some items of income that are exempt from income tax  

SECTION 768-100   Foreign government officials in Australia  

768-100(1)    
The amounts of ^* ordinary income and ^* statutory income covered by the table are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both.

Note 1:

Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20 . The note to subsection 6-15(2) describes some of the other consequences of it being exempt income.

Note 2:

Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936 .

Exempt amounts
Item	If you are:	the following amounts are exempt from income tax:	subject to these exceptions and special conditions:
1	(a) a representative in Australia of the government of a foreign country; or (b) a member of the official staff of such a representative; and you are neither an Australian citizen nor ordinarily resident in Australia	(a) your official salary; and (b) your *ordinary income, and your *statutory income, from a source outside Australia	(a) no Convention listed in subsection (2) applies to the representative; and (b) the country concerned grants in relation to Australia exemptions from taxes on income that correspond with the exemption in this item
2	(a) an officer of the government of a *Commonwealth of Nations country; and (b) temporarily in Australia to render service on behalf of that country, or an *Australian government agency, in accordance with an *arrangement between the governments of that country and of the Commonwealth or of a State or Territory	(a) your official salary; and (b) your *ordinary income, and your *statutory income, from a source outside Australia	that country exempts from income tax the salaries of officers of the government of the Commonwealth temporarily in that country for similar purposes in accordance with a similar arrangement

768-100(2)    
The Conventions are:

(a) the Vienna Convention on Diplomatic Relations, as having the force of law because of the Diplomatic Privileges and Immunities Act 1967 ;

(b) the Vienna Convention on Consular Relations, as having the force of law because of the Consular Privileges and Immunities Act 1972 .

Note:

Those Conventions have the force of law in Australia because of those Acts and achieve substantially the same effect as item 1 of the table: see Article 34 of the Vienna Convention on Diplomatic Relations and Article 49 of the Vienna Convention on Consular Relations.

SECTION 768-105   Compensation arising out of Second World War  

768-105(1)    
A payment to you is exempt from income tax if:

(a) you are an Australian resident at the time when it would otherwise be included in your assessable income; and

(b) the payment is from a source in a foreign country; and

(c) the payment is in connection with:

(i) any wrong or injury; or

(ii) any loss of, or damage to, property; or

(iii) any other detriment;

suffered by you or another individual as a result of:

(iv) persecution by the National Socialist regime of Germany during the National Socialist period; or

(v) persecution during the Second World War by any other enemy of the Commonwealth or by a regime covered by subsection (3); or

(vi) flight from persecution mentioned in subparagraph (iv) or (v); or

(vii) participation in a resistance movement during the Second World War against forces of the National Socialist regime of Germany or against forces of any other enemy of the Commonwealth; and

(d) the payment is not directly or indirectly from any of your *associates.

Note:

An example of a detriment covered by subparagraph (c)(iii) is if you lost the opportunity to qualify for a pension because your period of contribution was cut short because you had to flee persecution by the National Socialist regime.

Duration of Second World War

768-105(2)    
Subsection (1) applies to:

(a) the period immediately before the Second World War; and

(b) the period immediately after the Second World War;

in the same way as it applies to the period of the Second World War.

Regimes associated with an enemy of the Commonwealth

768-105(3)    
This subsection covers a regime that was:

(a) in alliance with; or

(b) occupied by; or

(c) effectively controlled by; or

(d) under duress from; or

(e) surrounded by;

either or both of the following:

(f) the National Socialist regime of Germany;

(g) any other enemy of the Commonwealth.

Legal personal representative

768-105(4)    
Subsection (1) applies to a payment to:

(a) your *legal personal representative; or

(b) a trust established by your will;

in a corresponding way to the way in which it would have applied if:

(c) the payment had been to you; and

(d) if the payment is made after your death - you were still alive.

SECTION 768-110   Foreign residents deriving income from certain activities in Australia ' s exclusive economic zone or on or above Australia ' s continental shelf  

768-110(1)    
The object of this section is to ensure Australia ' s compliance with certain provisions of the *United Nations Convention on the Law of the Sea.

Note:

The text of the United Nations Convention on the Law of the Sea is in Australian Treaty Series 1994 No. 31 ([1994] ATS 31) and could in 2014 be viewed in the Australian Treaties Library on the AustLII website (http://www.austlii.edu.au).

768-110(2)    
If you are a foreign resident, your *ordinary income and *statutory income is neither assessable income, nor *exempt income, to the extent that:

(a) the income is from an activity carried on in an area that is:

(i) part of Australia ' s exclusive economic zone; or

(ii) part of, or above, Australia ' s continental shelf; and

(b) the activity is specified by regulation to be a prescribed activity for the purpose of this section.

Subdivision 768-G - Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies  

SECTION 768-500   What this Subdivision is about  

Operative provisions

SECTION 768-505   Reducing a capital gain or loss from certain CGT events in relation to certain voting interests  

768-505(1)    

The *capital gain or *capital loss a company (the holding company ) that is an Australian resident makes from a *CGT event that happened at a particular time (the time of the CGT event ) to a *share in a company (the foreign disposal company ) that is a foreign resident is reduced if:

(a) the holding company held a *direct voting percentage of 10% or more in the foreign disposal company throughout a 12 month period that:

(i) began no earlier than 24 months before the time of the CGT event; and

(ii) ended no later than that time; and

(b) the share is not :

(i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936 ); or

(ii) a widely distributed finance share (within the meaning of that Part); and

(c) the CGT event is CGT event A1, B1, C2, E1, E2, G3, J1, K4, K6, K10 or K11.

768-505(2)    
The gain or loss is reduced by the *active foreign business asset percentage (see sections 768-510 , 768-530 and 768-535 ) of the foreign disposal company in relation to the holding company at the time of the CGT event.

Active foreign business asset percentage

SECTION 768-510   Active foreign business asset percentage  

768-510(1)    
The active foreign business asset percentage of a company (the foreign company ) that is a foreign resident, in relation to the holding company mentioned in section 768-505 , at the time of the CGT event mentioned in that section, is worked out in accordance with this section.

Market value method

768-510(2)    
Work out that percentage under section 768-520 if:

(a) the holding company has made a choice under subsection 768-515(1) in relation to the foreign company for that time; and

(b) there is sufficient evidence of the *market value at that time of:

(i) all *assets included in the total assets of the foreign company at that time; and

(ii) all *active foreign business assets of the foreign company at that time.

Book value method

768-510(3)    
Work out that percentage under section 768-525 if:

(a) the holding company has made a choice under subsection 768-515(2) in relation to the foreign company for that time; and

(b) there are *recognised company accounts of the foreign company for a period that ends no later than that time, but no more than 12 months before that time; and

(c) if the foreign company was in existence before the start of the period mentioned in paragraph (b) - there are recognised company accounts of the foreign company for a period that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in paragraph (b).

Default method

768-510(4)    
Otherwise, that percentage is:

(a) 100% (if this section is being applied for the purposes of section 768-505 to reduce a *capital loss of the holding company); or

(b) zero (in any other case).

SECTION 768-515   Choices to apply market value method or book value method  

Choice for market value method

768-515(1)    
The holding company may choose to work out the *active foreign business asset percentage of the foreign company for the time of the CGT event under section 768-520 .

Choice for book value method

768-515(2)    
The holding company may choose to work out the *active foreign business asset percentage of the foreign company for the time of the CGT event under section 768-525 .

Method of making choice

768-515(3)    
The way an entity making a choice under subsection (1) or (2) prepares its *income tax return is sufficient evidence of the making of the choice.

Note:

If an entity does not make a choice under subsection (1) or (2), it will work out the active foreign business asset percentage of the foreign company in accordance with the default method in subsection 768-510(4) .

SECTION 768-520   Market value method - choice made under subsection 768-515(1)  

768-520(1)    
The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way. Method statement

Note 1:

If the foreign company is a foreign life insurance company or a foreign general insurance company, the result of step 2 is modified under section 768-530 .

Note 2:

If the foreign company is a member of a wholly-owned group, section 768-535 may modify the way in which this section operates.

768-520(2)    
If, at the time of the CGT event:

(a) an *active foreign business asset of the foreign company is a *share in another company (the subsidiary company ); and

(b) the subsidiary company is a foreign resident;

then, in working out the *market value of all *active foreign business assets of the foreign company at that time for the purposes of step2 of the method statement in subsection (1), treat the *market value of the share at that time according to the following table.

Market value of a share in subsidiary company
Item	If:	treat the market value of the share as:
1	(a) the foreign company has a *direct voting percentage of 10% or more in the subsidiary company at that time; and (b) the holding company has a *total voting percentage of 10% or more in the subsidiary company at that time	the *share ' s *market value at that time, multiplied by the *active foreign business asset percentage of the subsidiary company in relation to the holding company at that time
2	item 1 does not apply	zero

Note:

For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company.

SECTION 768-525   Book value method - choice made under subsection 768-515(2)  

768-525(1)    
The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way. Method statement

Note:

If the foreign company is a member of a wholly-owned group, section 768-535 may modify the way in which this section operates.

768-525(2)    
The foreign company ' s average value of total assets at the time of the CGT event is worked out in this way. Method statement

768-525(3)    
The foreign company ' s average value of active foreign business assets at that time is worked out in this way. Method statement

Note:

If the foreign company is a foreign life insurance company or a foreign general insurance company, the results of steps 1 and 2 are modified under section 768-530 .

768-525(4)    
If an *active foreign business asset of the foreign company is a *share in another company (the subsidiary company ) that is a foreign resident, then, for the purposes of steps 1 and 2 of the method statement in subsection (3), treat the value of the share at a particular time according to the following table.

Value of a share in subsidiary company
Item	If:	treat the value of the share as:
1	(a) the foreign company has a *direct voting percentage of 10% or more in the subsidiary company at that time; and (b) the holding company has a *total voting percentage of 10% or more in the subsidiary company at that time	the *share ' s value (see subsection (5)) at that time, multiplied by the *active foreign business asset percentage of the subsidiary company in relation to the holding company at that time
2	item 1 does not apply	zero

Note:

For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company.

768-525(5)    
For the purposes of this section, the value of an asset of a foreign company at the end of a period is taken to be:

(a) the value of the asset as shown in the *recognised company accounts of the foreign company for that period; or

(b) if the value of the asset is not shown in the recognised company accounts of the foreign company for that period - zero.

768-525(6)    
The result of:

(a) step 2 of the method statement in subsection (2); and

(b) step 2 of the method statement in subsection (3);

is taken to be zero if the foreign company does not have *recognised company accounts for a period mentioned in those steps.

Note:

This will only be the case if the foreign company was not in existence before the start of the period mentioned in step 1 of those method statements (see paragraph 768-510(3)(c) ).

SECTION 768-530   Active foreign business asset percentage - modifications for foreign life insurance companies and foreign general insurance companies  

768-530(1)    
If the foreign company is a ^* foreign life insurance company or a ^* foreign general insurance company, work out its ^* active foreign business asset percentage according to section 768-510 , but with the modifications set out in subsections (2) and (3).

768-530(2)    
Treat a reference in the following provisions to a period as a reference to a ^* statutory accounting period of the foreign company:

(a) paragraphs 768-510(3)(b) and (c);

(b) section 768-525 .

768-530(3)    
Apply the modifications set out in the following table.

Modifications for foreign life insurance companies and foreign general insurance companies
Item	The result of this step:	is increased by the amount applicable under subsection (4) for this statutory accounting period:
1	step 2 of the method statement in subsection 768-520(1)	the most recent *statutory accounting period of the foreign company ending at or before the time mentioned in that step
2	step 1 of the method statement in subsection 768-525(3)	the *statutory accounting period mentioned in that step (as modified by subsection (2) of this section)
3	step 2 of the method statement in subsection 768-525(3)	the *statutory accounting period mentioned in that step (as modified by subsection (2) of this section)

768-530(4)    
The amount applicable under this subsection for a ^* statutory accounting period of the foreign company is worked out using the following formula:

Value of non-active foreign business assets

×

Active insurance amount Total insurance assets

where:

active insurance amount
means:

(a) if the foreign company is a ^* foreign life insurance company - the untainted policy liabilities (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period; or

(b) if the foreign company is a ^* foreign general insurance company - the active general insurance amount worked out under subsection (5) for the statutory accounting period.

total insurance assets
means:

(a) if the foreign company is a ^* foreign life insurance company - the total assets (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period; or

(b) if the foreign company is a ^* foreign general insurance company - the total assets (within the meaning of subsection 446(4) of that Act) of the foreign company for the statutory accounting period.

value of non-active foreign business assets
means:

(a) for the purposes of item 1 of the table in subsection (3) - the difference between:

(i) the result of step 1 of the method statement in subsection 768-520(1) ; and

(ii) the result of step 2 of that method statement (apart from this section); or

(b) for the purposes of item 2 of the table in subsection (3) - the difference between:

(i) the result of step 1 of the method statement in subsection 768-525(2) ; and

(ii) the result of step 1 of the method statement in subsection 768-525(3) (apart from this section); or

(c) for the purposes of item 3 of the table in subsection (3) - the difference between:

(i) the result of step 2 of the method statement in subsection 768-525(2) ; and

(ii) the result of step 2 of the method statement in subsection 768-525(3) (apart from this section).

Active insurance amount for foreign general insurance company

768-530(5)    
The active general insurance amount under this subsection for a *statutory accounting period of the foreign company is worked out using the following formula:

Total general insurance assets

−

Net assets

−

Tainted outstanding claims

+

Solvency amount

where:

net assets
means the net assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period.

solvency amount
means the solvency amount (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period.

tainted outstanding claims
means the tainted outstanding claims (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period.

total general insurance assets
means the total assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period.

SECTION 768-533   Foreign company that is a FIF using CFC calculation method - treatment as AFI subsidiary under this Subdivision  

768-533(1)    

This section applies if:

(a) the foreign company is a FIF (within the meaning of former section 481 of the Income Tax Assessment Act 1936 ); and

(b) the holding company has made a choice under former subsection 559A(1) of the Income Tax Assessment Act 1936 in relation to the foreign company in respect of a notional accounting period (within the meaning of former section 486 of that Act) of the foreign company that ends in the 2009-10 income year; and

(c) because of the choice, the foreign company has been treated under former paragraph 559A(3)(c) of that Act as an AFI subsidiary (within the meaning of that Act) in relation to that holding company; and

(d) the holding company makes a choice under subsection (1A) in relation to the foreign company; and

(e) the holding company has not failed to make a choice under that subsection for the 2010-11 income year or any later income year.

768-533(1A)    

A holding company may make a choice under this subsection in relation to a foreign company if the holding company could have made a choice in relation to the foreign company under former section 559A of the Income Tax Assessment Act 1936 if it had not been repealed by item 37 of Schedule 1 to the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010 .

768-533(2)    
For the purposes of this Subdivision, treat the foreign company as an AFI subsidiary in relation to that holding company at that time.

SECTION 768-535   Modified rules for foreign wholly-owned groups  

768-535(1)    
This section applies if:

(a) for the purposes of section 768-505 , it is necessary to work out the *active foreign business asset percentage of a company (the top foreign company ) in relation to the holding company mentioned in that section, at the time of the CGT event mentioned in that section; and

(b) the top foreign company is not :

(i) an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ); or

(ii) a *foreign life insurance company; or

(iii) a *foreign general insurance company; and

(c) for the purposes of section 768-505 , it is also necessary (apart from this section) to work out the active foreign business asset percentage at that time of 1 or more other companies in relation to the holding company, at that time, where:

(i) the top foreign company and 1 or more of those other companies (the subsidiary foreign companies ) are members of a *wholly-owned group; and

(ii) each of the subsidiary foreign companies is a *100% subsidiary of the top foreign company.

768-535(2)    
The holding company may choose to work out the *active foreign business asset percentage of the top foreign company in accordance with subsections (4) and (6).

768-535(3)    
The way an entity making a choice under subsection (2) prepares its *income tax return is sufficient evidence of the making of the choice.

768-535(4)    
If the holding company has made a choice under subsection (2), the provisions mentioned in subsection (5) operate, for the purposes of section 768-505 , as if each subsidiary foreign company were a part of the top foreign company, rather than a separate entity.

Note 1:

This subsection means that certain assets are not treated as active foreign business assets, or as assets included in the total assets, of any of the subsidiary foreign companies or of the top foreign company. For example:

(a) a share owned by one of those companies in another of those companies; and

(b) a debt owed by one of those companies to another of those companies.

Note 2:

If an asset (other than an asset mentioned in Note 1) is actually an active foreign business asset, or an asset included in the total assets, of a subsidiary foreign company, it is treated under this subsection as an active foreign business asset, or as an asset included in the total assets, of the top foreign company.

768-535(5)    
For the purposes of subsection (4), the provisions are:

(a) section 768-540 (active foreign business assets of a foreign company); and

(b) section 768-545 (assets included in the total assets of a foreign company).

768-535(6)    
If the holding company has made a choice under subsection (2), then for the purposes of sections 768-510 and 768-525 , treat the *recognised consolidated accounts of the top foreign company and all of the subsidiary foreign companies as the *recognised company accounts of the top foreign company.

Types of assets of a foreign company

SECTION 768-540   Active foreign business assets of a foreign company  

768-540(1)    
An asset is, at a particular time, an active foreign business asset of a company (the foreign company ) that is a foreign resident if, at that time:

(a) the asset is an *asset included in the total assets of the company; and

(b) the asset satisfies any of these conditions:

(i) the asset is used, or held ready for use, by the company in the course of carrying on a *business;

(ii) the asset is goodwill;

(iii) the asset is a *share; and

(c) the asset is not any of the following:

(i) *taxable Australian property;

(ii) a *membership interest in a company that is an Australian resident;

(iii) a membership interest in a *resident trust for CGT purposes;

(iv) an option or right to acquire a membership interest mentioned in subparagraph (ii) or (iii); and

(d) the asset is not covered by subsection (2); and

(e) if the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ) whose sole or principal business is financial intermediary business - the asset is not covered under subsection (4).

768-540(2)    
An asset is covered by this subsection if it is:

(a) a financial instrument (other than a *share or a trade debt); or

(b) either:

(i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936 ); or

(ii) a widely distributed finance share (within the meaning of that Part); or

(c) an interest in a trust or *partnership; or

(d) a *life insurance policy; or

(e) a right or option in respect of:

(i) a financial instrument; or

(ii) an interest in a company, trust or partnership; or

(iii) a life insurance policy; or

(f) cash or cash equivalent; or

(g) an asset whose main use in the course of carrying on the *business mentioned in subparagraph (1)(b)(i) is to *derive interest, an *annuity, rent, *royalties or foreign exchange gains unless:

(i) the asset is an intangible asset and has been substantially developed, altered or improved by the foreign company so that its *market value has been substantially enhanced; or

(ii) its main use for deriving rent was only temporary.

768-540(3)    
If, at the time mentioned in subsection (1), the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ) whose sole or principal business is financial intermediary business (within the meaning of that Part), subsection (2) operates as if:

(a) paragraphs (2)(a) and (f) were omitted; and

(b) paragraph (2)(g) did not contain a reference to interest, an *annuity or foreign exchange gains; and

(c) subparagraph (2)(e)(i) were omitted and the following subparagraph were substituted:

(i) a financial instrument, other than an asset mentioned in paragraph 450(1)(b) of the Income Tax Assessment Act 1936 ; or

768-540(4)    
The asset is covered under this subsection if:

(a) all of these conditions are satisfied:

(i) the asset is an asset mentioned in subparagraph 450(4)(b) (i) or (ii) of the Income Tax Assessment Act 1936 ;

(ii) the asset was acquired from another entity;

(iii) either of the conditions mentioned in subparagraph 450(6)(c)(i) and (ii) of the Income Tax Assessment Act 1936 were satisfied in relation to the other entity at the time of the acquisition; or

(b) both of these conditions are satisfied:

(i) the asset relates to a debt to which factoring income (within the meaning of Part X of the Income Tax Assessment Act 1936 ) of the foreign company relates;

(ii) the condition in paragraph 450(8)(b) of the Income Tax Assessment Act 1936 is satisfied in relation to the debt.

SECTION 768-545   Assets included in the total assets of a foreign company  

768-545(1)    
At a particular time, an asset is an asset included in the total assets of a company (the foreign company ) that is a foreign resident if:

(a) the asset is a *CGT asset at that time; and

(b) the foreign company owns the asset at that time; and

(c) if at that time the foreign company is not an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ) whose sole or principal business is financial intermediary business (within the meaning of that Part) - the asset is not a foreign company derivative asset covered by subsection (2).

768-545(2)    
An asset is a foreign company derivative asset covered by this subsection if:

(a) the asset is an *arrangement covered by subsection (3), unless the regulations declare the asset not to be a foreign company derivative asset covered by this subsection; or

(b) the regulations declare the asset to be a foreign company derivative asset covered by this subsection.

768-545(3)    
An *arrangement is covered by this subsection if:

(a) under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and

(b) that future time is not less than the number of days, prescribed by regulations made for the purposes of paragraph 761D(1)(b) of the Corporations Act 2001 , after the day on which the arrangement is entered into; and

(c) the amount of the consideration, or the value of the arrangement, is ultimately determined, *derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:

(i) an asset;

(ii) a rate (including an interest rate or exchange rate);

(iii) an index;

(iv) a commodity; and

(d) subsection (4) does not apply in relation to the arrangement.

768-545(4)    
An *arrangement under which one person has an obligation to buy, and another person has an obligation to sell, property is not an arrangement covered by subsection (3) merely because the arrangement provides for the consideration to be varied by reference to a general inflation index such as the Consumer Price Index.

Voting percentages in a company

SECTION 768-550   Direct voting percentage in a company  

768-550(1)    
An entity ' s direct voting percentage at a particular time in a company is:

(a) if the entity has a voting interest (within the meaning of section 334A of the Income Tax Assessment Act 1936 ) in the foreign company at that time amounting to a percentage of the voting power of the company - that percentage; or

(b) otherwise - zero.

768-550(2)    

In applying section 334A of the Income Tax Assessment Act 1936 for the purposes of subsection (1) of this section, assume that:

(a) the entity is a company; and

(b) the entity is not the beneficial owner of a *share in the company if a trust or partnership is interposed between the entity and the company.

SECTION 768-555   Indirect voting percentage in a company  

768-555(1)    
An entity's indirect voting percentage at a particular time in a company (the subsidiary company ) is worked out by multiplying:

(a) the entity's *direct voting percentage (if any) in another company (the intermediate company ) at that time;

by:

(b) the sum of:

(i) the intermediate company's direct voting percentage (if any) in the subsidiary company at that time; and

(ii) the intermediate company's indirect voting percentage (if any) in the subsidiary company at that time (as worked out under one or more other applications of this section).

768-555(2)    
If there is more than one intermediate company to which subsection (1) applies at that time, the entity's indirect voting percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate companies.

SECTION 768-560  

768-560   Total voting percentage in a company  

An entity's total voting percentage at a particular time in a company is the sum of:

(a) the entity's *direct voting percentage in the company at that time; and

(b) the entity's *indirect voting percentage in the company at that time.

(Repealed) Subdivision 768-H - Capital gains and losses of foreign residents through fixed trusts  

768-600   (Repealed) SECTION 768-600 Purpose of this Subdivision  
(Repealed by No 168 of 2006 )

768-605   (Repealed) SECTION 768-605 Effect of capital gain or loss from underlying fixed trust assets  
(Repealed by No 168 of 2006 )

768-610   (Repealed) SECTION 768-610 Conditions  
(Repealed by No 168 of 2006 )

768-615   (Repealed) SECTION 768-615 Foreign resident companies  
(Repealed by No 168 of 2006 )

Subdivision 768-R - Temporary residents  

Guide to Subdivision 768-R

SECTION 768-900  

768-900   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
768-905	Objects
768-910	Income derived by temporary resident
768-915	Certain capital gains and capital losses of temporary resident to be disregarded
768-920	(Repealed by No 133 of 2009 )
768-925	(Repealed by No 133 of 2009 )
768-930	(Repealed by No 133 of 2009 )
768-935	(Repealed by No 133 of 2009 )
768-940	(Repealed by No 133 of 2009 )
768-945	(Repealed by No 133 of 2009 )
768-950	Individual becoming an Australian resident
768-955	Temporary resident who ceases to be temporary resident but remains an Australian resident
768-960	Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules
768-965	(Repealed by No 114 of 2010)
768-970	Modification of rules for accruals system of taxation of certain non-resident trust estates
768-975	(Repealed by No 114 of 2010)
768-980	Interest paid by temporary resident

Operative provisions

SECTION 768-905  

768-905   Objects  

The objects of this Subdivision are to:

(a) provide ^* temporary residents with tax relief on most foreign source income and capital gains; and

(b) relieve the burdens associated with complying with certain record-keeping obligations and interest withholding tax obligations.

SECTION 768-910   Income derived by temporary resident  

768-910(1)    
The following are ^* non-assessable non-exempt income:

(a) the ^* ordinary income you ^* derive directly or indirectly from a source other than an ^* Australian source if you are a ^* temporary resident when you derive it;

(b) your ^* statutory income (other than a ^* net capital gain) from a source other than an Australian source if you are a temporary resident when you derive it.

This subsection has effect subject to subsections (3) and (5).

Note:

A capital gain or loss you make may be disregarded under section 768-915 .

768-910(2)    
For the purposes of paragraph (1)(b):

(a) if you have statutory income because a particular circumstance occurs, you derive the statutory income at the time when the circumstance occurs; and

(b) if you have statutory income because a number of circumstances occur, you derive the statutory income at the time when the last of those circumstances occurs.

Exception to subsection (1)

768-910(3)    
However, the following are not ^* non-assessable non-exempt income under subsection (1):

(a) the ^* ordinary income you ^* derive directly or indirectly from a source other than an ^* Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a ^* temporary resident;

(b) your ^* statutory income (other than a ^* net capital gain) from a source other than an Australian source to the extent that it relates to employment undertaken, or services provided, while you are a temporary resident;

(c) an amount included in your assessable income under Division 86 .

(d) (Repealed by No 133 of 2009)

Note:

This subsection only makes an amount not non-assessable non-exempt income under subsection (1). It does not prevent that amount from being non-assessable non-exempt income under some other provision of this Act or the Income Tax Assessment Act 1936 .

768-910(4)    
(Repealed by No 133 of 2009)

768-910(5)    
(Repealed by No 133 of 2009)

768-910(6)    
(Repealed by No 133 of 2009)

SECTION 768-915   Certain capital gains and capital losses of temporary resident to be disregarded  

768-915(1)    
A ^* capital gain or ^* capital loss you make from a ^* CGT event is disregarded if:

(a) you are a ^* temporary resident when, or immediately before, the CGT event happens; and

(b) you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855 , if you were a foreign resident when, or immediately before, the CGT event happens.

768-915(2)    

Subsection (1) does not apply in relation to *CGT event I1 if:

(a) the CGT event happens in relation to an *ESS interest that is a beneficial interest in a right (or to a *share acquired by exercising such a right); and

(b) the provisions referred to in paragraphs 83A-33(1)(a) to (c) (about start ups) apply to the ESS interest.

768-920   (Repealed) SECTION 768-920 Capital gains and losses on employee shares and rights where taxation of discount not deferred  
(Repealed by No 133 of 2009)

768-925   (Repealed) SECTION 768-925 Notional gain or loss  
(Repealed by No 133 of 2009)

768-930   (Repealed) SECTION 768-930 Adjustment to notional gain or loss  
(Repealed by No 133 of 2009)

768-935   (Repealed) SECTION 768-935 Adjustment for share or right acquired under employee share scheme  
(Repealed by No 133 of 2009)

768-940   (Repealed) SECTION 768-940 Adjustment for derived share  
(Repealed by No 133 of 2009)

768-945   (Repealed) SECTION 768-945 Amending assessment to take account of effect on capital gain or loss of recalculating discount  
(Repealed by No 133 of 2009)

SECTION 768-950  

768-950   Individual becoming an Australian resident  

Section 855-45 does not apply to your becoming an Australian resident if you are a ^* temporary resident immediately after you become an Australian resident.

SECTION 768-955   Temporary resident who ceases to be temporary resident but remains an Australian resident  

768-955(1)    
If you are a ^* temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident), there are rules relevant to each ^* CGT asset that:

(a) you owned just before you ceased to be a temporary resident; and

(b) is not *taxable Australian property; and

(c) you ^* acquired on or after 20 September 1985.

768-955(2)    

The first element of the ^* cost base and ^* reduced cost base of the asset (at the time you cease to be a ^* temporary resident) is its ^* market value at that time.

768-955(3)    
Also, Parts 3-1 and 3-3 apply to the asset as if you had ^* acquired it at the time you ceased to be a ^* temporary resident.

768-955(4)    

This section does not apply to an *ESS interest if:

(a) Subdivision 83A-C (about employee share schemes) applies to the interest, and the *ESS deferred taxing point for the interest has not yet occurred; or

(b) the provisions referred to in paragraphs 83A-33(1)(a) to (c) (about start ups) apply to the ESS interest.

SECTION 768-960  

768-960   Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules  

For the purposes of Part X of the Income Tax Assessment Act 1936 (which deals with the attribution of income in respect of controlled foreign companies), you are taken not to be an ^* attributable taxpayer in relation to a ^* CFC or ^* CFT at any time you are a ^* temporary resident.

768-965   (Repealed) SECTION 768-965 Exemption of temporary resident from taxation in respect of foreign investment fund income  
(Repealed by No 114 of 2010)

SECTION 768-970  

768-970   Modification of rules for accruals system of taxation of certain non-resident trust estates  

At any time when you are a ^* temporary resident, you are taken not to be a resident for the purposes of section 102AAZD of the Income Tax Assessment Act 1936 .

768-975   (Repealed) SECTION 768-975 Calculation of beneficiary ' s share of net income of non-resident trust estate  
(Repealed by No 114 of 2010)

SECTION 768-980  

768-980   Interest paid by temporary resident  

Interest that is paid by a ^* temporary resident:

(a) is an amount to which section 128B (liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply; and

(b) is ^* non-assessable non-exempt income if the interest is:

(i) ^* derived by a foreign resident; and

(ii) is not derived from carrying on ^* business in Australia at or through a ^* permanent establishment in Australia.

Division 770 - Foreign income tax offsets  

Guide to Division 770  

SECTION 770-1  

770-1   What this Division is about  

SECTION 770-5   Object  

770-5(1)    
The object of this Division is to relieve double taxation where:

(a) you have paid foreign income tax on amounts included in your assessable income; and

(b) you would, apart from this Division, pay Australian income tax on the same amounts.

770-5(2)    
To achieve this object, this Division gives you a tax offset to reduce or eliminate Australian income tax otherwise payable on those amounts.

Note 1:

This Division applies in relation to Medicare levy and Medicare levy (fringe benefits) surcharge in the same way as it applies to Australian income tax. See section 90-1 in Schedule 1 to the Taxation Administration Act 1953 .

Note 2:

The tax offset under this Division can be applied against your Medicare levy and Medicare levy (fringe benefits) surcharge liability for the year, if an amount of it remains after you apply it against your basic income tax liability. See item 22 of the table in subsection 63-10(1) .

Subdivision 770-A - Entitlement rules for foreign income tax offsets  

Basic entitlement rule for foreign income tax offset

SECTION 770-10   Entitlement to foreign income tax offset  

770-10(1)    
You are entitled to a *tax offset for an income year for *foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

Note 1:

The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax - even if you paid the foreign income tax in another income year.

Note 2:

If the foreign income tax has been paid on an amount that is part non-assessable non-exempt income and part assessable income for you for the income year, only a proportionate share of the foreign income tax (the share that corresponds to the part that is assessable income) will count towards the tax offset (excluding the operation of subsection (2) ).

Taxes paid on section 23AI or 23AK amounts

770-10(2)    
An amount of *foreign income tax counts towards the *tax offset for you for the year if you paid it in respect of an amount that is your *non-assessable non-exempt income under either section 23AI or 23AK of the Income Tax Assessment Act 1936 for the year.

Note 1:

Sections 23AI and 23AK of the Income Tax Assessment Act 1936 provide that amounts paid out of income previously attributed from a controlled foreign company or a foreign investment fund are non-assessable non-exempt income.

Note 2:

Foreign income taxes covered by this subsection are direct taxes (for example, a withholding tax on a dividend payment) and not underlying taxes, only some of which are covered by section 770-135 .

Exception for certain residence-based foreign income taxes

770-10(3)    
An amount of *foreign income tax you paid does not count towards the *tax offset for the year if you paid it:

(a)    to a foreign country because you are a resident of that country for the purposes of a law relating to the foreign income tax; and

(b)    in respect of an amount derived from a source outside that country.

Exception for previously complying funds and previously foreign funds

770-10(4)    
An amount of *foreign income tax paid by a *superannuation provider in relation to a *superannuation fund does not count towards the *tax offset for the year if:

(a)    the tax was paid in respect of an amount included in the fund ' s assessable income under table item 2 or 3 in section 295-320 ; and

(b)    the provider paid the tax before the start of the income year.

Note:

Table items 2 and 3 in section 295-320 include additional amounts in the assessable income of superannuation funds that change theirstatus from complying to non-complying or from foreign to Australian.

Exception for credit absorption tax and unitary tax

770-10(5)    
An amount of *credit absorption tax or *unitary tax you paid does not count towards the *tax offset for the year.

SECTION 770-15   Meaning of foreign income tax, credit absorption tax and unitary tax  

770-15(1)    
Foreign income tax means tax that:

(a) is imposed by a law other than an *Australian law; and

(b) is:

(i) tax on income; or

(ii) tax on profits or gains, whether of an income or capital nature; or

(iii) any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953 .

Note:

Foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953 ), has been correctly imposed in accordance with that tax treaty.

770-15(2)    
Credit absorption tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country to the extent that the tax would not have been payable if the entity concerned or another entity had not been entitled to an offset in respect of the tax under this Division.

770-15(3)    
Unitary tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country, being a law which, for the purposes of taxing income, profits or gains of a company derived from sources within that country, takes into account, or is entitled to take into account, income, losses, outgoings or assets of the company (or of a company that for the purposes of that law is treated as being associated with the company) derived, incurred or situated outside that country, but does not include tax imposed by that law if that law only takes those matters into account:

(a) if such an associated company is a resident of the foreign country for the purposes of the law of the foreign country; or

(b) for the purposes of granting any form of relief in relation to tax imposed on dividends received by one company from another company.

Subdivision 770-B - Amount of foreign income tax offset  

SECTION 770-65   What this Subdivision is about  

Operative provisions

SECTION 770-70  

770-70   Amount of foreign income tax offset  

The amount of your *tax offset for the year is the sum of the *foreign income tax you paid that counts towards the offset for the year.

Note 1:

The amount of foreign income tax you paid may be affected by Subdivision 770-C .

Note 2:

The amount of the offset might be increased under section 770-230 of the Income Tax (Transitional Provisions) Act 1997 , if you have pre-commencement excess foreign income tax.

SECTION 770-75   Foreign income tax offset limit  

770-75(1)    
There is a limit (the offset limit ) on the amount of your *tax offset for a year. If your tax offset exceeds the offset limit, reduce the offset by the amount of the excess.

770-75(2)    
Your offset limit is the greater of:

(a) $1,000; and

(b) this amount:

(i) the amount of income tax payable by you for the income year; less

(ii) the amount of income tax that would be payable by you for the income year if the assumptions in subsection (4) were made.

Note 1:

If you do not intend to claim a foreign income tax offset of more than $1,000 for the year, you do not need to work out the amount under paragraph (b).

Note 2:

The amount of the offset limit might be increased under section 770-80 .

770-75(3)    
For the purposes of paragraph (2)(b), work out the amount of income tax payable by you, or that would be payable by you, disregarding any *tax offsets.

770-75(4)    
Assume that:

(a) your assessable income did not include:

(i) so much of any amount included in your assessable income as represents an amount in respect of which you paid *foreign income tax that counts towards the *tax offset for the year; and

(ii) any other amounts of *ordinary income or *statutory income from a source other than an *Australian source; and

(b) you were not entitled to any deductions that:

(i) are *debt deductions that are attributable to an *overseas permanent establishment of yours; or

(ii) are deductions (other than debt deductions) that are reasonably related to amounts covered by paragraph (a) for that year.

Note:

You must also assume you were not entitled to any deductions for certain converted foreign losses: see section 770-35 of the Income Tax (Transitional Provisions) Act 1997 .

Example:

If an entity has paid foreign income tax on a capital gain that comprises part of its net capital gain, only that capital gain on which foreign income tax has been paid is disregarded.

SECTION 770-80  

770-80   Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply  

Your offset limit under subsection 770-75(2) is increased by any amounts of *foreign income tax that count towards the *tax offset for you for the year because of subsection 770-10(2) .

Subdivision 770-C - Rules about payment of foreign income tax  

Rules about when foreign tax is paid

SECTION 770-130   When foreign income tax is considered paid - taxes paid by someone else  

770-130(1)    
This Act applies to you as if you had paid an amount of *foreign income tax in respect of an amount (a taxed amount ) that is all or part of an amount included in your *ordinary income or *statutory income if you are covered by subsection (2) or (3) for an amount of foreign income tax paid in respect of the taxed amount.

770-130(2)    
You are covered by this subsection for an amount of *foreign income tax paid in respect of a taxed amount if that foreign income tax has been paid in respect of the taxed amount by another entity under an *arrangement with you or under the law relating to the foreign income tax.

Example:

You are a partner in a partnership and the partnership pays foreign income tax on the partnership income.

770-130(3)    
You are covered by this subsection for an amount of *foreign income tax paid in respect of the taxed amount to the extent that:

(a) the taxed amount is taken, because of section 6B of the Income Tax Assessment Act 1936 (the 1936 Act ), to be attributable to another amount of income of a particular kind or source; and

(b) foreign income tax has been paid in respect of the other amount of income; and

(c) the taxed amount is less than it would have been if that tax had not been paid.

Example:

Aust Co (an Australian resident) is the sole beneficiary of an Australian resident trust H and is presently entitled to all the income of trust H. Trust H owns shares in For Co (a foreign company). For Co pays a dividend to trust H and the dividend is subject to withholding tax in For Co's country of residence.

Trust H allocates to Aust Co, the dividend, as well as other Australian source income trust H earned in the year (none of which was subject to foreign income tax). Aust Co is treated as having paid the foreign income tax paid by For Co under subsection 770-130(3) . The foreign income tax is treated as paid in respect of the amount included in Aust Co's assessable income that is attributable to the dividend.

SECTION 770-135   Foreign income tax paid by CFCs on attributed amounts  

770-135(1)    

This Division applies to an entity (other than a *CFC) as if it had paid an amount of *foreign income tax worked out under subsection (7) in respect of an amount included in its assessable income if:

(a) the amount is included in its assessable income as described in subsection (2); and

(b) the conditions in subsections (3) and (5) are satisfied.

770-135(2)    

An amount is included in an entity ' s assessable income as described in this subsection if the entity is a company and the amount is included under:

(a) section 456 (a section 456 case ) of the 1936 Act in relation to a ^* CFC and a statutory accounting period; or

(b) section 457 (a section 457 case ) of that Act in relation to a CFC.

Note:

Section 456 of the 1936 Act includes, in the assessable income of certain Australian shareholders, amounts that are attributable to the profits of an Australian-controlled foreign company.

Section 457 does likewise when a controlled foreign company changes residence from an unlisted to a listed country or to Australia.

Tax paid condition

770-135(3)    
An amount of *foreign income tax, income tax or *withholding tax (the tax amount ) must have been paid:

(a) for a section 456 case - by the *CFC in respect of an amount included in the notional assessable income of the CFC for the statutory accounting period; or

(b) for a section 457 case - by the CFC.

(c) (Repealed by No 114 of 2010)

Note:

Section 770-130 deems foreign income tax to have been paid in certain circumstances.

770-135(4)    
For the purposes of paragraphs (3)(a) and (b), the tax amount includes an amount that is taken to have been paid by the *CFC under subsection 393(4) of the 1936 Act (about tax paid on reinsurance premiums).

Association condition

770-135(5)    
If the entity is a company, it must have an *attribution percentage of 10% or more:

(a) for a section 456 case - in relation to the *CFC at the end of the statutory accounting period; or

(b) for a section 457 case - in relation to the CFC at the residence-change time (within the meaning of section 457 of the 1936 Act).

(c) (Repealed by No 114 of 2010)

770-135(6)    
(Repealed by No 114 of 2010)

Amount of foreign income tax

770-135(7)    

The amount worked out under this subsection is:

(a) for a section 456 case - the sum of all the taxamounts for the statutory accounting period multiplied by the company ' s ^* attribution percentage in relation to the ^* CFC at the time mentioned in paragraph (5)(a); or

(b) for a section 457 case - the sum of all the tax amounts to the extent they are attributable to the amount included in the company ' s assessable income under section 457 of the 1936 Act.

Grossing-up of attributed amount

770-135(8)    

For the purposes of this Act except this section and section 371 of the 1936 Act (for a section 456 case or a section 457 case), the amount included in the entity ' s assessable income as described in subsection (2) is taken to be increased by the amount of tax worked out under subsection (7).

Note:

Section 371 of the 1936 Act records an amount in an attribution account when the amount is included in the assessable income of an attributable taxpayer in relation to a CFC.

Rules about when foreign tax is considered not paid

SECTION 770-140  

770-140   When foreign income tax is considered not paid - anti-avoidance rule  

Despite anything else in this Division, this Act applies to you as if you had not paid an amount of *foreign income tax to the extent that you or any other entity become entitled to:

(a) a refund of the foreign income tax; or

(b) any other benefit worked out by reference to the amount of the foreign income tax (other than a reduction in the amount of the foreign income tax).

Subdivision 770-D - Administration  

SECTION 770-190   Amendment of assessments  

770-190(1)    
Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purpose of giving effect to this Division for an income year if:

(a) an event described in subsection (2) (an amendment event ) happens after the time you lodged your *income tax return for that year; and

(b) the amendment is made at any time during the period of 4 years starting immediately after the amendment event.

Note:

Section 170 of that Act specifies the periods within which assessments may be amended.

770-190(2)    
The following are amendment events:

(a) you pay an amount of *foreign income tax that counts towards your *tax offset for the year;

(b) there is an increase in an amount of foreign income tax you paid that counts towards your offset for the year;

(c) there is a reduction in an amount of foreign income tax you paid that counts towards your offset for the year.

Division 775 - Foreign currency gains and losses  

Guide to Division 775  

SECTION 775-5   What this Division is about  

Subdivision 775-A - Objects of this Division  

SECTION 775-10  

775-10   Objects of this Division  

The objects of this Division are as follows:

(a) to recognise *foreign currency gains and losses for income tax purposes;

(b) to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations;

(c) to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan;

(d) to reduce compliance costs by not requiring the recognition of certain low-value foreign currency gains and losses that involve substantial calculations.

Subdivision 775-B - Realisation of forex gains or losses  

SECTION 775-15   Forex realisation gains are assessable  

Basic rule

775-15(1)    
Your assessable income for an income year includes a ^* forex realisation gain you make as a result of a ^* forex realisation event that happens during that year.

Exceptions

775-15(2)    
However, your assessable income does not include a ^* forex realisation gain to the extent that it:

(a) is a gain of a private or domestic nature; and

(b) is not covered by an item of the table:

Forex realisation gains to which this subsection does not apply
Item	You make the forex realisation gain as a result of this event …	happening to …	and the following condition is satisfied …
1	forex realisation event 1 or 2	*foreign currency or a right, or a part of a right, to receive foreign currency	a gain that would result from the occurrence of a *realisation event in relation to the foreign currency, or to the right, or the part of the right, would, apart from this Division, be taken into account under Part 3-1 or 3-3
2	forex realisation event 2	a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, where subparagraph 775-45(1)(b)(iv) applies	a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3-1 or 3-3
3	forex realisation event 4	an obligation, or a part of an obligation, you incurred in return for the acquisition of a *CGT asset	a gain or loss that would result from the occurrence of a *realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3-1 or 3-3

Note:

Parts 3-1 and 3-3 deal with capital gains and losses.

775-15(3)    
Section 775-70 provides for additional exceptions.

Note:

Section 775-70 is about the tax consequences of certain short-term forex realisation gains.

No double taxation

775-15(4)    
To the extent that a ^* forex realisation gain would be included in your assessable income under this section and another provision of this Act, the gain is only included in your assessable income under this section.

Note:

Under section 230-20 , foreign exchange gains from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.

SECTION 775-20  

775-20   Certain forex realisation gains are exempt income  

A *forex realisation gain you make is *exempt income to the extent that, if it had been a *forex realisation loss, it would have been made in gaining or producing exempt income.

SECTION 775-25  

775-25   Certain forex realisation gains are non-assessable non-exempt income  

A *forex realisation gain you make is *non-assessable non-exempt income to the extent that, if it had been a *forex realisation loss, it would have been made in gaining or producing non-assessable non-exempt income.

SECTION 775-27  

775-27   Certain forex realisation gains are non-assessable non-exempt income  

Section 775-20 and 775-25 apply to a *forex realisation gain only if, had it been a *forex realisation loss, it would have been disregarded under section 775-35 .

SECTION 775-30   Forex realisation losses are deductible  

Basic rule

775-30(1)    
You can deduct from your assessable income for an income year a *forex realisation loss that you make as a result of a *forex realisation event that happens during that year.

Exceptions

775-30(2)    
However, you cannot deduct a *forex realisation loss under this section to the extent that it:

(a) is a loss of a private or domestic nature; and

(b) is not covered by an item of the table:

Forex realisation losses to which this subsection does not apply
Item	You make the forex realisation loss as a result of this event …	happening to …	and the following condition is satisfied …
1	forex realisation event 2	a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, where subparagraph 775-45(1)(b)(iv) applies	a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3-1 or 3-3
2	forex realisation event 4	an obligation, or a part of an obligation, you incurred in return for the acquisition of a *CGT asset	a gain or loss that would result from the occurrence of a *realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3-1 or 3-3

Note:

Parts 3-1 and 3-3 deal with capital gains and losses.

775-30(3)    
Section 775-75 provides for additional exceptions.

Note:

Section 775-75 is about the tax consequences of certain short-term forex realisation losses.

No double deductions

775-30(4)    
To the extent that this section and another provision of this Act would allow you a deduction for a *forex realisation loss, you can only deduct the loss under this section.

Note:

Under section 230-20 , foreign exchange losses from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.

SECTION 775-35   Certain forex realisation losses are disregarded  

775-35(1)    

A *forex realisation loss you make as a result of forex realisation event 1, 2 or 5 is disregarded to the extent that it is made in gaining or producing *exempt income or *non-assessable non-exempt income.

775-35(2)    
A *forex realisation loss you make as a result of forex realisation event 3, 4 or 6 is disregarded to the extent that:

(a) it is made in gaining or producing *exempt income or *non-assessable non-exempt income; and

(b) the obligation, or the part of the obligation, does not give rise to a deduction.

SECTION 775-40   Disposal of foreign currency or right to receive foreign currency - forex realisation event 1  

Forex realisation event 1

775-40(1)    
Forex realisation event 1 is *CGT event A1 that happens if you dispose of:

(a) *foreign currency; or

(b) a right, or a part of a right, to receive foreign currency.

Note:

For extended meaning of right to receive foreign currency , see section 775-135 .

Disposal

775-40(2)    
For the purposes of this section, use subsection 104-10(2) to work out whether you have disposed of:

(a) *foreign currency; or

(b) a right, or a part of a right, to receive foreign currency.

Note:

Under subsection 104-10(2) , a disposal requires a change of ownership.

Time of event

775-40(3)    
For the purposes of this section, subsection 104-10(3) is modified so that the time of the event is when:

(a) the *foreign currency is disposed of; or

(b) the right, or the part of the right, is disposed of.

Forex realisation gain

775-40(4)    
You make a forex realisation gain if:

(a) you make a *capital gain from the event; and

(b) some or all of the capital gain is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the capital gain as is attributable to a currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

775-40(5)    
For the purposes of paragraph (4)(a), Part 3-1 is modified so that section 118-20 is disregarded in working out the *capital gain.

Note:

Section 118-20 deals with reducing capital gains if an amount is otherwise assessable.

Forex realisation loss

775-40(6)    
You make a forex realisation loss if:

(a) you make a *capital loss from the event; and

(b) some or all of the capital loss is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the capital loss as is attributable to a currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

No indexation of cost base

775-40(7)    
For the purposes of this section, disregard Division 114 .

Note:

Division 114 deals with indexation of the cost base.

Foreign currency hedging gains and losses

775-40(8)    
For the purposes of this section, disregard section 118-55 .

Note:

Section 118-55 deals with foreign currency hedging gains and losses.

Capital proceeds

775-40(9)    
For the purposes of this section, if the *capital proceeds from the event are more or less than the *market value of:

(a) the *foreign currency; or

(b) the right, or the part of the right;

the capital proceeds from the event are taken to be the market value. (The market value is worked out as at the time of the event.)

SECTION 775-45   Ceasing to have a right to receive foreign currency - forex realisation event 2  

Forex realisation event 2

775-45(1)    
Forex realisation event 2 happens if:

(a) you cease to have a right, or a part of a right, to receive *foreign currency; and

(b) the right, or the part of the right, is one of the following:

(i) a right, or a part of a right, toreceive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102 );

(ii) a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset;

(iii) a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency or foreign currency;

(iv) a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of subparagraphs (i), (ii) and (iii) applies; and

(c) you did not cease to have the right, or the part of the right, because you disposed of the right or the part of the right (within the meaning of section 775-40 ).

Note 1:

Disposals are dealt with by section 775-40 (forex realisation event 1).

Note 2:

For extended meaning of right to receive foreign currency , see section 775-135 .

Time of event

775-45(2)    
The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

775-45(3)    
You make a forex realisation gain if:

(a) the amount you receive in respect of the event happening exceeds the *forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:

For forex cost base , see section 775-85 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

Forex realisation loss

775-45(4)    
You make a forex realisation loss if:

(a) the amount you receive in respect of the event happening falls short of the *forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:

For forex cost base , see section 775-85 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

775-45(5)    
You make a forex realisation loss if:

(a) the event happens because an option to buy *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non-cash benefit

775-45(6)    
The amount you receive in respect of the event happening can include a *non-cash benefit. Use the *market value of the benefit to work out the amount you receive.

Tax recognition time

775-45(7)    

For the purposes of this section, the tax recognition time is worked out using the table:

Tax recognition time
Item	If the right, or part of the right, is …	the tax recognition time is …
1	a right, or a part of a right, to receive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102)	(a) in the case of ordinary income - when the ordinary income is *derived; or (b) in the case of statutory income - when the requirement first arose to include the statutory income in your assessable income.
2	a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset	when you stop holding the asset.
3	a right, or a part of a right, referred to in subsection 775-165(3) (which deals with extensions of loans)	the extension time referred to in that subsection.
4	a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency, where item 3 does not apply	when the amount is paid.
5	a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of *foreign currency, where item 3 does not apply	when the amount is paid.
6	a right, or a part of a right, created in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of the above items apply	when the realisation event occurs.

Note:

Subsection 775-260(1) modifies the tax recognition time if forex realisation event 2 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

SECTION 775-50   Ceasing to have an obligation to receive foreign currency - forex realisation event 3  

Forex realisation event 3

775-50(1)    
Forex realisation event 3 happens if:

(a) you cease to have an obligation, or a part of an obligation, to receive *foreign currency; and

(b) the obligation, or the part of the obligation, is one of the following:

(i) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay foreign currency;

(ii) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay Australian currency;

(iii) an obligation, or a part of an obligation, under an option to sell foreign currency.

Note 1:

For extended meaning of obligation to receive foreign currency , see section 775-140 .

Note 2:

For extended meaning of right to pay foreign currency , see section 775-135 .

Time of event

775-50(2)    
The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

775-50(3)    
You make a forex realisation gain if:

(a) the amount you receive in respect of the event happening exceeds the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:

For net costs of assuming the obligation , see section 775-100 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

775-50(4)    
You make a forex realisation gain if:

(a) the event happens because an option to sell *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) if the option had been exercised immediately before the event, you would have been obliged to buy the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

775-50(5)    
You make a forex realisation loss if:

(a) the amount you receive in respect of the event happening falls short of the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:

For net costs of assuming the obligation , see section 775-100 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

Non-cash benefit

775-50(6)    
The amount you receive in respect of the event happening can include a *non-cash benefit. Use the *market value of the benefit to work out the amount you receive.

Tax recognition time

775-50(7)    
For the purposes of this section, the tax recognition time is the time when you received an amount in respect of the event happening.

Right to pay Australian currency

775-50(8)    
To avoid doubt, for the purposes of this section, a right to pay Australian currency includes a right to pay Australian currency, where the right is subject to a contingency.

SECTION 775-55   Ceasing to have an obligation to pay foreign currency - forex realisation event 4  

Forex realisation event 4

775-55(1)    
Forex realisation event 4 happens if:

(a) you cease to have an obligation, or a part of an obligation, to pay ^* foreign currency; and

(b) any of the following applies:

(i) the obligation, or the part of the obligation, is an expense or outgoing that you deduct;

(ii) the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 );

(iii) the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936 );

(iv) you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset;

(v) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the ^* cost base of a CGT asset;

(vi) you incurred the obligation, or the part of the obligation, in return for your starting to hold a ^* depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

(vii) you incurred the obligation, or the part of the obligation, as the second element of the ^* cost of a depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

(viii) you incurred the obligation, or the part of the obligation, as a ^* project amount;

(ix) you incurred the obligation, or the part of the obligation, in return for receiving an amount of Australian currency or foreign currency;

(x) you incurred the obligation, or the part of the obligation, in return for the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;

(xi) the obligation, or the part of the obligation, is under an option to buy foreign currency.

Note:

For extended meaning of obligation to pay foreign currency , see section 775-140 .

Time of event

775-55(2)    
The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

775-55(3)    
You make a forex realisation gain if:

(a) the amount you paid in respect of the event happening falls short of the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a ^* currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:

For proceeds of assuming the obligation , see section 775-95 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

775-55(4)    
You make a forex realisation gain if:

(a) the event happens because an option to buy ^* foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) if the option had been exercised immediately before the event, you would have been obliged to sell the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

775-55(5)    
You make a forex realisation loss if:

(a) the amount you paid in respect of the event happening exceeds the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a ^* currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:

For proceeds of assuming the obligation , see section 775-95 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

Non-cash benefit

775-55(6)    
The amount you paid in respect of the event happening can include a ^* non-cash benefit. Use the ^* market value of the benefit to work out the amount you paid.

Tax recognition time

775-55(7)    
For the purposes of this section, the tax recognition time is worked out using the table:

Tax recognition time
Item	In this case …	the tax recognition time is …
1	(a)	the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and	the time when the expense or outgoing became deductible.
	(b)	the obligation, or the part of the obligation, was not incurred:
		(i)	in return for the acquisition of an item of *trading stock; or
		(ii)	in return for your starting to hold a *depreciating asset; and
	(c)	the obligation, or the part of the obligation, was not incurred as the second element of the cost of a depreciating asset
2	(a)	the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and	the time when the item becomes part of your trading stock on hand.
	(b)	the obligation, or the part of the obligation, was incurred in return for the acquisition of an item of *trading stock
3	the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 )	the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
4	the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936 )	the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
5	(a)	you incurred the obligation, or the part of the obligation:   (i) in return for your starting to hold a *depreciating asset; or   (ii) as the second element of the cost of a depreciating asset; and	(a) in the case of the acquisition of a depreciating asset - when you began to hold the depreciating asset (worked out under Division 40); or
	(b)	you deduct an amount under Division 40 or 328 for the depreciating asset	(b) in the case of the second element of the cost of a depreciating asset - when you incurred the relevant expenditure.
6	you incurred the obligation, or the part of the obligation, as a *project amount	the first time when any part of the amount became deductible.
7	the obligation, or the part of the obligation, is referred to in subsection 775-165(5) (which deals with extension of loans)	the extension time referred to in that subsection.
8	you incurred the obligation, or the part of the obligation, in return for:	the time when you received the currency.
	(a)	receiving Australian currency or *foreign currency; or
	(b)	the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;
	where item 7 does not apply
9	(a)	you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset; and	the time when you acquired the CGT asset (worked out under Division 109).
	(b)	none of the above items apply
10	(a)	you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the *cost base of a CGT asset; and	the time of the transaction under which you incurred the obligation.
	(b)	none of the above items apply

Note 1:

Foreign currency is a CGT asset. If you acquire foreign currency as the borrower under a loan, item 8 will apply to your obligation to repay the foreign currency borrowed under the loan.

Note 2:

If you have made a choice for roll-over relief for a facility agreement, and forex realisation event 7 (material variation of a facility agreement) happens, subsection 775-220(6) modifies the tax recognition time for an obligation under a security that was in existence under the agreement at the time of that event.

Note 3:

Subsection 775-260(2) modifies the tax recognition time if forex realisation event 4 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

Note 4:

If you have made a choice for roll-over relief for a facility agreement, a forex realisation gain or forex realisation loss you make under the agreement as a result of forex realisation event 4 is disregarded - see section 775-200 .

SECTION 775-60   Ceasing to have a right to pay foreign currency - forex realisation event 5  

Forex realisation event 5

775-60(1)    
Forex realisation event 5 happens if:

(a) you cease to have a right, or a part of a right, to pay *foreign currency; and

(b) the right, or the part of the right, is one of the following:

(i) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay foreign currency;

(ii) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay Australian currency;

(iii) a right, or a part of a right, under an option to sell foreign currency.

Note 1:

For extended meaning of right to pay foreign currency , see section 775-135 .

Note 2:

For extended meaning of obligation to pay foreign currency , see section 775-140 .

Time of event

775-60(2)    
The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

775-60(3)    
You make a forex realisation gain if:

(a) the amount you pay in respect of the event happening falls short of the *forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:

For forex entitlement base , see section 775-90 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

Forex realisation loss

775-60(4)    
You make a forex realisation loss if:

(a) the amount you pay in respect of the event happening exceeds the *forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:

For forex entitlement base , see section 775-90 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

775-60(5)    
You make a forex realisation loss if:

(a) the event happens because an option to sell *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non-cash benefit

775-60(6)    
The amount you pay in respect of the event happening can include a *non-cash benefit. Use the *market value of the benefit to work out the amount you pay.

Tax recognition time

775-60(7)    
For the purposes of this section, the tax recognition time is the time when you pay an amount in respect of the event happening.

Obligation to pay Australian currency

775-60(8)    
To avoid doubt, for the purposes of this section, an obligation to pay Australian currency includes an obligation to pay Australian currency, where the obligation is subject to a contingency.

SECTION 775-65   Only one forex realisation event to be counted  

Option to buy foreign currency

775-65(1)    
The following table applies to an option to buy a particular *foreign currency if the exercise price is payable in another foreign currency:

Option to buy foreign currency
Item	If you are …	and both of these events happen when the option is exercised …	this is the result …
1	the entity who is capable of exercising the option	(a) forex realisation event 1; (b) forex realisation event 4	ignore forex realisation event 4.
2	the entity who is capable of exercising the option	(a) forex realisation event 2; (b) forex realisation event 4	ignore forex realisation event 4.
3	the entity who granted the option	(a) forex realisation event 3; (b) forex realisation event 4	ignore forex realisation event 3.

Option to sell foreign currency

775-65(2)    
The following table applies to an option to sell a particular *foreign currency if the exercise price is payable in another foreign currency:

Option to sell foreign currency
Item	If you are …	and both of these events happen when the option is exercised …	this is the result …
1	the entity who is capable of exercising the option	(a) forex realisation event 3; (b) forex realisation event 5	ignore forex realisation event 3.
2	the entity who granted the option	(a) forex realisation event 3; (b) forex realisation event 4	ignore forex realisation event 3.

Forward contracts

775-65(3)    
The following table applies to a contract to buy a particular *foreign currency in return for another foreign currency:

Forward contracts
Item	If both of these events happen when the contract is carried out …	this is the result …
1	(a) forex realisation event 1;	ignore forex realisation event 4.
	(b) forex realisation event 4
2	(a) forex realisation event 2;	ignore forex realisation event 4.
	(b) forex realisation event 4

Residual rule

775-65(4)    
If:

(a) 2 or more of forex realisation events 1, 2, 3, 4 and 5 happen to you at the same time in relation to the same rights and/or obligations; and

(b) none of the above subsections applies;

apply the forex realisation event that is most appropriate, and ignore the remaining event or events.

SECTION 775-70   Tax consequences of certain short-term forex realisation gains  

775-70(1)    
The following table has effect unless you have made a choice under section 775-80 :

Tax consequences of certain short-term forex realisation gains
Item	In this case …	this is the result …
1	you make a *forex realisation gain as a result of forex realisation event 2, and: (a) the right to receive *foreign currency was created in return for the occurrence of a *realisation event in relation to a *CGT asset you own; and	(a) the forex realisation gain is not included in your assessable income under section 775-15; and (b) CGT event K10 happens.
	(b) item 6 of the table in subsection 775-45(7) applies; and
	(c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event
2	you make a *forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay *foreign currency was incurred:     (i) in return for the acquisition of a *CGT asset; or	(a) the forex realisation gain is not included in your assessable income under section 775-15; and (b) both the *cost base and the *reduced cost base of the CGT asset are reduced by an amount equal to the forex realisation gain.
	(ii) as the second, third, fourth or fifth element of the *cost base of a CGT asset; and
	(b) item 9 of the table in subsection 775-55(7) applies; and
	(c) the foreign currency became due for payment within 12 months after the time when:
	(i) if subparagraph (a)(i) applies - you acquired the CGT asset (worked out under Division 109); or
	(ii) if subparagraph (a)(ii) applies - you incurred the relevant expenditure
3	you make a *forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay *foreign currency was incurred:     (i) in return for your starting to hold a *depreciating asset; or   (ii) as the second element of the cost of a depreciating asset; and (b) if subparagraph (a)(i) applies - the foreign currency became due for payment within the 24-month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and (c) if subparagraph (a)(ii) applies - the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure	(a) the forex realisation gain is not included in your assessable income under section 775-15; and (b) if:     (i) the forex realisation event happens in the income year in which the asset ' s *start time occurs; and   (ii) the asset is not allocated to a pool under Subdivision 40-E or 328-D; the asset ' s *cost is reduced (but not below zero) by an amount equal to the forex realisation gain; and (c) if:     (i) the forex realisation event happens in an income year that is later than the one in which the asset ' s *start time occurs; and   (ii) the asset is not allocated to a pool under Subdivision 40-E or 328-D; the depreciating asset ' s *opening adjustable value for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain; and (d) if the asset is allocated to a pool under Subdivision 40-E or 328-D - the opening pool balance of the pool for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain.
4	you make a *forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay *foreign currency was incurred as a project amount; and (b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount; and (c) the project amount is allocated to a project pool	(a) the forex realisation gain is not included in your assessable income under section 775-15; and (b) the pool value of the project pool for the income year in which you incurred the project amount is reduced (but not below zero) by an amount equal to the forex realisation gain.

Additional result where forex realisation gain exceeds cost etc.

775-70(2)    
The following table has effect:

Additional result where forex realisation gain exceeds cost etc.
Item	If …	and the following conditions are satisfied …	this is the result …
1	item 3 of the table in subsection (1) applies in relation to a *depreciating asset	(a) the forex realisation event happens in the income year in which the asset ' s *start time occurs; and	the excess is included in your assessable income.
		(b) the asset is not allocated to a pool under Subdivision 40-E or 328-D; and
		(c) the forex realisation gain exceeds the asset ' s *cost
2	item 3 of the table in subsection (1) applies in relation to a *depreciating asset	(a) the forex realisation event happens in an income year that is later than the one in which the asset ' s *start time occurs; and	the excess is included in your assessable income.
		(b) the asset is not allocated to a pool under Subdivision 40-E or 328-D; and
		(c) the forex realisation gain exceeds the asset ' s *opening adjustable value for the income year in which the forex realisation event happens
3	item 3 of the table in subsection (1) applies in relation to a *depreciating asset	(a) the asset is allocated to a pool under Subdivision 40-E or 328-D; and	the excess is included in your assessable income.
		(b) the forex realisation gain exceeds the opening pool balance of the pool for the income year in which the forex realisation event happens
4	item 4 of the table in subsection (1) applies in relation to a project amount	the forex realisation gain exceeds the pool value of the project pool for the income year in which you incurred the project amount	the excess is included in your assessable income.

775-70(3)    
To the extent that a *forex realisation gain:

(a) would have been included in your assessable income under section 775-15 if this section had not been enacted; and

(b) would, apart from this subsection, be included in your assessable income under another provision of this Act;

the gain is not included in your assessable income under that other provision.

SECTION 775-75   Tax consequences of certain short-term forex realisation losses  

775-75(1)    
The following table has effect unless you have made a choice under section 775-80 :

Tax consequences of certain short-term forex realisation losses
Item	In this case …	this is the result …
1	you make a *forex realisation loss as a result of forex realisation event 2, and:	(a) the forex realisation loss is not deductible under section 775-30; and
	(a) the right to receive *foreign currency was created in return for the occurrence of a *realisation event in relation to a *CGT asset you own; and	(b) CGT event K11 happens.
	(b) item 6 of the table in subsection 775-45(7) applies; and
	(c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event
2	you make a *forex realisation loss as a result of forex realisation event 4, and:	(a) the forex realisation loss is not deductible under section 775-30; and
	(a) the obligation to pay *foreign currency was incurred:     (i) in return for the acquisition of a *CGT asset; or   (ii) as the second, third, fourth or fifth element of the *cost base of a CGT asset; and	(b) both the *cost base and the *reduced cost base of the CGT asset are increased by an amount equal to the *forex realisation loss.
	(b) item 9 of the table in subsection 775-55(7) applies; and
	(c) the foreign currency became due for payment within 12 months after the time when:
	(i) if subparagraph (a)(i) applies - you acquired the CGT asset (worked out under Division 109); or
	(ii) if subparagraph (a)(ii) applies - you incurred the relevant expenditure
3	you make a *forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay *foreign currency was incurred:     (i) in return for your starting to hold a *depreciating asset; or   (ii) as the second element of the cost of a depreciating asset; and (b) if subparagraph (a)(i) applies - the foreign currency became due for payment within the 24-month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and (c) if subparagraph (a)(ii) applies - the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure	(a) the forex realisation loss is not deductible under section 775-30; and (b) if:     (i) the forex realisation event happens in the income year in which the asset ' s *start time occurs; and   (ii) the asset is not allocated to a pool under Subdivision 40-E or 328-D; the asset ' s *cost is increased by an amount equal to the forex realisation loss; and (c) if:     (i) the forex realisation event happens in an income year that is later than the one in which the asset ' s *start time occurs; and   (ii) the asset is not allocated to a pool under Subdivision 40-E or 328-D;
		the depreciating asset ' s *opening adjustable value for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss; and
		(d) if the asset is allocated to a pool under Subdivision 40-E or 328-D - the opening pool balance of the pool for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss.
4	you make a *forex realisation loss as a result of forex realisation event 4, and:	(a) the forex realisation loss is not deductible under section 775-30; and
	(a) the obligation to pay *foreign currency was incurred as a project amount; and (b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount	(b) the pool value of the project pool for the income year in which you incurred the project amount is increased by an amount equal to the forex realisation loss.

775-75(2)    
To the extent that:

(a) section 775-30 would have allowed you a deduction for a *forex realisation loss if this section had not been enacted; and

(b) apart from this subsection, another provision of this Act would allow you a deduction for the loss;

you cannot deduct the loss under that other provision.

SECTION 775-80   You may choose not to have sections 775-70 and 775-75 apply to you  

775-80(1)    
You may choose not to have sections 775-70 and 775-75 apply to you.

775-80(2)    
A choice must be in writing.

775-80(3)    
A choice must be made:

(a) if you were in existence at the start of the applicable commencement date:

(i) within 90 days after the applicable commencement date; or

(ii) within 30 days after the commencement of this subsection; or

(b) if you came into existence within 90 days after the start of the applicable commencement date:

(i) within 90 days after you came into existence; or

(ii) within 30 days after the commencement of this subsection; or

(c) if the Commissioner allows a longer period - within that longer period.

Note:

For applicable commencement date , see section 775-155 .

775-80(4)    
A choice has effect from the start of the applicable commencement date.

775-80(5)    
A choice may not be revoked.

SECTION 775-85  

775-85   Forex cost base of a right to receive foreign currency  

The forex cost base of a right, or a part of a right, to receive *foreign currency is the total of:

(a) the money you:

(i) paid; or

(ii) are required to pay; or

(iii) would be required to pay in the event of the exercise of an option;

in respect of acquiring the right or part of the right; and

(b) the *market value of any *non-cash benefit you:

(i) provided; or

(ii) are required to provide; or

(iii) would be required to provide in the event of the exercise of an option;

in respect of acquiring the right or part of the right;

reduced by any amounts that are deductible under a provision of this Act other than this Division.

SECTION 775-90  

775-90   Forex entitlement base of a right to pay foreign currency  

The forex entitlement base of a right, or a part of a right, to pay *foreign currency is the total of:

(a) the money you:

(i) are entitled to receive; or

(ii) would be entitled to receive in the event of the exercise of an option;

in respect of the discharge or satisfaction of the right or the part of the right; and

(b) the *market value of any *non-cash benefit you:

(i) are entitled to acquire or obtain; or

(ii) would be entitled to acquire or obtain in the event of the exercise of an option;

in respect of the discharge or satisfaction of the right or the part of the right;

reduced by:

(c) any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and

(d) the market value of any non-cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.

SECTION 775-95  

775-95   Proceeds of assuming an obligation to pay foreign currency  

For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay *foreign currency are the total of:

(a) the money you:

(i) received; or

(ii) are entitled to receive; or

(iii) would be entitled to receive in the event of the exercise of an option;

in return for incurring the obligation or the part of the obligation; and

(b) the *market value of any *non-cash benefit you:

(i) acquired or obtained; or

(ii) are entitled to acquire or obtain; or

(iii) would be entitled to acquire or obtain in the event of the exercise of an option;

in return for incurring the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

SECTION 775-100   Net costs of assuming an obligation to receive foreign currency  

775-100(1)    
For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive *foreign currency are the total of:

(a) the money you:

(i) are required to pay; or

(ii) would be required to pay in the event of the exercise of an option;

in respect of the fulfilment of the obligation or the part of the obligation; and

(b) the *market value of any *non-cash benefit you:

(i) are required to provide; or

(ii) would be required to provide in the event of the exercise of an option;

in respect of the fulfilment of the obligation or the part of the obligation;

reduced by the amount worked out under subsection (2).

775-100(2)    
The amount worked out under this subsection is the total of:

(a) the money you:

(i) received; or

(ii) are entitled to receive;

because you incurred the obligation or the part of the obligation; and

(b) the *market value of any *non-cash benefit you:

(i) received or obtained; or

(ii) are entitled to receive or obtain;

because you incurred the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

775-100(3)    
To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a *non-cash benefit that you:

(a) received or obtained; or

(b) are entitled to receive or obtain;

because of the fulfilment of the obligation or the part of the obligation.

SECTION 775-105   Currency exchange rate effect  

775-105(1)    
A currency exchange rate effect is:

(a) any currency exchange rate fluctuations; or

(b) a difference between:

(i) an expressly or implicitly agreed currency exchange rate for a future date or time; and

(ii) the applicable currency exchange rate at that date or time.

775-105(2)    
To work out whether there is a currency exchange rate effect and (if so), the extent of that effect, use whichever of the following translation rules is applicable to you:

(a) the translation rules in section 960-50 (the standard rules);

(b) the translation rules in section 960-80 (the functional currency rules).

SECTION 775-110  

775-110   Constructive receipts and payments  

For the purposes of this Subdivision, if an entity (the payer ) did not actually pay an amount to another entity (the recipient ), but the amount was applied or dealt with in any way on the recipient's behalf or as the recipient directs (including by discharging all or a part of an obligation owed by the recipient), then:

(a) the payer is taken to have paid the amount as soon as it is applied or dealt with; and

(b) the recipient is taken to have received the amount as soon as it is applied or dealt with.

Note:

The set-off of an obligation to pay an amount against a right to receive an amount is an example of how this section would operate.

SECTION 775-115  

775-115   Economic set-off to be treated as legal set-off  

If the economic effect of an *arrangement is to provide for the set-off, in whole or in part, of one or more amounts against one or more other amounts, this Subdivision applies as if:

(a) the parties to the arrangement had the respective rights and obligations that they would have had if the provision for economic set-off were structured as a provision for legal set-off of rights and obligations; and

(b) if the economic set-off happens - the parties were taken, under section 775-110 , to have paid and received the respective amounts that they would have paid and received if the economic set-off were structured as a legal set-off of rights and obligations.

SECTION 775-120  

775-120   Non-arm's length transactions  

If:

(a) you and another entity did not deal with each other at *arm's length in connection with a transaction that is relevant to working out:

(i) whether you make a *forex realisation gain or a *forex realisation loss; or

(ii) the amount of any *forex realisation gain or a *forex realisation loss made by you; and

(b) apart from this section, a particular amount is more or less than it would have been if you and the other entity had been dealing with each other at arm's length;

this Subdivision applies to you as if that amount were the amount it would have been if you and the other entity had been dealing with each other at arm's length.

SECTION 775-125  

775-125   CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3  

If you acquire *foreign currency as a result of forex realisation event 2 or 3:

(a) the first element of the foreign currency's *cost base is replaced by the foreign currency's *market value at the time you received the foreign currency; and

(b) the first element of the foreign currency's *reduced cost base is replaced by the foreign currency's market value at the time you received the foreign currency.

SECTION 775-130  

775-130   Certain deductions not allowable  

If:

(a) an amount is included in your assessable income under this Division; and

(b) if this Division had not been enacted, the amount would not have been included in your assessable income under any other provision of this Act (other than Division 102 ); and

(c) if this section had not been enacted, a deduction would be allowable to you under a provision listed in the table in subsection 51AAA(2) of the Income Tax Assessment Act 1936 ; and

(d) if the amount had not been included in your assessable income under this Division, the deduction would not be allowable;

the deduction is not allowable.

SECTION 775-135   Right to receive or pay foreign currency  

Extended meaning of right to receive foreign currency

775-135(1)    
For the purposes of this Division, a right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

775-135(2)    
To avoid doubt, for the purposes of this Division, a right to receive foreign currency includes a right to receive *foreign currency, where the right is subject to a contingency.

Extended meaning of right to pay foreign currency

775-135(3)    
For the purposes of this Division, a right to pay foreign currency includes a right to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

775-135(4)    
To avoid doubt, for the purposes of this Division, a right to pay foreign currency includes a right to pay *foreign currency, where the right is subject to a contingency.

SECTION 775-140   Obligation to pay or receive foreign currency  

Extended meaning of obligation to pay foreign currency

775-140(1)    
For the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

775-140(2)    
To avoid doubt, for the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay *foreign currency, where the obligation is subject to a contingency.

Extended meaning of obligation to receive foreign currency

775-140(3)    
For the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

775-140(4)    
To avoid doubt, for the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive *foreign currency, where the obligation is subject to a contingency.

SECTION 775-145   Application of forex realisation events to currency and fungible rights and obligations  

775-145(1)    
Forex realisation event 1, 2 or 4 applies in relation to:

(a) *foreign currency; or

(b) a fungible right, or a part of a fungible right, to receive foreign currency; or

(c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency;

on a first-in first-out basis.

775-145(2)    
The regulations may provide that any or all of forex realisation events 1, 2 and 4 apply, or apply in specified circumstances, to:

(a) *foreign currency; or

(b) a fungible right, or a part of a fungible right, to receive foreign currency; or

(c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency;

on a weighted average basis (despite subsection (1)).

775-145(3)    
The circumstances that may be specified for the purposes of subsection (2) include the circumstance that you have made an election to use a weighted average basis.

775-145(4)    
Subsection (3) does not limit subsection (2).

SECTION 775-150   Transitional election  

775-150(1)    
You may elect to have this section apply to you.

Note:

For the consequences of an election, see sections 775-160 and 775-165 .

775-150(2)    
An election must be in writing.

775-150(3)    
An election must be made:

(a) within 60 days after the applicable commencement date; or

(b) within 30 days after the commencement of this subsection.

Note:

For applicable commencement date , see section 775-155 .

775-150(4)    
An election may not be revoked.

SECTION 775-155  

775-155   Applicable commencement date  

For the purposes of this Division, your applicable commencement date is:

(a) the first day of the 2003-04 income year; or

(b) if that day is earlier than 1 July 2003 - the first day of the 2004-05 income year.

SECTION 775-160   Exception - event happens before the applicable commencement date  

775-160(1)    
A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4 or 5 is disregarded if the event happened before the applicable commencement date.

Note:

For applicable commencement date , see section 775-155 .

775-160(2)    
Subsection (1) does not apply if:

(a) you have made an election under section 775-150 ; and

(b) the Commissioner is satisfied that the event happened under, or as a result of, an *arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of obtaining the benefit of the operation of subsection (1).

SECTION 775-165   Exception - currency or right acquired, or obligation incurred, before the applicable commencement date  

Exception - foreign currency acquired before the applicable commencement date

775-165(1)    
A *forex realisation gain or *forex realisation loss you make on the disposal of *foreign currency as a result of forex realisation event 1 is disregarded if:

(a) the foreign currency was acquired before the applicable commencement date; and

(b) you have not made an election under section 775-150 .

For the purposes of paragraph (a), the time of acquisition is worked out under Division 109 .

Note:

For applicable commencement date , see section 775-155 .

Exception - right acquired before the applicable commencement date

775-165(2)    
A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 1, 2 or 5 happening to a right or a part of a right is disregarded if:

(a) the right, or the part of the right;

(i) was acquired before the applicable commencement date; or

(ii) arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936 ) that was entered into before the applicable commencement date; and

(b) you have not made an election under section 775-150 .

For the purposes of subparagraph (a)(i), the time of acquisition is worked out under Division 109 .

Note:

For applicable commencement date , see section 775-155 .

775-165(3)    
If:

(a) at a particular time (the extension time ) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and

(b) either:

(i) the contract is separate from the original loan contract; or

(ii) the extension amounts to a variation of the original loan contract;

subparagraph (2)(a)(ii) does not apply to a right, or a part of a right, that arises after the extension time and relates to the loan.

Note:

For applicable commencement date , see section 775-155 .

Exception - obligation incurred before the applicable commencement date

775-165(4)    
A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 3 or 4 happening to an obligation or a part of an obligation is disregarded if:

(a) either:

(i) you incurred the obligation, or the part of the obligation, before the applicable commencement date; or

(ii) the obligation, or the part of the obligation, arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936 ) that was entered into before the applicable commencement date; and

(b) you have not made an election under section 775-150 .

Note:

For applicable commencement date , see section 775-155 .

775-165(5)    
If:

(a) at a particular time (the extension time ) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and

(b) either:

(i) the contract is separate from the original loan contract; or

(ii) the extension amounts to a variation of the original loan contract;

subparagraph (4)(a)(ii) does not apply to an obligation, or a part of an obligation, that arises after the extension time and relates to the loan.

Note:

For applicable commencement date , see section 775-155 .

SECTION 775-168  

775-168   Exception - disposal or redemption of traditional securities  

A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 2 is disregarded if the event happened because of a disposal or redemption covered by:

(a) subsection 26BB(4) or (5) of the Income Tax Assessment Act 1936 ; or

(b) subsection 70B(2B) or (2C) of that Act.

775-170   (Repealed) SECTION 775-170 Exemption for ADIs and non-ADI financial institutions  
(Repealed by No 15 of 2009 )

SECTION 775-175  

775-175   Application to things happening before commencement  

The use of the present tense in a provision of this Division does not imply that the provision does not apply to things happening before the commencement of this Division.

Subdivision 775-C - Roll-over relief for facility agreements  

SECTION 775-180   What this Subdivision is about  

Operative provisions

SECTION 775-185  

775-185   What is a facility agreement ?  

A facility agreement is an agreement between an entity (the first entity ) and another entity or entities under which:

(a) the first entity has a right to issue *eligible securities; and

(b) an entity or entities must acquire the securities;

where the economic effect of the agreement is to enable the first entity to obtain finance in a particular *foreign currency:

(c) up to the foreign currency amount specified in the agreement; and

(d) during the term of the agreement.

SECTION 775-190  

775-190   What is an eligible security ?  

An eligible security is:

(a) a bill of exchange, or a promissory note, that is:

(i) non-interest bearing; and

(ii) issued at a discount to face value; and

(iii) denominated in a particular *foreign currency; and

(iv) for a fixed term; or

(b) a security that is:

(i) specified in the regulations; and

(ii) denominated in a foreign currency; and

(iii) for a fixed term.

SECTION 775-195   You may choose roll-over relief for a facility agreement  

775-195(1)    
You may choose roll-over relief for a *facility agreement if:

(a) you have entered into the agreement; and

(b) you have a right to issue *eligible securities under the agreement; and

(c) the economic effect of the agreement is to enable you to obtain finance in a particular *foreign currency:

(i) up to the foreign currency amount specified in the agreement; and

(ii) during the term of the agreement.

775-195(2)    
A choice must be made:

(a) within 90 days after the first time you issue an *eligible security under the *facility agreement; or

(b) within 90 days after the applicable commencement date; or

(c) within 30 days after the commencement of this subsection.

Note:

For applicable commencement date , see section 775-155 .

775-195(3)    
If you make a choice within 90 days after the first time you issue an *eligible security under the *facility agreement, the choice is taken to have been in effect throughout the period that began immediately before the first time you issued an eligible security under the facility agreement.

775-195(4)    
If:

(a) you make a choice:

(i) within 90 days after the applicable commencement date; or

(ii) within 30 days after the commencement of this subsection; and

(b) subsection (3) does not apply;

the choice is taken to have been in effect throughout the period that began at whichever is the later of the following times:

(c) the start of the applicable commencement date;

(d) the first time you issued an *eligible security under the *facility agreement.

Note:

For applicable commencement date , see section 775-155 .

775-195(5)    
A choice must be in writing.

775-195(6)    
A choice continues to apply until the *facility agreement ends.

Note:

If forex realisation event 7 happens (material variation of facility agreement), subsection 775-220(5) terminates your choice.

775-195(7)    
A choice may not be revoked.

775-195(8)    
(Repealed by No 15 of 2009 )

775-195(9)    
(Repealed by No 15 of 2009 )

SECTION 775-200  

775-200   Forex realisation event 4 does not apply  

A *forex realisation gain or a *forex realisation loss you make as a result of forex realisation event 4 or 9 is disregarded to the extent to which the event happens because:

(a) you discharge your obligation under an *eligible security issued by you under a *facility agreement; and

(b) you have made a choice for roll-over relief for the facility agreement, and that choice is in effect.

SECTION 775-205  

775-205   What is a roll-over ?  

A roll-over happens under a *facility agreement if:

(a) you discharge your obligation under an *eligible security issued by you under the agreement (the rolled-over security ); and

(b) at the same time, you issue a new eligible security (the new security ) under the agreement; and

(c) the issue of the new security is related to the discharge of your obligation under the rolled-over security in one of the following ways:

(i) your obligation under the rolled-over security is wholly or partly set off against your right to receive the *foreign currency issue price of the new security;

(ii) your obligation under the rolled-over security is wholly or partly satisfied by the issue of the new security; and

(d) you have made a choice for roll-over relief for the agreement, and that choice is in effect; and

(e) the new security is issued on or after the applicable commencement date; and

(f) if you have not made an election under section 775-150 - the rolled-over security is issued on or after the applicable commencement date.

Note:

For applicable commencement date , see section 775-155 .

SECTION 775-210   Notional loan  

775-210(1)    
The rules in this section have effect only for the purposes of this Subdivision.

Notional loan

775-210(2)    
If you issue an *eligible security under a *facility agreement otherwise than as a result of a roll-over, you are taken to have been given a loan (the notional loan ):

(a) of a *foreign currency principal amount equal to the foreign currency face value of the security; and

(b) for a period equal to the term of the security; and

(c) that is taken to be attached to the security; and

(d) the start time of which is the time when you issued the security.

Note 1:

The period of the notional loan may be extended as the result of a later roll-over - see subsection (3).

Note 2:

The notional loan may become attached to a later security as the result of a roll-over - see subsection (3).

Note 3:

The foreign currency principal amount of the notional loan may remain the same, or may fall (but not rise), as a result of a later roll-over - see subsection (3).

Note 4:

If, at a later time, the security is rolled-over, and the foreign currency face value of the new security exceeds the foreign currency face value of the rolled-over security, you are taken to have been given an additional notional loan of a foreign currency principal amount equal to the excess - see subsection (3).

Effect of roll-over

775-210(3)    
The table has effect if an *eligible security is rolled-over under a *facility agreement:

Roll-over of eligible security
Item	If the foreign currency face value of the new security …	this is the result …
1	equals the *foreign currency face value of the rolled-over security	(a) the period of each notional loan attached to the rolled-over security is extended by the term of the new security; and
		(b) each notional loan attached to the rolled-over security is taken to be attached to the new security.
2	exceeds the *foreign currency face value of the rolled-over security	(a) you are taken to have been given an additional notional loan:
		(i) of a foreign currency principal amount equal to the excess; and
		(ii) for a period equal to the term of the new security; and
		(iii) that is taken to be attached to the new security; and
		(iv) the start time of which is the time when you issued the new security; and
		(b) the period of each notional loan attached to the rolled-over security is extended by the term of the new security; and
		(c) each notional loan attached to the rolled-over security is taken to be attached to the new security.
3	falls short of the *foreign currency face value of the rolled-over security, and there is only one notional loan attached to the rolled-over security	(a) you are taken to have paid a foreign currency amount equal to the shortfall in order to discharge so much of your obligation to pay the foreign currency principal amount of the notional loan as equals the shortfall; and
		(b) the period of the notional loan is extended by the term of the new security; and
		(c) the notional loan is taken to be attached to the new security.
4	falls short of the *foreign currency face value of the rolled-over security, and there are 2 or more notional loans attached to the rolled-over security	(a) you are taken to have paid a foreign currency amount equal to the shortfall in order to discharge your obligation to pay so much of the total foreign currency principal amounts of the notional loans as equals the shortfall, and to have done so on a first-in first-out basis, that is to say:
		(i) first, by fully or partly discharging (as the case requires) your obligation to pay the foreign currency principal amount of the notional loan with the earliest start date; and
		(ii) second, if your obligation to pay the foreign currency principal amount of the notional loan with the earliest start date is fully discharged - by fully or partly discharging (as the case requires) your obligation to pay the foreign currency principal amount of the notional loan with the next start date, and so on; and
		(b) the period of each notional loan attached to the rolled-over security that is not fully discharged is extended by the term of the new security; and
		(c) each notional loan attached to the rolled-over security that is not fully discharged is taken to be attached to the new security.

Consequences if security is not rolled-over

775-210(4)    
If:

(a) you discharge your obligation under an *eligible security issued under a *facility agreement; and

(b) the security is not rolled-over at the time of discharge; and

(c) you have made a choice for roll-over relief for the facility agreement, and that choice is in effect;

then, for each notional loan attached to the security, you are taken to have paid a *foreign currency amount equal to the foreign currency principal amount of the notional loan in order to discharge your obligation to pay the foreign currency principal amount of the notional loan.

Foreign currency

775-210(5)    
For the purposes of the application of this section to a particular *facility agreement that provides for the issue of *eligible securities, foreign currency is the *foreign currency in which the securities are denominated.

Note:

Section 960-50 (Australian currency translation rule) does not affect the operation of this section - see subsection 960-50(10) . You translate to Australian currency when you apply section 775-215 (forex realisation event 6).

SECTION 775-215   Discharge of obligation to pay the principal amount of a notional loan under a facility agreement - forex realisation event 6  

Forex realisation event 6

775-215(1)    
Forex realisation event 6 happens if:

(a) you discharge an obligation, or a part of an obligation, to pay the *foreign currency principal amount of a notional loan attached to an *eligible security issued by you under a *facility agreement; and

(b) you have made a choice for roll-over relief for the agreement, and that choice is in effect.

Time of event

775-215(2)    
The time of the event is when you discharge the obligation or the part of the obligation.

Forex realisation gain

775-215(3)    
You make a forex realisation gain if:

(a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, exceeds the amount you paid in order to discharge the obligation or the part of the obligation; and

(b) some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

Forex realisation loss

775-215(4)    
You make a forex realisation loss if:

(a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, falls short of the amount you paid in order to discharge the obligation or the part of the obligation; and

(b) some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

Exempt income etc.

775-215(5)    
For the purposes of the application of sections 775-20 , 775-25 and 775-35 to the event, assume that the notional loan had been an actual loan.

SECTION 775-220   Material variation of a facility agreement - forex realisation event 7  

Forex realisation event 7

775-220(1)    
Forex realisation event 7 happens if:

(a) a material variation is made to the terms or conditions of a *facility agreement; or

(b) a material variation is made to the effect of a facility agreement; or

(c) a material variation is made to the type or types of security that can be issued under a facility agreement;

so long as you have made a choice for roll-over relief for the facility agreement, and that choice is in effect.

Note:

See also subsections (7) and (8).

Time of the event

775-220(2)    
The time of the event is when the material variation happens.

Forex realisation gain

775-220(3)    
You make a forex realisation gain if:

(a) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any *eligible security;

exceeds:

(b) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any eligible security.

The amount of the forex realisation gain is the amount of the excess.

Note:

See also subsection (9).

Forex realisation loss

775-220(4)    
You make a forex realisation loss if:

(a) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any *eligible security;

exceeds:

(b) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any eligible security.

The amount of the forex realisation loss is the amount of the excess.

Note:

See also subsection (9).

Termination of choice

775-220(5)    
If forex realisation event 7 happens in relation to a *facility agreement:

(a) your choice for roll-over relief for the facility agreement ceases to have effect immediately after the event; and

(b) you are not entitled to make a fresh choice for roll-over relief for the facility agreement.

Modification of tax recognition time

775-220(6)    
If:

(a) forex realisation event 7 happens in relation to a *facility agreement; and

(b) an *eligible security issued by you under the facility agreement was in existence at the time of that event; and

(c) at a later time, forex realisation event 4 happens because you cease to have an obligation, or a part of an obligation, to pay *foreign currency under the security;

section 775-55 applies to you as if the tax recognition time for the obligation, or the part of the obligation, were the time of forex realisation event 7 (despite subsection 775-55(7) ).

Material variation

775-220(7)    
To avoid doubt, if a variation to:

(a) the terms or conditions of a facility agreement; or

(b) the effect of a facility agreement;

results in the agreement ceasing to be a facility agreement, the variation is taken to be a material variation for the purposes of subsection (1).

775-220(8)    
The regulations may provide that a specified kind of variation is taken to be a material variation for the purposes of subsection (1).

Total amount

775-220(9)    
To avoid doubt, the total amount referred to in paragraph (3)(b) or (4)(b) may be zero.

Subdivision 775-D - Qualifying forex accounts that pass the limited balance test  

SECTION 775-225   What this Subdivision is about  

Operative provisions

SECTION 775-230   Election to have this Subdivision apply to one or more qualifying forex accounts  

775-230(1)    
You may elect to have this Subdivision apply to one or more *qualifying forex accounts held by you.

775-230(2)    
An election must be in writing.

775-230(2A)    
If:

(a) you make an election within 30 days after the commencement of this subsection; and

(b) the election is expressed to have come into effect on a specified day; and

(c) the specified day is included in the period:

(i) beginning on 1 July 2003; and

(ii) ending on the day on which the election is made;

the election is taken to have come into effect on the specified day.

775-230(3)    
An election continues in effect, in relation to a particular account, until:

(a) you cease to hold the account; or

(b) the account ceases to be a *qualifying forex account; or

(c) the election is varied by removing the account; or

(d) a withdrawal of the election takes effect;

whichever happens first.

Note 1:

For variation of election, see section 775-235 .

Note 2:

For withdrawal of election, see section 775-240 .

775-230(4)    
If an election made by you under this section is in effect, you are not entitled to make another election under this section.

775-230(5)    
An *ADI or a *non-ADI financial institution is not entitled to make an election under this section.

SECTION 775-235   Variation of election  

775-235(1)    
If you have made an election under section 775-230 , you may vary your election by:

(a) adding one or more *qualifying forex accounts; or

(b) removing one or more qualifying forex accounts.

775-235(2)    
A variation must be in writing.

775-235(3)    
Removing an account does not prevent you from adding the account in a future variation.

SECTION 775-240   Withdrawal of election  

775-240(1)    
If you have made an election under section 775-230 , you may withdraw your election.

775-240(2)    
A withdrawal must be in writing.

775-240(3)    
Withdrawing an election does not prevent you from making a fresh election under section 775-230 in relation to any or all of the same accounts.

SECTION 775-245   When does a qualifying forex account pass the limited balance test ?  

Basic rule

775-245(1)    
For the purposes of this Subdivision, a *qualifying forex account that you hold passes the limited balance test at a particular time if, at that time:

(a) an election made by you under section 775-230 has effect in relation to:

(i) the account; or

(ii) the account and one or more other *qualifying forex accounts; and

(b) the total of the credit balances of the account and each of those other accounts (if any) is not more than the *foreign currency equivalent of $250,000; and

(c) the total of the debit balances of the account and each of those other accounts (if any) is not more than the foreign currency equivalent of $250,000.

Note:

For buffering during an increased balance period, see subsections (2) and (3).

Buffering during first and second increased balance period

775-245(2)    
For the purposes of this section, an increased balance period is a continuous period consisting of:

(a) an income year; or

(b) a particular part of an income year;

where, at each time during the period, either or both of the following conditions is satisfied:

(c) the total of the credit balances of the account or accounts covered by your section 775-230 election is more than the *foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000;

(d) the total of the debit balances of the account or accounts covered by your section 775-230 election is more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000.

775-245(3)    
The table has effect:

Increased balance period
Item	In this case …	this is the result …
1	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and	paragraphs (1)(b) and (c) do not apply during the first-mentioned increased balance period.
	(b) the duration of the period is 15 days or less; and
	(c) itis not the case that:
	(i) the period began at the start of the income year; and
	(ii) another increased balance period ended at the end of the previous income year
2	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and	paragraphs (1)(b) and (c) do not apply during those increased balance periods.
	(b) both:
	(i) the period began at the start of the income year; and
	(ii) another increased balance period ended at the end of the previous income year; and
	(c) the total duration of those increased balance periods is 15 days or less
3	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and	paragraphs (1)(b) and (c) do not apply during the first 15 days of the first-mentioned increased balance period.
	(b) the duration of the period is more than 15 days; and
	(c) it is not the case that:
	(i) the period began at the start of the income year; and
	(ii) another increased balance period ended at the end of the previous income year
4	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and	paragraphs (1)(b) and (c) do not apply during the first 15 days of the period that consists of those increased balance periods.
	(b) both:
	(i) the period began at the start of the income year; and
	(ii) another increased balance period ended at the end of the previous income year; and
	(c) the total duration of those increased balance periods is more than 15 days
5	(a) an increased balance period is the second increased balance period that occurs in a particular income year; and	paragraphs (1)(b) and (c) do not apply during the first-mentioned increased balance period.
	(b) the duration of the period is 15 days or less; and
	(c) item 1 or 2 applies to the first increased balance period that occurred in the income year
6	(a) an increased balance period is the second increased balance period that occurs in a particular income year; and	paragraphs (1)(b) and (c) do not apply during the first 15 days of the first-mentioned increased balance period.
	(b) the duration of the period is more than 15 days; and
	(c) item 1 or 2 applies to the first increased balance period that occurred in the income year

Translation of foreign currency

775-245(4)    
For the purposes of the application of section 960-50 to this section, work out the *foreign currency equivalent of an amount of Australian currency as at a particular time in an income year by translating the foreign currency to Australian currency at the average exchange rate for the third month that preceded the income year.

Debit balances

775-245(5)    
For the purposes of this section, a debit balance is to be expressed as a positive amount.

Note:

For example, if you owe $1,100 on a credit card account, the debit balance of that account is $1,100.

SECTION 775-250   Tax consequences of passing the limited balance test  

775-250(1)    
A *forex realisation gain or a *forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if the event happens in relation to a *qualifying forex account that:

(a) you hold at the time of the event; and

(b) passes the limited balance test at the time of the event.

775-250(2)    
If CGT event C1 or C2 happens in relation to a *qualifying forex account that:

(a) you hold at the time of the event; and

(b) passes the limited balance test at the time of the event;

disregard so much of any *capital gain or *capital loss you make as a result of the event as is attributable to a *currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

SECTION 775-255   Notional realisation when qualifying forex account starts to pass the limited balance test  

Credit balance

775-255(1)    
For the purposes of this Division, if:

(a) you hold a *qualifying forex account; and

(b) at a particular time:

(i) the account starts to pass the limited balance test; and

(ii) the account has a credit balance; and

(iii) you have one or more rights to receive a total amount of *foreign currency represented by the credit balance of the account;

you are treated as:

(c) having ceased to have those rights at that time; and

(d) having re-acquired those rights immediately after that time.

Note:

This means that forex realisation event 2 will happen when the account starts to pass the limited balance test.

Debit balance

775-255(2)    
For the purposes of this Division, if:

(a) you hold a *qualifying forex account; and

(b) at a particular time:

(i) the account starts to pass the limited balance test; and

(ii) the account has a debit balance; and

(iii) you have one or more obligations to pay a total amount of *foreign currency represented by the debit balance of the account;

you are treated as:

(c) having ceased to have those obligations at that time; and

(d) having started to again owe those obligations immediately after that time.

Note:

This means that forex realisation event 4 will happen when the account starts to pass the limited balance test.

SECTION 775-260   Modification of tax recognition time  

Forex realisation event 2

775-260(1)    
If:

(a) forex realisation event 2 happens in relation to a *qualifying forex account that:

(i) you hold at the time of the event; and

(ii) does not pass the limited balance test at the time of the event; and

(b) apart from this subsection, the tax recognition time, worked out using the table in subsection 775-45(7) , happened at a time when the account passed the limited balance test;

section 775-45 applies to you as if the tax recognition time were the most recent time before the forex realisation event when the account ceased to pass the limited balance test (despite subsection 775-45(7) ).

Forex realisation event 4

775-260(2)    
If:

(a) forex realisation event 4 happens in relation to a *qualifying forex account that:

(i) you hold at the time of the event; and

(ii) does not pass the limited balance test at the time of the event; and

(b) apart from this subsection, the tax recognition time, worked out using the table in subsection 775-55(7) , happened at a time when the account passed the limited balance test;

section 775-55 applies to you as if the tax recognition time were the most recent time before the forex realisation event when the account ceased to pass the limited balance test (despite subsection 775-55(7) ).

Subdivision 775-E - Retranslation for qualifying forex accounts  

Guide to Subdivision 775-E

SECTION 775-265   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
775-270	You may choose retranslation for a qualifying forex account
775-275	Withdrawal of choice
775-280	Tax consequences of choosing retranslation for an account
775-285	Retranslation of gains and losses relating to a qualifying forex account - forex realisation event 8

Operative provisions

SECTION 775-270   You may choose retranslation for a qualifying forex account  

775-270(1)    
You may choose retranslation for a *qualifying forex account held by you.

775-270(1A)    

A choice under subsection (1) does not apply to a *qualifying forex account held by you if a *foreign exchange retranslation election by you is in effect in relation to the account under Subdivision 230-D .

775-270(2)    
A choice must be in writing.

775-270(2A)    
If:

(a) either:

(i) you make a choice within 30 days after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No 1) 2003 ; or

(ii) you make a choice within 90 days after the commencement of Part 1 of Schedule 1 to the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 ; and

(b) the choice is expressed to have come into effect on a specified day; and

(c) the specified day is included in the period:

(i) beginning on 1 July 2003; and

(ii) ending on the day on which the choice is made;

the choice is taken to have come into effect on the specified day.

775-270(3)    
A choice continues in effect until:

(a) you cease to hold the account; or

(b) the account ceases to be a *qualifying forex account; or

(c) a withdrawal of the choice takes effect;

whichever happens first.

Note:

For withdrawal of choice, see section 775-275 .

SECTION 775-275   Withdrawal of choice  

775-275(1)    
If you have made a choice for retranslation for a *qualifying forex account held by you, you may withdraw your choice.

775-275(2)    
A withdrawal must be in writing.

775-275(3)    
Withdrawing a choice does not prevent you from making a fresh choice under section 775-270 .

SECTION 775-280   Tax consequences of choosing retranslation for an account  

775-280(1)    
A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if:

(a) the event happens in relation to a *qualifying forex account that you hold; and

(b) you have made a choice for retranslation for the account; and

(c) the choice is in effect when the event happens.

775-280(2)    
If:

(a) CGT event C1 or C2 happens in relation to a *qualifying forex account that you hold at the time of the event; and

(b) you have made a choice for retranslation for the account; and

(c) the choice is in effect when the event happens;

disregard so much of any *capital gain or *capital loss you make as a result of the event as is attributable to a *currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

SECTION 775-285   Retranslation of gains and losses relating to a qualifying forex account - forex realisation event 8  

Forex realisation event 8

775-285(1)    
Forex realisation event 8 happens if:

(a) you have made a choice for retranslation for a *qualifying forex account held by you; and

(b) that choice was in effect throughout a continuous period (the retranslation period ) consisting of:

(i) an income year; or

(ii) a particular part of an income year; and

(c) either:

(i) there is a positive retranslation amount for the account for the retranslation period (worked out under subsection (2)); or

(ii) there is a negative retranslation amount for the account for the retranslation period (worked out under subsection (3)).

Retranslation amount

775-285(2)    
If the amount worked out using the formula in subsection (4) is a positive amount, that amount is a positive retranslation amount for the account for the retranslation period.

775-285(3)    
If the amount worked out using the formula in subsection (4) is a negative amount, that amount is a negative retranslation amount for the account for the retranslation period.

775-285(4)    
Work out an amount for the account for the retranslation period using the formula:

Closing balance of account for the retranslation period

−

Opening balance of account for the retranslation period

−

Total deposits made to account during the retranslation period

+

Total withdrawals made from account during the retranslation period

775-285(5)    
For the purposes of subsection (4), a debit balance is to be expressed as a negative amount (for example, a debit balance of $50,000 is to be expressed as − $50,000).

Forex realisation gain

775-285(6)    
You make a forex realisation gain if there is a positive retranslation amount for the account for the retranslation period. The amount of the forex realisation gain is the positive retranslation amount.

Forex realisation loss

775-285(7)    
You make a forex realisation loss if there is a negative retranslation amount for the account for the retranslation period. The amount of the forex realisation loss is the negative retranslation amount.

775-285(8)    
For the purposes of subsection (7), reverse a negative amount (for example, a negative retranslation amount of − $50,000 will become a forex realisation loss of $50,000).

Translation of foreign currency

775-285(9)    
For the purposes of the application of section 960-50 to this section:

(a) if a retranslation period for an account did not begin immediately after the end of another retranslation period for the account - the opening balance of the account for the first-mentioned retranslation period is to be translated to Australian currency at the exchange rate applicable at the start of the first-mentioned retranslation period; and

(b) if a retranslation period for an account began immediately after the end of another retranslation period for the account - the opening balance of the account for the first-mentioned retranslation period is to be translated to Australian currency at the exchange rate applicable at the end of the other retranslation period; and

(c) the closing balance of an account for a retranslation period is to be translated to Australian currency at the exchange rate applicable at the end of the retranslation period; and

(d) each deposit is to be translated to Australian currency at the exchange rate applicable at the time of the deposit; and

(e) each withdrawal is to be translated to Australian currency at the exchange rate applicable at the time of the withdrawal.

Deposits

775-285(10)    
For the purposes of this section, a deposit includes any amount paid or transferred into the account.

Withdrawals

775-285(11)    
For the purposes of this section, a withdrawal includes any amount paid, advanced, drawn or transferred out of the account.

Subdivision 775-F - Retranslation under foreign exchange retranslation election under Subdivision 230-D  

Guide to Subdivision 775-F

SECTION 775-290   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

775-295	When this Subdivision applies
775-300	Tax consequences of choosing retranslation for arrangement
775-305	Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies - forex realisation event 9
775-310	When election ceases to apply to arrangement
775-315	Balancing adjustment when election ceases to apply to arrangement

SECTION 775-295   When this Subdivision applies  

775-295(1)    
A *foreign exchange retranslation election applies to an *arrangement for the purposes of this Subdivision if:

(a) you start to have the arrangement after the start of the income year in which the election is made; and

(b) the arrangement is recognised in financial reports of a kind referred to in paragraph 230-255(2)(a) that are audited, or required to be audited, as referred to in paragraph 230-255(2)(b) ; and

(c) the arrangement is one in relation to which you are required by:

(i) *accounting standard AASB 121 (or another accounting standard prescribed for the purposes of paragraph 230-265(1)(c) ); or

(ii) if that standard does not apply to the preparation of the financial report - a comparable accounting standard that applies to the preparation of the financial report under a *foreign law;

to recognise, in the financial reports referred to in paragraph 230-255(2)(a) , amounts in profit or loss (if any) that are attributable to changes in currency exchange rates.

775-295(2)    
The *foreign exchange retranslation election does not apply to an *arrangement for the purposes of this Subdivision if:

(a) the election is made by the *head company of a *consolidated group or a *MEC group; and

(b) the election specifies that the election is not to apply to *financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and

(c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group.

775-295(3)    
The *foreign exchange retranslation election does not apply to an *arrangement for the purposes of this Subdivision if the arrangement is associated with a business of a kind specified in regulations made for the purposes of subsection 230-270(4) .

SECTION 775-300   Tax consequences of choosing retranslation for arrangement  

775-300(1)    
A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4, 5 or 8 is disregarded if:

(a) the event happens in relation to an *arrangement that you hold; and

(b) you have made a *foreign exchange retranslation election that applies to the arrangement; and

(c) the election is in effect when the event happens.

775-300(2)    
If:

(a) CGT event C1 or C2 happens in relation to an *arrangement that you hold at the time of the event; and

(b) you have made a *foreign exchange retranslation election that applies to the arrangement; and

(c) the election is in effect when the event happens;

disregard so much of any *capital gain or *capital loss you make as a result of the event as is attributable to a *currency exchange rate effect.

Note:

For currency exchange rate effect , see section 775-105 .

SECTION 775-305   Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies - forex realisation event 9  

Forex realisation event 9

775-305(1)    
Forex realisation event 9 happens in relation to an *arrangement during an income year if:

(a) you have made a *foreign exchange retranslation election that applies to the arrangement; and

(b) you are required by:

(i) *accounting standard AASB 121 (or another accounting standard prescribed for the purposes of paragraph 230-265(1)(c) ); or

(ii) if that standard does not apply to the preparation of the financial report - a comparable accounting standard that applies to the preparation of the financial report under a *foreign law;

to recognise, in the financial report referred to in paragraph 230-255(2)(a) for that income year, amounts in profit or loss (if any) in relation to the arrangement that are attributable to changes in currency exchange rates.

The forex realisation event 9 is taken to have happened in the income year.

Forex realisation gain

775-305(2)    

You make a forex realisation gain if the standard referred to in paragraph (1)(b) requires you to recognise an amount of gain in profit or loss in relation to the *arrangement. That amount of the forex realisation gain is the amount the standard requires you to recognise.

Forex realisation loss

775-305(3)    

You make a forex realisation loss if the *accounting standard referred to in paragraph (1)(b) requires you to recognise an amount of loss in profit or loss in relation to the *arrangement. That amount of the forex realisation loss is the amount that the accounting standard requires you to recognise.

Section does not apply to amounts previously recognised in equity

775-305(4)    
Subsections (1), (2) and (3) do not apply to amounts that have previously been required by the standards referred to in paragraph 230-255(2)(a) to be recognised in equity.

SECTION 775-310   When election ceases to apply to arrangement  

775-310(1)    
For the purposes of this Division, a *foreign exchange retranslation election under subsection 230-255(1) ceases to apply to an *arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 775-295(1)(b) or (c) during that income year.

775-310(2)    
If the election ceases to apply to an *arrangement under subsection (1), the election cannot subsequently reapply to that arrangement (even if the requirements of paragraphs 775-295(1)(b) and (c) are satisfied once more in relation to the arrangement).

SECTION 775-315   Balancing adjustment when election ceases to apply to arrangement  

775-315(1)    
This section applies if:

(a) you make a *foreign exchange retranslation election; and

(b) the election ceases to have effect or ceases to apply to an *arrangement.

775-315(2)    
You are taken, for the purposes of this Division, to have:

(a) disposed of the *arrangement for its fair value immediately before the election ceases to have effect or ceases to apply to the arrangement; and

(b) reacquired the arrangement at its fair value immediately after the election ceases to have effect or ceases to apply to the arrangement.

Note:

Paragraph (a) means that there would be a forex realisation event 9 in relation to the arrangement.

Division 802 - Foreign residents ' income with an underlying foreign source  

Subdivision 802-A - Conduit foreign income  

SECTION 802-5   What this Subdivision is about  

Operative provisions

SECTION 802-10  

802-10   Objects  

The objects of this Subdivision are:

(a) to encourage the establishment in Australia of regional holding companies for foreign groups; and

(b) to improve Australia's attractiveness as a continuing base for its multinational companies;

by providing relief from tax on *distributions by *Australian corporate tax entities to *members who are foreign residents or other Australian corporate tax entities if those distributions relate to *conduit foreign income.

SECTION 802-15   Foreign residents - exempting CFI from Australian tax  

802-15(1)    
So much of the *unfranked part of a *frankable distribution made by an *Australian corporate tax entity that the entity declares, in its *distribution statement, to be *conduit foreign income:

(a) is not assessable income and is not *exempt income of a foreign resident; and

(b) is an amount to which section 128B (Liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply.

802-15(2)    
The declaration must be made on or before the day on which the *distribution is made.

Note:

For a private company, this rule may bring forward the time at which the company is required to make its distribution statement: see section 202-75 .

SECTION 802-17   Trust estates and foreign resident beneficiaries - exempting CFI from Australian tax  

Foreign resident beneficiaries

802-17(1)    
So much of a share of the net income of a trust as is reasonably attributable to the whole or a part of the *unfranked part of a *frankable distribution made by an *Australian corporate tax entity that the entity declares, in its *distribution statement, to be *conduit foreign income:

(a) is not assessable income and is not *exempt income of a beneficiary of the trust who:

(i) is a foreign resident; and

(ii) is presently entitled to the share of the income of the trust; and

(b) is an amount to which section 128B (Liability to withholding tax) ofthe Income Tax Assessment Act 1936 does not apply.

Note:

A frankable distribution to which a part of the net income of a trust is reasonably attributable may be made by the Australian corporate tax entity to the trust directly, or to the trust indirectly through one or more interposed trusts.

802-17(2)    
The declaration must be made on or before the day on which the *distribution is made.

Note:

For a private company, this rule may bring forward the time at which the company is required to make its distribution statement: see section 202-75 .

Trusts

802-17(3)    
The trustee of a trust is not to be assessed (and pay tax) under section 98 , 99 or 99A of the Income Tax Assessment Act 1936 in respect of so much of the net income of the trust as is *non-assessable non-exempt income of a beneficiary of the trust under subsection (1).

SECTION 802-20   Distributions between Australian corporate tax entities - non-assessable non-exempt income  

802-20(1)    
An *Australian corporate tax entity (the receiving entity ) has an amount that is not assessable income and is not *exempt income for an income year if:

(a) it receives from another Australian corporate tax entity a *frankable distribution that has an *unfranked part; and

(b) the *distribution statement for the *distribution declares an amount (a received CFI amount ) of the unfranked part to be *conduit foreign income; and

(c) the receiving entity, after the start of the income year but before the due day for lodging its *income tax return for that income year;

(i) makes a frankable distribution that has an unfranked part; and

(ii) declares an amount (a declared CFI amount ) of the unfranked part to be conduit foreign income.

802-20(2)    
The amount that is not assessable income and is not *exempt income is the lesser of:

(a) the sum of the received CFI amounts that the receiving entity receives during the income year (the total received CFI amounts ); and

(b) the amount worked out using this formula:

where:

related expenses
means the receiving entity ' s expenses that are reasonably related to the total received CFI amounts.

total declared CFI amounts
means the sum of the declared CFI amounts in distributions made by the receiving entity before the due day for lodging its *income tax return for the income year.

Example:

AusCo 1 and AusCo 2 are both Australian corporate tax entities.

AusCo 1 pays an unfranked dividend of $80 to AusCo 2. AusCo 1 declares all of the $80 to be its conduit foreign income (so the $80 is a received CFI amount).

AusCo 2 has $5 of deductible expenses relating to the $80 dividend.

AusCo 2 pays an unfranked dividend of $30. AusCo 2 declares $15 of the $30 to be conduit foreign income (so the $15 is a declared CFI amount).

The amount that is not assessable income and is not exempt income for AusCo 2 (assuming there are no other received CFI amounts or declared CFI amounts) is:

The remaining $64 is included in AusCo 2 ' s assessable income and it can deduct $4 (the part of the expenses related to the $64).

802-20(3)    
If the receiving entity ' s expenses that are reasonably related to the total received CFI amounts equal or exceed the total received CFI amounts for an income year, the total received CFI amounts is not assessable income and is not *exempt income of the receiving entity for the income year.

802-20(4)    
If a declared CFI amount is taken into account in working out an amount of *non-assessable non-exempt income of an entity for an income year, that amount cannot be taken into account for the entity for a later income year.

802-20(5)    
Work out how much *conduit foreign income in a *frankable distribution flows through a trust or a partnership in the same way that you work out the *share of a *franking credit on a *franked distribution that flows through a trust or a partnership. That amount is treated as a received CFI amount under this section.

Note:

See sections 207-50 , 207-55 and 207-57 for the share of a franking credit on a franked distribution that flows through a trust or a partnership.

SECTION 802-25  

802-25   Conduit foreign income of an Australian corporate tax entity  

An *Australian corporate tax entity's conduit foreign income at a particular time (the relevant time ) is worked out by applying sections 802-30 to 802-55 .

Note:

Subdivision 715-U modifies the single entity and the entry history rule for the purposes of working out conduit foreign income for consolidated groups and MEC groups.

SECTION 802-30   Foreign source income amounts  

802-30(1)    
Work out the amount of the entity ' s *ordinary income and *statutory income derived by the entity that has been, is or will be included in an income statement or similar statement of the entity or of another entity and that would not be included in the entity ' s assessable income if the entity:

(a) for a company or a *corporate limited partnership - were a foreign resident at the relevant time; or

(b) for a *public trading trust - were not a *resident unit trust for the income year in which the relevant time occurs.

Note:

Income statements are prepared under the Framework for the Preparation and Presentation of Financial Statements (which is referred to in the Australian Accounting Standards).

802-30(2)    
Reduce the subsection (1) amount by any part of that amount that is or will be included in the entity ' s assessable income (apart from section 802-20 ).

802-30(3)    
Add to the amount remaining after subsection (2) these amounts:

(a) if the entity receives from another *Australian corporate tax entity a *frankable distribution that has an *unfranked part - any amount declared in the *distribution statement for that *distribution to be *conduit foreign income;

(b) an amount that is treated as a received CFI amount for the purposes of section 802-20 because of subsection 802-20(5) ;

(c) an amount that is *non-assessable non-exempt income under section 768-5 and that would not be included under subsection (1).

802-30(4)    
Reduce the amount remaining after subsection (3) by these amounts:

(a) an amount that is *non-assessable non-exempt income under section 23AI or 23AK of the Income Tax Assessment Act 1936 ;

(b) an amount that is not included in the entity ' s assessable income because of the operation of paragraph 99B(2)(e) of that Act;

(c) the amount worked out using the formula:

Available franking credit

×

(1 − *Corporate tax rate)       *Corporate tax rate

where:

available franking credit
means any part of the amount remaining after subsection (3) to the extent to which a *franking credit arises or will arise for the entity.

802-30(5)    
Reduce the amount remaining after subsection (4) by any of the entity ' s expenses that are reasonably related to that amount, except expenses the entity has deducted or can deduct under this Act. In applying this subsection to an amount covered by paragraph (3)(a), assume that amount is *non-assessable non-exempt income.

802-30(6)    
The result is an amount included in the entity ' s conduit foreign income .

802-30(7)    
This section applies to an entity as if it had derived an amount if the amount has been applied for its benefit (including by discharging all or part of a debt it owes) or as it directs.

SECTION 802-35   Capital gains and losses  

Capital gains

802-35(1)    
The entity ' s conduit foreign income includes these amounts:

(a) the amount by which a *capital gain of the entity is reduced because of the operation of section 768-505 ;

(b) a capital gain that is disregarded because of the operation of subsection 23AH(3) of the Income Tax Assessment Act 1936 ;

(c) the amount of a capital gain that is disregarded as a result of the operation of an *international tax sharing treaty.

Capital losses

802-35(2)    
The entity ' s conduit foreign income is reduced by these amounts:

(a) the amount by which a *capital loss of the entity is reduced because of the operation of section 768-505 ;

(b) a capital loss that is disregarded because of the operation of subsection 23AH(4) of the Income Tax Assessment Act 1936 ;

(c) the amount of a capital loss that is disregarded as a result of the operation of an *international tax sharing treaty.

Timing rule

802-35(3)    
The adjustments are made under this section at the end of the income year in which the *CGT event occurred.

SECTION 802-40  

802-40   Effect of foreign income tax offset on conduit foreign income  

The entity ' s conduit foreign income includes an amount if a tax offset arose for the entity under Division 770 for the income year immediately before the one in which the relevant time occurs. The amount is worked out using the formula:

Offset

×

(1 − *Corporate tax rate)       *Corporate tax rate

SECTION 802-45  

802-45   Previous declarations of conduit foreign income  

The entity ' s conduit foreign income is reduced if:

(a) the entity makes a *frankable distribution that has an *unfranked part; and

(b) the entity declares an amount of the unfranked part to be conduit foreign income.

The amount of the reduction is the amount so declared.

Note:

If the amount declared is less than the amount available for declaration, the difference is available for a later declaration.

SECTION 802-50   Receipt of an unfranked distribution from another Australian corporate tax entity  

802-50(1)    
The entity ' s conduit foreign income is reduced if:

(a) the entity (the receiving entity ) receives from another *Australian corporate tax entity a *frankable distribution that has an *unfranked part; and

(b) the *distribution statement for the *distribution declares an amount (the declared amount ) of the unfranked part to be conduit foreign income; and

(c) some or all of the declared amount is not *non-assessable non-exempt income under section 802-20 .

802-50(2)    
The amount of the reduction is the amount that is not *non-assessable non-exempt income under section 802-20 less any expenses reasonably related to that amount.

SECTION 802-55  

802-55   No double benefits  

An amount cannot be both:

(a) an unfranked non-portfolio dividend credit for an entity under section 46FB of the Income Tax Assessment Act 1936 ; and

(b) counted towards:

(i) the entity ' s *conduit foreign income; and

(ii) the entity ' s *non-assessable non-exempt income under section 802-20 .

SECTION 802-60   No streaming of distributions  

802-60(1)    
Subsection (2) has effect if:

(a) an *Australian corporate tax entity makes one or more *frankable distributions in a *franking period; and

(b) at least one of the *distributions has an *unfranked part; and

(c) the entity declares an amount of the unfranked part to be *conduit foreign income.

802-60(2)    
If the entity does not, for that *franking period, declare the same proportion of *conduit foreign income for all *membership interests and *non-share equity interests then, instead of the amount that it declared to be conduit foreign income on those *distributions, it is taken to have declared under section 802-45 the greater amount that it would have declared had it declared that same proportion on all those distributions.

Note:

Breaching subsection (2) may make the entity subject to a penalty under section 288-80 in Schedule 1 to the Taxation Administration Act 1953 (about over declaring conduit foreign income).

Example:

There are 10,000 membership interests in AusCo Limited, 7,500 held by foreign residents and 2,500 held by Australian residents. It has $1,800 of conduit foreign income.

AusCo makes an unfranked distribution of 50 cents per membership interest to all of its members. It declares $1,500 of the distribution to be conduit foreign income for its 7,500 foreign membership interests (20 cents per membership interest or 40% of each distribution) and none for its Australian membership interests.

AusCo is taken to have declared the same proportion (40% of each distribution) of conduit foreign income for its Australian membership interests (which amounts to $500 of conduit foreign income). It is therefore taken to have declared $2,000 of conduit foreign income. This is an over-declaration of $200 and a penalty under section 288-80 in Schedule 1 to the Taxation Administration Act 1953 will apply.

802-60(3)    
For the purposes of subsection (2), ignore *membership interests and *non-share equity interests that do not carry a right to receive *distributions (other than distributions on winding up).

802-60(4)    
Despite subsection (2), an entity that receives a *frankable distribution that has an *unfranked part is entitled to rely on the *distribution statement made by the entity that made the distribution.

Division 815 - Cross-border transfer pricing  

Subdivision 815-A - Treaty-equivalent cross-border transfer pricing rules  

Guide to Subdivision 815-A

SECTION 815-1   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
815-5	Object
815-10	Transfer pricing benefit may be negated
815-15	When an entity gets a transfer pricing benefit
815-20	Cross-border transfer pricing guidance
815-25	Modified transfer pricing benefit for thin capitalisation
815-30	Determinations negating transfer pricing benefit
815-35	Consequential adjustments
815-40	No double taxation

Operative provisions

SECTION 815-5  

815-5   Object  

The object of this Subdivision is to ensure the following amounts are appropriately brought to tax in Australia, consistent with the arm ' s length principle:

(a) profits which would have accrued to an Australian entity if it had been dealing at * arm ' s length , but, by reason of non-arm ' s length conditions operating between the entity and its foreign associated entities, have not so accrued;

(b) profits which an Australian permanent establishment (within the meaning of the relevant * international tax agreement ) of a foreign entity might have been expected to make if it were a distinct and separate entity engaged in the same or similar activities under the same or similar conditions, but dealing wholly independently.

SECTION 815-10   Transfer pricing benefit may be negated  

815-10(1)    
The Commissioner may make a determination mentioned in subsection 815-30(1) , in writing, for the purpose of negating a * transfer pricing benefit an entity gets.

Treaty requirement

815-10(2)    
However, this section only applies to an entity if:

(a) the entity gets the * transfer pricing benefit under subsection 815-15(1) at a time when an * international tax agreement containing an * associated enterprises article applies to the entity; or

(b) the entity gets the transfer pricing benefit under subsection 815-15(2) at a time when an international tax agreement containing a * business profits article applies to the entity.

Note:

This Subdivision does not apply to income years to which Subdivisions 815-B and 815-C apply: see section 815-1 of the Income Tax (Transitional Provisions) Act 1997 .

SECTION 815-15   When an entity gets a transfer pricing benefit  

Transfer pricing benefit - associated enterprises

815-15(1)    
An entity gets a transfer pricing benefit if:

(a) the entity is an Australian resident; and

(b) the requirements in the * associated enterprises article for the application of that article to the entity are met; and

(c) an amount of profits which, but for the conditions mentioned in the article, might have been expected to accrue to the entity, has, by reason of those conditions, not so accrued; and

(d) had that amount of profits so accrued to the entity:

(i) the amount of the taxable income of the entity for an income year would be greater than its actual amount; or

(ii) the amount of a tax loss of the entity for an income year would be less than its actual amount; or

(iii) the amount of a * net capital loss of the entity for an income year would be less than its actual amount.

The amount of the transfer pricing benefit is the difference between the amounts mentioned in subparagraph (d)(i), (ii) or (iii) (as the case requires).

Transfer pricing benefit - business profits

815-15(2)    
A foreign resident entity gets a transfer pricing benefit if:

(a) the entity has a permanent establishment (within the meaning of the * international tax agreement ) in Australia; and

(b) the amount of profits attributed to the permanent establishment falls short of the amount of profits the permanent establishment might be expected to make if it were a distinct and separate entity engaged, and dealing, in the manner mentioned in the * business profits article ; and

(c) had the profits attributed to the permanent establishment included that shortfall:

(i) the amount of the taxable income of the entity for an income year would be greater than its actual amount; or

(ii) the amount of a tax loss of the entity for an income year would be less than its actual amount; or

(iii) the amount of a * net capital loss of the entity for an income year would be less than its actual amount.

The amount of the transfer pricing benefit is the difference between the amounts mentioned in subparagraph (c)(i), (ii) or (iii) (as the case requires).

Nil amounts

815-15(3)    
For the purposes of working out whether an entity gets a * transfer pricing benefit , and of negating that benefit under subsection 815-30(1) :

(a) treat an entity that has no taxable income for an income year as having a taxable income for the year of a nil amount; and

(b) treat an entity that has no tax loss for an income year as having a tax loss for the year of a nil amount; and

(c) treat an entity that has no * net capital loss for an income year as having a net capital loss for the year of a nil amount.

Multiple transfer pricing benefits

815-15(4)    
To avoid doubt, an entity may get 2 or more * transfer pricing benefits , in one or more income years, in relation to one amount of profits, or one shortfall of profits.

Meaning of associated enterprises article

815-15(5)    
An associated enterprises article is:

(a) Article 9 of the United Kingdom convention (within the meaning of the International Tax Agreements Act 1953 ); or

(b) a corresponding provision of another * international tax agreement .

Meaning of business profits article

815-15(6)    
A business profits article is:

(a) Article 7 of the United Kingdom convention (within the meaning of the International Tax Agreements Act 1953 ); or

(b) a corresponding provision of another * international tax agreement .

SECTION 815-20   Cross-border transfer pricing guidance  

815-20(1)    
For the purpose of determining the effect this Subdivision has in relation to an entity:

(a) work out whether an entity gets a * transfer pricing benefit consistently with the documents covered by this section, to the extent the documents are relevant; and

(b) interpret a provision of an * international tax agreement consistently with those documents, to the extent they are relevant.

815-20(2)    
The documents covered by this section are as follows:

(a) the Model Tax Convention on Income and on Capital, and its Commentaries, as adopted by the Council of the Organisation for Economic Cooperation and Development and last amended on 22 July 2010;

(b) the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as approved by that Council and last amended on 22 July 2010;

(c) a document, or part of a document, prescribed by the regulations for the purposes of this paragraph.

815-20(3)    
However, a document, or a part of a document, mentioned in paragraph (2)(a) or (b) is not covered by this section if the regulations so prescribe.

815-20(4)    
Regulations made for the purposes of paragraph (2)(c) or subsection (3) may prescribe different documents or parts of documents for different circumstances.

SECTION 815-25   Modified transfer pricing benefit for thin capitalisation  

815-25(1)    
This section modifies the * transfer pricing benefit an entity gets, or apart from this section would get, in an income year if:

(a) Division 820 (about thin capitalisation) applies to the entity for the income year; and

(b) the transfer pricing benefit relates to profits, or a shortfall of profits, referable to costs that are * debt deductions of the entity for the income year.

815-25(2)    
If working out what those costs might have been, or might be expected to be, involves applying a rate to a * debt interest :

(a) work out the rate by applying section 815-15 , having regard to section 815-20 ; but

(b) apply the rate to the debt interest the entity actually issued.

Note:

Division 820 may apply to further reduce debt deductions.

SECTION 815-30   Determinations negating transfer pricing benefit  

815-30(1)    
The determinations the Commissioner may make are as follows:

(a) a determination of an amount by which the taxable income of the entity for an income year is increased;

(b) a determination of an amount by which the tax loss of the entity for an income year is decreased;

(c) a determination of an amount by which the * net capital loss of the entity for an income year is decreased.

815-30(2)    
If the Commissioner makes a determination under subsection (1), the determination is taken to be attributable, to the relevant extent, to such of the following as the Commissioner may determine:

(a) an increase of a particular amount in assessable income of the entity for an income year under a particular provision of this Act;

(b) a decrease of a particular amount in particular deductions of the entity for an income year;

(c) an increase of a particular amount in particular capital gains of the entity for an income year;

(d) a decrease of a particular amount in particular capital losses of the entity for an income year.

815-30(3)    
If the Commissioner makes a determination under subsection (1), the Commissioner must make a determination under subsection (2), unless it is not possible or practicable for the Commissioner to do so.

Example:

If section 815-25 is relevant in working out the transfer pricing benefit an entity gets, this subsection requires the Commissioner to make a determination relating to the debt deductions of the entity.

815-30(4)    
Nothing done under subsection (2) affects the validity of a determination made under subsection (1).

815-30(5)    
The Commissioner may take such action as the Commissioner considers necessary to give effect to a determination under this section.

815-30(6)    
The Commissioner must give a copy of a determination under this section to the entity.

815-30(7)    
A failure to comply with subsection (6) does not affect the validity of the determination.

815-30(8)    
(Repealed by No 81 of 2016)

SECTION 815-35   Consequential adjustments  

Consequential adjustment - associated enterprises

815-35(1)    
The Commissioner may make a determination under subsection (4) in relation to an entity (the disadvantaged entity ) if:

(a) the Commissioner makes a determination under subsection 815-30(1) in relation to a * transfer pricing benefit an entity gets under subsection 815-15(1) ; and

(b) the Commissioner considers that, but for the conditions mentioned in the * associated enterprises article :

(i) the amount of the taxable income of the disadvantaged entity for an income year might have been expected to be less than its actual amount; or

(ii) the amount of a * tax loss of the disadvantaged entity for an income year might have been expected to be greater than its actual amount; or

(iii) the amount of a * net capital loss of the disadvantaged entity for an income year might have been expected to be greater than its actual amount; or

(iv) an amount of * withholding tax payable in respect of interest or royalties by the disadvantaged entity might have been expected to be less than its actual amount; and

(c) the Commissioner considers that it is fair and reasonable that the actual amount mentioned in subparagraph (b)(i), (ii), (iii) or (iv) (as the case requires) be adjusted accordingly.

Consequential adjustment - business profits

815-35(2)    
The Commissioner may make a determination under subsection (4) in relation to an entity (the disadvantaged entity ) if:

(a) the Commissioner makes a determination under subsection 815-30(1) in relation to a * transfer pricing benefit an entity gets under subsection 815-15(2) ; and

(b) the Commissioner considers that, if the permanent establishment were a distinct and separate entity engaged, and dealing, in the manner mentioned in the * business profits article :

(i) the amount of the taxable income of the disadvantaged entity for an income year might have been expected to be less than its actual amount; or

(ii) the amount of a * tax loss of the disadvantaged entity for an income year might have been expected to be greater than its actual amount; or

(iii) the amount of a * net capital loss of the disadvantaged entity for an income year might have been expected to be greater than its actual amount; or

(iv) an amount of * withholding tax payable in respect of interest or royalties by the disadvantaged entity might have been expected to be less than its actual amount; and

(c) the Commissioner considers that it is fair and reasonable that the actual amount mentioned in subparagraph (b)(i), (ii), (iii) or (iv) (as the case requires) be adjusted accordingly.

Nil amounts

815-35(3)    
For the purposes of this section:

(a) treat an entity that has no taxable income for an income year as having a taxable income for the year of a nil amount; and

(b) treat an entity that has no tax loss for an income year as having a tax loss for the year of a nil amount; and

(c) treat an entity that has no * net capital loss for an income year as having a net capital loss for the year of a nil amount.

Consequential adjustment - determinations

815-35(4)    
The Commissioner may make one or more of the following determinations, in writing, for the purpose of adjusting an amount as mentioned in paragraph (1)(c) or (2)(c):

(a) a determination of an amount by which the taxable income of the disadvantaged entity for an income year is decreased;

(b) a determination of an amount by which the tax loss of the disadvantaged entity for an income year is increased;

(c) a determination of an amount by which the * net capital loss of the disadvantaged entity for an income year is increased;

(d) a determination of an amount by which the * withholding tax payable by the disadvantaged entity in respect of interest or royalties is decreased.

815-35(5)    
The Commissioner may take such action as the Commissioner considers necessary to give effect to a determination under this section.

815-35(6)    
The Commissioner must give a copy of a determination under this section to the disadvantaged entity.

815-35(7)    
A failure to comply with subsection (6) does not affect the validity of the determination.

815-35(8)    
(Repealed by No 81 of 2016)

815-35(9)    
An entity may give the Commissioner a written request to make a determination under this section relating to the entity. The Commissioner must decide whether or not to grant the request, and give the entity notice of the Commissioner ' s decision.

815-35(10)    

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

SECTION 815-40   No double taxation  

815-40(1)    
The amount of a * transfer pricing benefit that is negated under this Subdivision for an entity is not to be taken into account again under another provision of this Act to increase the entity ' s assessable income, reduce the entity ' s deductions or reduce a * net capital loss of the entity.

815-40(2)    

Subsection (1) has effect despite former section 136AB of the Income Tax Assessment Act 1936 .

815-40(3)    
Nothing in this Subdivision limits Division 820 (about thin capitalisation) in its application to further reduce * debt deductions of an entity.

Subdivision 815-B - Arm ' s length principle for cross-border conditions between entities  

Guide to Subdivision 815-B

SECTION 815-101   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
815-105	Object
815-110	Operation of Subdivision
815-115	Substitution of arm ' s length conditions
815-120	When an entity gets a transfer pricing benefit
815-125	Meaning of arm ' s length conditions
815-130	Relevance of actual commercial or financial relations
815-135	Guidance
815-140	Modification for thin capitalisation
815-145	Consequential adjustments
815-150	Amendment of assessments

Operative provisions

SECTION 815-105   Object  

815-105(1)    
The object of this Subdivision is to ensure that the amount brought to tax in Australia from cross-border conditions between entities is not less than it would be if those conditions reflected:

(a) the arm ' s length contribution made by Australian operations through functions performed, assets used and risks assumed; and

(b) the conditions that might be expected to operate between entities dealing at *arm ' s length.

815-105(2)    
The Subdivision does this by specifying that, where an entity would otherwise get a tax advantage from actual conditions that differ from *arm ' s length conditions, the arm ' s length conditions are taken to operate for income tax and withholding tax purposes.

SECTION 815-110   Operation of Subdivision  

815-110(1)    
Nothing in the provisions of this Act other than this Subdivision limits the operation of this Subdivision.

815-110(2)    
Nothing in this Subdivision limits Division 820 (about thin capitalisation) in its application to reduce, or further reduce, *debt deductions of an entity.

SECTION 815-115   Substitution of arm ' s length conditions  

815-115(1)    
For the purposes covered by subsection (2), if an entity gets a *transfer pricing benefit from conditions that operate between the entity and another entity in connection with their commercial or financial relations:

(a) those conditions are taken not to operate; and

(b) instead, the *arm ' s length conditions are taken to operate.

Note 1:

The conditions that operate include, but are not limited to, such things as price, gross margin, net profit, and the division of profit between the entities.

Note 2:

There are special rules about documentation that affect when an entity has a reasonably arguable position about the application (or non-application) of this Subdivision: see Subdivision 284-E in Schedule 1 to the Taxation Administration Act 1953 .

815-115(2)    
The purposes covered by this subsection are:

(a) if the *transfer pricing benefit arises under subparagraph 815-120(1)(c)(i) - working out the amount (if any) of the entity ' s taxable income for the income year; and

(b) if the transfer pricing benefit arises under subparagraph 815-120(1)(c)(ii) - working out the amount (if any) of the entity ' s loss of a particular *sort for the income year; and

(c) if the transfer pricing benefit arises under subparagraph 815-120(1)(c)(iii) - working out the amount (if any) of the entity ' s *tax offsets for the income year; and

(d) if the transfer pricing benefit arises under subparagraph 815-120(1)(c)(iv) - working out the amount (if any) of *withholding tax payable by the entity in respect of interest or royalties.

SECTION 815-120   When an entity gets a transfer pricing benefit  

815-120(1)    
An entity gets a transfer pricing benefit from conditions that operate between the entity and another entity in connection with their commercial or financial relations if:

(a) those conditions (the actual conditions ) differ from the *arm ' s length conditions; and

(b) the actual conditions satisfy the cross-border test in subsection (3) for the entity; and

(c) had the arm ' s length conditions operated, instead of the actual conditions, one or more of the following would, apart from this Subdivision, apply:

(i) the amount of the entity ' s taxable income for an income year would be greater ;

(ii) the amount of the entity ' s loss of a particular *sort for an income year would be less ;

(iii) the amount of the entity ' s *tax offsets for an income year would be less ;

(iv) an amount of *withholding tax payable in respect of interest or royalties by the entity would be greater .

Absence of condition

815-120(2)    
For the purposes of subsection (1), there is taken to be a difference between the actual conditions and the *arm ' s length conditions if:

(a) an actual condition exists that is not one of the arm ' s length conditions; or

(b) a condition does not exist in the actual conditions but is one of the arm ' s length conditions.

Cross-border test

815-120(3)    
Conditions that operate between an entity and another entity in connection with their commercial or financial relations satisfy the cross-border test if:

(a) the conditions meet the overseas requirement in the following table for either or both of the entities; or

(b) the conditions operate in connection with a *business that the entity carries on in an *area covered by an international tax sharing treaty.

Overseas requirement
Item	Column 1 The conditions meet the overseas requirement for this type of entity:	Column 2 if:
1	any of the following: (a) an Australian resident; (b) a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 ; (c) a partnership in which all of the partners are, directly or indirectly through one or more interposed partnerships, Australian residents or resident trust estates	the conditions operate at or through an *overseas permanent establishment of the entity.
2	an entity not covered by column 1 of item 1	the conditions do not operate solely at or through an *Australian permanent establishment of the entity.

815-120(4)    
For the purposes of the table in subsection (3), treat any entity that is an Australian resident as not being an Australian resident if:

(a) the entity is also a resident in a country that has entered into an *international tax agreement with Australia containing a *residence article; and

(b) under that residence article, the entity is taken, for the purposes of the agreement, to be a resident only of that other country.

Nil amounts

815-120(5)    
For the purposes of this section and section 815-145 :

(a) treat an entity that has no taxable income for an income year as having a taxable income for the year of a nil amount; and

(b) treat an entity that has no loss of a particular *sort for an income year as having a loss of that sort for the year of a nil amount; and

(c) treat an entity that has no *tax offsets for an income year as having tax offsets for the year of a nil amount

Meaning of residence article

815-120(6)    
A residence article is:

(a) Article 4 of the United Kingdom convention (within the meaning of the International Tax Agreements Act 1953 ); or

(b) a corresponding provision of another *international tax agreement.

SECTION 815-125   Meaning of arm ' s length conditions  

815-125(1)    
The arm ' s length conditions , in relation to conditions that operate between an entity and another entity, are the conditions that might be expected to operate between independent entities dealing wholly independently with one another in comparable circumstances.

Most appropriate and reliable method to be used

815-125(2)    
In identifying the *arm ' s length conditions, use the method, or the combination of methods, that is the most appropriate and reliable, having regard to all relevant factors, including the following:

(a) the respective strengths and weaknesses of the possible methods in their application to the actual conditions;

(b) the circumstances, including the functions performed, assets used and risks borne by the entities;

(c) the availability of reliable information required to apply a particular method;

(d) the degree of comparability between the actual circumstances and the comparable circumstances, including the reliability of any adjustments to eliminate the effect of material differences between those circumstances.

Note:

The possible methods include the methods set out in the documents mentioned in section 815-135 (about relevant guidance material).

Comparability of circumstances

815-125(3)    
In identifying comparable circumstances for the purpose of this section, regard must be had to all relevant factors, including the following:

(a) the functions performed, assets used and risks borne by the entities;

(b) the characteristics of any property or services transferred;

(c) the terms of any relevant contracts between the entities;

(d) the economic circumstances;

(e) the business strategies of the entities.

815-125(4)    
For the purposes of this section, circumstances are comparable to actual circumstances if, to the extent (if any) that the circumstances differ from the actual circumstances:

(a) the difference does not materially affect a condition that is relevant to the method; or

(b) a reasonably accurate adjustment can be made to eliminate the effect of the difference on a condition that is relevant to the method.

SECTION 815-130   Relevance of actual commercial or financial relations  

Basic rule

815-130(1)    
The identification of the *arm ' s length conditions must:

(a) be based on the commercial or financial relations in connection with which the actual conditions operate; and

(b) have regard to both the form and substance of those relations.

Exceptions

815-130(2)    
Despite paragraph (1)(b), disregard the form of the actual commercial or financial relations to the extent (if any) that it is inconsistent with the substance of those relations.

815-130(3)    
Despite subsection (1), if:

(a) independent entities dealing wholly independently with one another in comparable circumstances would not have entered into the actual commercial or financial relations; and

(b) independent entities dealing wholly independently with one another in comparable circumstances would have entered into other commercial or financial relations; and

(c) those other commercial or financial relations differ in substance from the actual commercial or financial relations;

the identification of the *arm ' s length conditions must be based on those other commercial or financial relations.

815-130(4)    
Despite subsection (1), if independent entities dealing wholly independently with one another in comparable circumstances would not have entered into commercial or financial relations, the identification of the *arm ' s length conditions is to be based on that absence of commercial or financial relations.

815-130(5)    
Subsections 815-125(3) and (4) (about comparability of circumstances) apply for the purposes of this section.

SECTION 815-135   Guidance  

815-135(1)    
For the purpose of determining the effect this Subdivision has in relation to an entity, identify *arm ' s length conditions so as best to achieve consistency with the documents covered by this section.

815-135(2)    
The documents covered by this section are as follows:

(a)    

the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as approved by the Council of the Organisation for Economic Cooperation and Development and last amended on 20 January 2022;

(aa) (Repealed by No 64 of 2020)

(b)    a document, or part of a document, prescribed by the regulations for the purposes of this paragraph.

815-135(3)    

However, the document mentioned in paragraph (2)(a) is not covered by this section if the regulations so prescribe.

815-135(4)    
Regulations made for the purposes of paragraph (2)(b) or subsection (3) may prescribe different documents or parts of documents for different circumstances.

SECTION 815-140   Modification for thin capitalisation  

815-140(1)    
This section modifies the way an entity to which section 815-115 applies works out its taxable income, or its loss of a particular *sort, for an income year, if:

(a)    Division 820 (about thin capitalisation) applies to the entity for the income year; and

(aa)    

the entity:

(i) is not a *general class investor in relation to the income year; and

(ii) has not made a choice under subsection 820-85(2C) or 820-185(2C) in relation to the income year; and

(b)    the *arm ' s length conditions affect costs that are *debt deductions of the entity for the income year.

815-140(2)    
If working out what those costs would be if the *arm ' s length conditions had operated involves applying a rate to a *debt interest:

(a)    work out the rate as if the arm ' s length conditions had operated; but

(b)    apply the rate to the debt interest the entity actually issued.

Note:

Division 820 may apply to reduce or further reduce debt deductions.

SECTION 815-145   Consequential adjustments  

815-145(1)    
The Commissioner may make a determination under subsection (2) in relation to an entity (the disadvantaged entity ) if:

(a) *arm ' s length conditions are taken by section 815-115 to operate; and

(b) the Commissioner considers that, if the arm ' s length conditions, instead of the actual conditions, had operated:

(i) the amount of the disadvantaged entity ' s taxable income for an income year might have been expected to be less than its actual amount; or

(ii) the amount of the disadvantaged entity ' s loss of a particular *sort for an income year might have been expected to be greater than its actual amount; or

(iii) the amount of the disadvantaged entity ' s *tax offsets for an income year might have been expected to be greater than their actual amount; or

(iv) an amount of *withholding tax payable in respect of interest or royalties by the disadvantaged entity might have been expected to be less than its actual amount; and

(c) the Commissioner considers that it is fair and reasonable that the actual amount mentioned in subparagraph (b)(i), (ii), (iii) or (iv) (as the case requires) be adjusted accordingly.

815-145(2)    
For the purpose of adjusting an amount as mentioned in paragraph (1)(c), the Commissioner may make a determination stating the amount that is (and has been at all times) the amount of the disadvantaged entity ' s:

(a) taxable income for the income year; or

(b) loss of a particular *sort for the income year; or

(c) *tax offsets, or tax offset of a particular kind, for the income year; or

(d) *withholding tax payable in respect of interest or royalties.

815-145(3)    
The Commissioner may take such action as the Commissioner considers necessary to give effect to a determination under this section.

815-145(4)    
The Commissioner must give a copy of a determination under this section to the disadvantaged entity.

815-145(5)    
A failure to comply with subsection (4) does not affect the validity of the determination.

815-145(6)    
(Repealed by No 81 of 2016)

815-145(7)    
An entity may give the Commissioner a written request to make a determination under this section relating to the entity. The Commissioner must decide whether or not to grant the request, and give the entity notice of the Commissioner ' s decision.

815-145(8)    
If the entity is dissatisfied with the Commissioner ' s decision, the entity may object, in the manner set out in Part IVC of the Taxation Administration Act 1953 , against that decision.

SECTION 815-150   Amendment of assessments  

815-150(1)    
Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment of an entity for an income year if:

(a) the amendment is made within 7 years after the day on which the Commissioner gives notice of the assessment to the entity; and

(b) the amendment is made for the purpose of giving effect to section 815-115 .

815-150(2)    
Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment at any time for the purpose of giving effect to section 815-145 .

Subdivision 815-C - Arm ' s length principle for permanent establishments  

Guide to Subdivision 815-C

SECTION 815-201   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
815-205	Object
815-210	Operation of Subdivision
815-215	Substitution of arm ' s length profits
815-220	When an entity gets a transfer pricing benefit
815-225	Meaning of arm ' s length profits
815-230	Source rules for certain arm ' s length profits
815-235	Guidance
815-240	Amendment of assessments

Operative provisions

SECTION 815-205  

815-205   Object  

The object of this Subdivision is to ensure that the amount brought to tax in Australia by entities operating *permanent establishments is not less than it would be if the permanent establishment were a distinct and separate entity engaged in the same or comparable activities under the same or comparable circumstances, but dealing wholly independently with the other part of the entity.

SECTION 815-210   Operation of Subdivision  

815-210(1)    
Nothing in the provisions of this Act other than this Subdivision limits the operation of this Subdivision.

815-210(2)    
Nothing in this Subdivision limits Division 820 (about thin capitalisation) in its application to reduce, or further reduce, *debt deductions of an entity.

815-210(3)    
For the purposes of this Subdivision, a branch to which subsection 160ZZW(2) of the Income Tax Assessment Act 1936 (about certain Australian branches of foreign banks) applies is taken not to be, and not to have been at any time since its establishment, a *permanent establishment in Australia of the bank.

SECTION 815-215   Substitution of arm ' s length profits  

815-215(1)    
For the purposes covered by subsection (2), if an entity gets a *transfer pricing benefit from the attribution of profits to a *PE of the entity:

(a) the amount of profits actually attributed to the PE is taken not to have been so attributed; and

(b) instead, the *arm ' s length profits are taken to have been attributed to the PE.

Note:

There are special rules about documentation that affect when an entity has a reasonably arguable position about the application (or non-application) of this Subdivision: see Subdivision 284-E in Schedule 1 to the Taxation Administration Act 1953 .

815-215(2)    
The purposes covered by this subsection are:

(a) if the *transfer pricing benefit arises under subparagraph 815-220(1)(b)(i) - working out the amount (if any) of the entity ' s taxable income for the income year; and

(b) if the transfer pricing benefit arises under subparagraph 815-220(1)(b)(ii) - working out the amount (if any) of a loss of a particular *sort for the income year; and

(c) if the transfer pricing benefit arises under subparagraph 815-220(1)(b)(iii) - working out the amount (if any) of the entity ' s *tax offsets for the income year.

SECTION 815-220   When an entity gets a transfer pricing benefit  

815-220(1)    
An entity gets a transfer pricing benefit from the attribution of profits to a *PE of the entity if:

(a) the amount of profits (the actual profits ) attributed to the PE differs from the *arm ' s length profits for the PE; and

(b) had the arm ' s length profits, instead of the actual profits, been attributed to the PE, one or more of the following would, apart from this Subdivision, apply:

(i) the amount of the entity ' s taxable income for an income year would be greater ;

(ii) the amount of the entity ' s loss of a particular *sort for an income year would be less ;

(iii) the amount of the entity ' s *tax offsets for an income year would be less .

Nil amounts

815-220(2)    
For the purposes of this section:

(a) treat an entity that has no taxable income for an income year as having a taxable income for the year of a nil amount; and

(b) treat an entity that has no loss of a particular *sort for an income year as having a loss of that sort for the year of a nil amount; and

(c) treat an entity that has no *tax offsets for an income year as having tax offsets for the year of a nil amount.

SECTION 815-225   Meaning of arm ' s length profits  

815-225(1)    
The arm ' s length profits for a *PE of an entity are worked out by allocating the actual expenditure and income of the entity between the PE and the entity so that the profits attributed to the PE equal the profits the PE might be expected to make if:

(a) the PE were a distinct and separate entity; and

(b) the activities and circumstances of the PE, including the functions performed, assets used and risks borne by the PE, were those of that separate entity; and

(c) the conditions that operated between that separate entity and the entity of which it is a PE were the *arm ' s length conditions.

815-225(2)    
The conditions to which the *arm ' s length conditions mentioned in paragraph (1)(c) relate are the conditions that would operate between the separate entity and the entity of which it is a *PE if the assumptions in paragraphs (1)(a) and (b) were made.

815-225(3)    
For the purposes of subsection (1):

(a) the actual expenditure of an entity is taken to include losses and outgoings; and

(b) the actual income of an entity is taken to include any amount that is, or is to be, included in the entity ' s assessable income.

SECTION 815-230   Source rules for certain arm ' s length profits  

815-230(1)    
The *arm ' s length profits for a *PE in Australia are taken, for the purposes of this Act, to be attributable to sources in Australia.

815-230(2)    
The *arm ' s length profits for a *PE in an *area covered by an international tax sharing treaty are taken, for the purposes of this Act, to be attributable to sources in that area.

SECTION 815-235  Guidance  

815-235(1)    
For the purpose of determining the effect this Subdivision has in relation to an entity, work out *arm ' s length profits, and identify *arm ' s length conditions, so as best to achieve consistency with:

(a) the documents covered by this section; and

(b) subject to paragraph (a), the documents covered by section 815-135 .

815-235(2)    
The documents covered by this section are as follows:

(a) the Model Tax Convention on Income and on Capital, and its Commentaries, as adopted by the Council of the Organisation for Economic Cooperation and Development and last amended on 22 July 2010, to the extent that document extracts the text of Article 7 and its Commentary as they read before 22 July 2010;

(b) a document, or part of a document, prescribed by the regulations for the purposes of this paragraph.

815-235(3)    
However, the document mentioned in paragraph (2)(a) is not covered by this section if the regulations so prescribe.

815-235(4)    
A document covered by section 815-135 is to be disregarded for the purposes of this section if the regulations so prescribe.

815-235(5)    
Regulations made for the purposes of paragraph (2)(b), subsection (3) or subsection (4) may prescribe different documents or parts of documents for different circumstances.

SECTION 815-240  

815-240   Amendment of assessments  

Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment of an entity for an income year if:

(a) the amendment is made within 7 years after the day on which the Commissioner gives notice of the assessment to the entity; and

(b) the amendment is made for the purpose of giving effect to section 815-215 .

Subdivision 815-D - Special rules for trusts and partnerships  

Guide to Subdivision 815-D

SECTION 815-301   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
815-305	Special rule for trusts
815-310	Special rules for partnerships

Operative provisions

SECTION 815-305  

815-305   Special rule for trusts  

Subdivisions 815-B and 815-C apply in relation to the *net income of a trust in the same way those Subdivisions apply in relation to the taxable income of an entity other than a trust.

SECTION 815-310   Special rules for partnerships  

815-310(1)    
Subdivisions 815-B and 815-C apply in relation to the *net income of a partnership in the same way those Subdivisions apply in relation to the taxable income of an entity other than a partnership.

815-310(2)    
Subdivisions 815-B and 815-C apply in relation to a *partnership loss of a partnership in the same way those Subdivisions apply in relation to a *tax loss of an entity other than a partnership.

Subdivision 815-E - Reporting obligations for country by country reporting entities  

Guide to Subdivision 815-E

SECTION 815-350   What this Subdivision is about  

Note:

This Subdivision enables the implementation of measures issued by the Organisation for Economic Cooperation and Development relating to transfer pricing documentation and country-by-country reporting (including Action 13 of the Action Plan on Base Erosion and Profit Shifting of the G20 and the Organisation for Economic Cooperation and Development)

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
815-355	Requirement to give statements
815-360	Replacement reporting periods
815-365	Exemptions
815-370	Meaning of country by country reporting entity (or CBC reporting entity )
815-375	Meaning of country by country reporting parent (or CBC reporting parent)
815-380	Meaning of country by country reporting group (or CBC reporting group )

Operative provisions

SECTION 815-355   Requirement to give statements  

815-355(1)    
You must give to the Commissioner a statement of each of the kinds referred to in subsection (3) , in the *approved form, in relation to an income year if:

(a)    you were a *CBC reporting entity for a period that includes the whole or a part of the income year that preceded that income year; and

(b)    you are, during that income year, any of the following:

(i) an Australian resident;

(ii) a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 ;

(iii) a partnership that has at least one partner who is an Australian resident;

(iv) a foreign resident who operates an Australian permanent establishment (within the meaning of Part IVA of the Income Tax Assessment Act 1936 );

(v) a non-resident trust estate (within the meaning of section 102AAB of the Income Tax Assessment Act 1936 ) that operates an Australian permanent establishment (within the meaning of Part IVA of that Act);

(vi) a partnership that operates an Australian permanent establishment (within the meaning of that Part); and

(c)    you are not exempted under section 815-365 from giving the statement; and

(d)    you are not included in a class of entities prescribed by the regulations.

Note:

Under section 815-360 , the Commissioner may allow you to give statements in relation to a 12 month period other than an income year.

815-355(2)    
You must give the statement within 12 months after the end of the period to which it relates.

Note:

Section 388-55 in Schedule 1 to the Taxation Administration Act 1953 allows the Commissioner to defer the time for giving the statement.

815-355(3)    
The statements are to be of the following kinds:

(a)    

a statement relating to the global operations and activities, and the pricing policies relevant to transfer pricing, of:

(i) you; and

(ii) if you are a *member of a *CBC reporting group during the income year - the other members of that group;

(b)    a statement relating to your operations, activities, dealings and transactions;

(c)    a statement relating to the allocation between countries of the income and activities of, and taxes paid by:

(i) you; and

(ii) if subparagraph (a)(ii) applies - the other members of that group.

Note:

These statements correspond to the following in Annexes I, II and III to Chapter V set out in the Guidance on Transfer Pricing Documentation and Country-by-countryReporting of the Organisation for Economic Cooperation and Development and the G20:

(a) a statement under paragraph (a) corresponds to the master file (see Annexe I);

(b) a statement under paragraph (b) corresponds to the local file (see Annexe II);

(c) a statement under paragraph (c) corresponds to the country-by-country report (see Annexe III).

SECTION 815-360   Replacement reporting periods  

815-360(1)    
The Commissioner may, by notice in writing, allow you to give all statements, or specified kinds of statements, under section 815-355 in relation to a 12 month period other than an income year.

815-360(2)    
A notice under subsection (1) is not a legislative instrument.

SECTION 815-365   Exemptions  

Exemptions for particular entities

815-365(1)    
The Commissioner may, by notice in writing, exempt an entity from:

(a) giving statements under section 815-355 ; or

(b) giving statements of a particular kind under that section.

815-365(2)    
A notice under subsection (1) is not a legislative instrument.

General exemptions

815-365(3)    
The Commissioner may, by legislative instrument, determine that section 815-355 does not apply to a specified class of entity.

SECTION 815-370  

815-370   Meaning of country by country reporting entity (or CBC reporting entity )  
An entity is a country by country reporting entity (or CBC reporting entity ) for a period if:

(a) the entity is a *CBC reporting parent for the period; or

(b) the entity is a *member of a *CBC reporting group during the period and another member of that group is a CBC reporting parent for the period.

SECTION 815-375   Meaning of country by country reporting parent (or CBC reporting parent )  

815-375(1)    
An entity is a country by country reporting parent (or CBC reporting parent ) for a period if:

(a) the entity is not an individual; and

(b) if the entity is a *member of a *CBC reporting group at the end of the period - it is an entity that, according to:

(i) *accounting principles; or

(ii) if accounting principles do not apply in relation to the entity - commercially accepted principles related to accounting;

is not controlled by any other member of the CBC reporting group at the end of the period; and

(c) the entity ' s *annual global income for the period is $1 billion or more.

815-375(2)    
For the purposes of paragraph (1)(c), in working out the entity ' s *annual global income for the period, treat the reference in paragraph 960-565(1)(aa) to *notional listed company group as instead being a reference to *CBC reporting group.

SECTION 815-380   Meaning of country by country reporting group (or CBC reporting group )  

815-380(1)    
A group of entities is a country by country reporting group (or CBC reporting group ) if:

(a) none of the entities is an individual; and

(b) any of the following requirements are satisfied:

(i) the group is consolidated for accounting purposes as a single group;

(ii) the group is a *notional listed company group.

815-380(2)    
Each entity in the group is a member of the *CBC reporting group.

815-380(3)    
Subsection (5) applies if:

(a) all the members of a group that is consolidated for accounting purposes as a single group (the smaller group ) are members of:

(i) another such group; or

(ii) a *notional listed company group; and

(b) at least one entity is a member of the group mentioned in subparagraph (a)(i) or (ii) but is not a member of the smaller group.

815-380(4)    
Subsection (5) also applies if:

(a) all the *members of a notional listed company group (the smaller group ) are members of:

(i) another such group; or

(ii) a group that is consolidated for accounting purposes as a single group; and

(b) at least one entity is a member of the group mentioned in subparagraph (a)(i) or (ii) but is not a member of the smaller group.

815-380(5)    
For the purposes of subsection (1), treat the smaller group as not being any of the following:

(a) a group that is consolidated for accounting purposes as a single group;

(b) a *notional listed company group.

815-380(6)    
For the purposes of this section, assume that paragraph 960-575(4)(a) were disregarded:

(a) in determining whether a *notional listed company group exists; and

(b) in identifying the *members of a notional listed company group.

Note:

The effect of that assumption is that certain exceptions in accounting or other principles to requirements to consolidate for accounting purposes are taken into account in working out the membership of the country by country reporting group. Where such exceptions apply, a country by country reporting group may have fewer members than the equivalent notional listed company group.

Division 820 - Thin capitalisation rules  

Guide to Division 820  

SECTION 820-1   What this Division is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

820-5	(Repealed by No 23 of 2024)
820-10	Map of Division

820-5   (Repealed) SECTION 820-5 Does this Division apply to an entity?  
(Repealed by No 23 of 2024)

SECTION 820-10  

820-10   Map of Division  

The following table sets out a map of this Division.

(Table: Map of Division)

(Table: Map of Division)

Map of Division
Item	This Subdivision:	sets out:
1A	Subdivision 820-AA	(a)	how all or a part of the debt deductions claimed by an entity covered by the Subdivision may be disallowed under one of three tests (the fixed ratio test, the group ratio test or the third party debt test); and
		(b)	how the entity can choose to apply which one of these tests applies; and
		(c)	where the fixed ratio test applies, whether the entity can claim a special deduction in respect of amounts previously disallowed under the fixed ratio test.
1	Subdivision 820-B or 820-C	(a)	the meaning of maximum allowable debt for the Subdivision; and
		(b)	how an entity covered by the Subdivision would have all or a part of its debt deductions disallowed if the maximum allowable debt is exceeded; and
		(c)	the application of these rules in relation to a part of an income year.
2	Subdivision 820-D or 820-E	(a)	the meaning of minimum capital amount for the Subdivision; and
		(b)	how an entity covered by the Subdivision would have all or a part of its debt deductions disallowed if the minimum capital amount is not reached; and
		(c)	the application of these rules in relation to a part of an income year.
2A	Subdivision 820-EAA	how all or a part of the debt deductions claimed by an entity covered by Subdivision 820-AA , 820-B or 820-C may be disallowed in relation to:
		(a)	debt deductions in relation to the acquisition of CGT assets, or legal or equitable obligations, from associate pairs of the acquirer; or
		(b)	debt deductions in relation to a financial arrangement that is entered into by an entity to fund etc. certain payments or distributions to one or more associate pairs of the entity.
2B	Subdivision 820-EAB	(a)	concepts concerning third party debt; and
		(b)	concepts that are relevant to entities that choose to apply the third party debttest.
3	(Repealed by No 101 of 2006 )
3A	Subdivision 820-FA	how this Division applies to a consolidated group or MEC group.
3B	Subdivision 820-FB	special rules for grouping foreign bank branches with a consolidated group, MEC group or single Australian resident company.
4	Subdivision 820-G	the methods of calculating the average value of a matter for the purposes of this Division.
5	Subdivision 820-H	the rules for determining:
		(a)	whether or not an Australian entity controls a foreign entity (for the purposes of determining whether or not Subdivision 820-B or 820-D applies to that Australian entity); and
		(b)	whether or not an Australian entity is controlled by a foreign entity (for the purposes of determining whether or not Subdivision 820-C applies to that Australian entity).
5A	Subdivision 820-HA	the meaning of controlled foreign entity debt and controlled foreign entity equity for the purposes of this Division.
6	Subdivision 820-I	the meaning of various concepts about associate entity for the purposes of this Division.
7	Subdivision 820-J	the meaning of equity interests in trusts and partnerships for the purposes of this Division.
7A	Subdivision 820-JA	worldwide debt and equity concepts.
8	Subdivision 820-K	the meaning of zero-capital amount for the purposes of this Division.
8A	Subdivision 820-KA	the meaning of cost-free debt capital, and excluded equity interest, for the purposes of this Division.
9	Subdivision 820-L	special record keeping requirements for the purposes of this Division.

Subdivision 820-A - Preliminary  

SECTION 820-30  

820-30   Object of Division  

The Object of this Division is to ensure that the following entities do not reduce their tax liabilities by using an excessive amount of *debt deductions, in financing their Australian operations:

(a)    *Australian entities that operate internationally;

(b)    Australian entities that are foreign controlled;

(c)    *foreign entities that operate in Australia.

Note:

This Division applies in relation to debt deductions of an entity as reduced, if required, in accordance with Division 815 (about cross-border transfer pricing).

SECTION 820-31   Order of application of Subdivisions  

820-31(1)    
First, work out if a *debt deduction of an entity for an income year is disallowed under Subdivision 820-EAA (debt deduction limitation rules for debt deduction creation).

820-31(2)    
To the extent that all or part of a debt deduction is disallowed under that Subdivision, disregard the debt deduction in applying the following provisions in relation to the entity for the income year:

(a)    Subdivision 820-AA ;

(b)    Subdivision 820-B ;

(c)    Subdivision 820-C .

Note:

The provisions mentioned in paragraphs (2)(a) to (c) may further disallow debt deductions of the entity.

SECTION 820-32   Exemption for private or domestic assets and non-debt liabilities  

820-32(1)    
This Division does not apply to:

(a)    an asset that is used (or held for use) wholly or principally for private or domestic purposes; or

(b)    a *non-debt liability that is wholly or principally of a private or domestic nature.

820-32(2)    

Subsection (1) does not apply in relation to the following:

(a)    Subdivision 820-EAA ;

(b)    any other provision in this Division, to the extent that it relates to that Subdivision.

SECTION 820-35  

820-35   Application - $2 million threshold  

Subdivision 820-AA , 820-B , 820-C , 820-D , 820-E or 820-EAA does not apply to disallow any *debt deduction of an entity for an income year if the total debt deductions of that entity and all its *associate entities for that year are $2 million or less.

SECTION 820-37   Application - assets threshold  

820-37(1)    

Subdivision 820-AA , 820-B , 820-C , 820-D or 820-E does not apply to disallow any *debt deduction of an entity for an income year if:

(a)    

either:

(i) the entity is an *outward investing financial entity (non-ADI) or an *outward investing entity (ADI) for a period that is all or any part of that year (and is not a *general class investor for that year); or

(ii) assuming that the entity were a *financial entity for all of that year, it would be, for all of that year, an outward investing financial entity (non-ADI) and not an inward investing financial entity (non-ADI); and

(b)    

the entity is not also an *inward investing financial entity (non-ADI) or an *inward investing entity (ADI) for all or any part of that year; and

(c)    the result of applying the following formula is equal to or greater than 0.9:

Sum of the average Australian assets of the entity and the average                         Australian assets of each of the entity ' s *associates                         Sum of the average total assets of the entity and the average total assets of each of the entity ' s associates

where:

average Australian assets :

(a) of an *Australian entity - is the average value, for that year, of all the assets of the entity, other than:

(i) any assets attributable to the entity ' s *overseas permanent establishments; or

(ii) any *debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity debt of the entity; or

(iii) any *equity interests or debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity equity of the entity; or

(iv) any debt interests that are *issued by *associates of the entity, that are *on issue, and that are held by the entity; or

(v) any equity interests that the entity holds in associates of the entity; and

(b) of a *foreign entity - is the average value, for that year, of all the assets of the entity that are:

(i) located in Australia; or

(ii) attributable to the entity ' s *Australian permanent establishments; or

(iii) debt interests held by the entity, to the extent to which the interests are covered by subsection (2) ; or

(iv) equity interests held by the entity, to the extent to which the interests are covered by subsection (3) ;

other than:

(v) any debt interests that are issued by associates of the entity, that are on issue, and that are held by the entity; or

(vi) any equity interests that the entity holds in associates of the entity.

average total assets
of an entity is the average value, for that year, of all the assets of the entity, other than:

(a) any *debt interests that are *issued by *associates of the entity, that are *on issue, and that are held by the entity; or

(b) any *equity interests that the entity holds in associates of the entity.

Foreign entity - debt interest issued by an Australian entity

820-37(2)    

If a *foreign entity holds a *debt interest that:

(a)    was *issued by an *Australian entity; and

(b)    is *on issue;

this subsection covers the interest to the extent to which the interest is not attributable to any *overseas permanent establishments of the Australian entity.

Foreign entity - equity interest in an Australian entity

820-37(3)    

If a *foreign entity holds an *equity interest in an *Australian entity, this subsection covers the interest to the extent to which the interest is not attributable to any *overseas permanent establishments of the Australian entity.

SECTION 820-39   Exemption of certain special purpose entities  

820-39(1)    

Subdivision 820-AA , 820-B , 820-C , 820-D , 820-E or 820-EAA does not apply to disallow any *debt deduction of an entity for an income year if the entity meets the conditions in subsection (3) throughout the incomeyear.

820-39(2)    

Subdivision 820-AA , 820-B , 820-C , 820-D , 820-E or 820-EAA does not apply to disallow any *debt deduction of an entity for an income year that is an amount incurred by the entity during a part of that year, if the entity meets the conditions in subsection (3) throughout that part.

820-39(3)    
The conditions are:

(a)    the entity is one established for the purposes of managing some or all of the economic risk associated with assets, liabilities or investments (whether the entity assumes the risk from another entity or creates the risk itself); and

(b)    the total value of *debt interests in the entity is at least 50% of the total value of the entity's assets; and

(c)    the entity is an insolvency-remote special purpose entity according to criteria of an internationally recognised rating agency that are applicable to the entity's circumstances.

820-39(4)    
The condition in paragraph (3)(c) can be met without the rating agency determining that the entity meets those criteria.

Note 1:

While an entity meets the conditions in subsection (3) , it is treated for the purposes of this Division as not being a member of a consolidated group or MEC group (see section 820-584 ).

Note 2:

An entity that does not qualify for the exemption in this section may still be a securitisation vehicle under subsection 820-942(2) , in which case the value of its securitised assets will count towards its zero-capital amount under Subdivision 820-K .

Multi-tier special purpose entities

820-39(5)    
An entity is taken to meet the conditions in subsection (3) throughout a period that is all or part of an income year, if the entity is one of 2 or more entities that together satisfy the condition that, assuming:

(a)    each of the entities had been a division or part of the same entity (the notional entity ), rather than a separate entity, throughout that period; and

(b)    the notional entity had consisted only of those divisions and parts throughout that period;

the notional entity would meet the conditions in subsection (3) throughout that period.

SECTION 820-40   Meaning of debt deduction  

820-40(1)    

Debt deduction , of an entity and for an income year, is a cost incurred by the entity to the extent to which:

(a)    

the cost is:

(i) interest, an amount in the nature of interest, or any other amount that is economically equivalent to interest; or

(ii) the difference between the *financial benefits received, or to be received, by the entity under a *scheme giving rise to a *debt interest and the financial benefits provided, or to be provided, under that scheme; or

(iii) any amount directly incurred in obtaining or maintaining the financial benefits received, or to be received, by the entity under a scheme giving rise to a debt interest; or

(iv) any other expense incurred by the entity that is specified in the regulations made for the purposes of this subparagraph; and

(b)    

the entity can, apart from this Division, deduct the cost from its assessable income for that year;

(c) (Repealed by No 101 of 2006)

820-40(2)    
A cost covered by paragraph (1)(a) includes, but is not limited to, any of the following:

(a)    an amount in substitution for interest;

(b)    a discount in respect of a security;

(c)    

a fee or charge in respect of a debt, including application fees, line fees, service fees, brokerage and stamp duty in respect of document registration or security for a *debt interest;

(d)    an amount that is taken under an *income tax law to be an amount of interest in respect of a lease, a hire purchase arrangement or any other *arrangement specified in that law;

(e)    any loss in respect of:

(i) a reciprocal purchase agreement (otherwise known as a repurchase agreement);

(ii) a sell-buyback arrangement;

(iii) a securities loan arrangement;

(f)    any amount covered by paragraph (1)(a) that has been assigned or is dealt with in any way on behalf of the party who would otherwise be entitled to that amount.

820-40(3)    
To avoid doubt, the following amounts that are incurred by an entity in relation to a *debt interest issued by the entity are not covered by paragraph (1)(a) :

(a) (Repealed by No 23 of 2024)

(b)    losses incurred by the entity in relation to which the following apply:

(i) the losses would otherwise be a cost covered by subparagraph (1)(a)(ii) ; but

(ii) the benefits mentioned in that subparagraph are measured in a foreign currency or a unit of account other than Australian currency (for example, ounces of gold) and the losses have arisen only because of changes in the rate of converting that foreign currency or that unit of account into Australian currency;

(c)    salary or wages;

(d)    rental expenses for a lease if the lease is not a debt interest;

(e)    an expense specified in the regulations made for the purposes of this paragraph.

Subdivision 820-AA - Thin capitalisation rules for general class investors  

SECTION 820-45   What this Subdivision is about  

Operative provisions

SECTION 820-46   Thin capitalisation rule for general class investors  

Thin capitalisation rule

820-46(1)    
This subsection disallows all or part of an entity ' s * debt deductions for an income year if, for that year:

(a)    the entity is a * general class investor (see subsection (2) ); and

(b)    the entity:

(i) has not made a choice under subsection (3) or (4) (fixed ratio test applies); or

(ii) has made a choice under subsection (3) (group ratio test applies); or

(iii) has made a choice under subsection (4) (third party debt test applies).

Note 1:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $ 2 million or less, see section 820-35 .

Note 2:

To work out the amount to be disallowed, see section 820-50 .

Note 3:

A consolidated group or MEC group may be a general class investor to which this Subdivision applies: see Subdivisions 820-FA and 820-FB .

General class investor

820-46(2)    
The entity is a general class investor for an income year if, and only if:

(a)    for a period that is all or part of the income year, the entity is not any of the following:

(i) an * outward investing financial entity (non-ADI);

(ii) an * inward investing financial entity (non-ADI);

(iii) an * outward investing entity (ADI);

(iv) an * inward investing entity (ADI); and

(b)    assuming that the entity were a * financial entity for all of the income year, it would be, for the income year, any of the following:

(i) an outward investing financial entity (non-ADI);

(ii) an inward investing financial entity (non-ADI).

820-46(3)    
An entity that is a * general class investor for an income year may make a choice under this subsection to apply the group ratio test in relation to that income year if:

(a)    the entity is a * GR group member for the period corresponding to the income year of a * GR group for the period; and

(b)    the * GR group EBITDA for the period of the GR group is greater than zero.

820-46(4)    
An entity that is a * general class investor for an income year may make a choice under this subsection to apply the third party debt test in relation to that income year.

820-46(5)    
An entity that is a * general class investor for an income year is taken to have made a choice under subsection (4) in relation to that income year if section 820-48 applies to the entity in relation to that income year.

820-46(6)    
Subsection (5) applies despite subsection 820-47(1) .

SECTION 820-47   Choices under subsection 820-46(3) or (4)  

820-47(1)    
A choice under subsection 820-46(3) or (4) can only be made in the * approved form.

820-47(2)    
A choice under subsection 820-46(3) or (4) can only be made:

(a)    on or before the earlier of the following days:

(i) the day the entity lodges its * income tax return for the income year;

(ii) the day the entity is required to lodge its income tax return for the income year; or

(b)    a later day allowed by the Commissioner.

820-47(3)    
Subject to subsections (4) and (4A) of this section, a choice under subsection 820-46(3) or (4) cannot be revoked.

820-47(4)    
An entity that makes a choice under subsection 820-46(3) or (4) (other than a choice that is taken to have been made under subsection 820-46(5) ) may revoke the choice if the Commissioner makes a decision to that effect under subsection (6) .

820-47(4A)    
If, under subsection 820-46(5) , an entity is taken to have made a choice to apply the third party debt test in relation to an income year:

(a)    the entity may not make a choice under subsection 820-46(3) (group ratio test applies) in relation to that income year; and

(b)    any choice previously made under subsection 820-46(3) by the entity in relation to that income year is revoked and taken never to have been made.

820-47(5)    
For the purposes of this Division (other than this section), if a choice is revoked under subsection (4) or (4A) of this section, the entity is taken to have never made the choice.

820-47(6)    
The Commissioner can decide, in writing, that a specified entity can revoke a specified choice under subsection 820-46(3) or (4) (other than a choice that is taken to have been made under subsection 820-46(5) ) in relation to an income year, if the Commissioner is satisfied that all of the following conditions are satisfied:

(a)    the entity made the choice;

(c)    the entity has applied to the Commissioner, in the *approved form, to revoke the choice before the earlier of the following days:

(i) the day that is 4 years after the day the entity lodged its *income tax return for the income year;

(ii) the day that is 4 years after the day the entity was required to lodge its income tax return for the income year;

(d)    it is fair and reasonable, having regard to matters the Commissioner considers relevant, to allow the entity to revoke the choice.

820-47(7)    
If the Commissioner makes a decision under subsection (6) , the Commissioner must give a copy of the decision to the entity as soon as practicable.

SECTION 820-48   Where entity is taken to make third party debt test choice  

820-48(1)    
For the purposes of subsection 820-46(5) , this section applies to an entity (the first entity ) in relation to an income year if:

(a)    the first entity is a *member of an *obligor group in relation to a *debt interest; and

(b)    the entity that issued the debt interest:

(i) has made a choice under subsection 820-46(4) in relation to that income year (including a choice that is taken to be made under subsection 820-46(5) in relation to a different obligor group); and

(ii) is required to lodge an * income tax return for the income year; and

(c)    the first entity:

(i) is an * associate entity of the entity mentioned in paragraph (b) of this subsection; and

(ii) is required to lodge an * income tax return for the income year.

820-48(2)    
For the purposes of subparagraph (1)(c)(i) , in determining whether an entity is an associate entity of another entity:

(aa)    disregard the requirement in subsections 820-905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820-905(1)(b) applies; and

(a)    treat the references in paragraphs 820-905(1)(a) and 820-905(2A)(a) to " an * associate interest of 50 % or more " as instead being a reference to " a * TC control interest of 20 % or more " ; and

(b)    treat subsection 820-860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and

(c)    treat the purposes mentioned in subparagraphs 820-870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection).

820-48(3)    
For the purposes of subsection 820-46(5) , this section also applies to the entity mentioned in that subsection in relation to an income year if:

(a)    the entity has entered into a * cross staple arrangement with one or more other entities; and

(b)    one or more of those other entities has made a choice under subsection 820-46(4) in relation to that income year (including a choice that is taken to be made under subsection 820-46(5) ).

SECTION 820-49   Meaning of obligor group etc.  

820-49(1)    
Subsection (2) applies if:

(a)    an entity (the borrower ) has issued a * debt interest to another entity (the creditor ); and

(b)    the creditor has recourse for payment of the debt to which the debt interest relates to assets of one or more other entities (each of which is an obligor entity ).

820-49(2)    
Each obligor entity and the borrower is a member of an obligor group in relation to the * debt interest.

820-49(3)    
For the purposes of paragraph (1)(b) , disregard assets that are *membership interests in the borrower.

SECTION 820-50   Amount of debt deduction disallowed  

820-50(1)    
The amount (the total disallowed amount ) disallowed under subsection 820-46(1) of the * debt deductions of an entity for an income year is:

(a)    if the entity has not made a choice under subsection 820-46(3) or (4) in relation to the income year (fixed ratio test applies) - the amount by which the entity ' s * net debt deductions for the income year exceed the entity ' s * fixed ratio earnings limit for the income year (see section 820-51 ); or

(b)    if the entity has made a choice under subsection 820-46(3) in relation to the income year (group ratio test applies) - the amount by which the entity ' s net debt deductions for the income year exceed the entity ' s * group ratio earnings limit for the income year (see section 820-51 ); or

(c)    if the entity has made a choice under subsection 820-46(4) in relation to the income year (third party debt test applies) - the amount by which the entity ' s debt deductions for the income year exceed the entity ' s * third party earnings limit for the income year (see section 820-427A ).

Note 1:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

Note 2:

The entity ' s net debt deductions for the income year can be a negative amount.

820-50(2)    
The amount by which a particular * debt deduction is disallowed as a result of subsection (1) is worked out as follows:

(a)    first, divide the total disallowed amount by the * debt deductions of the entity for the income year;

(b)    next, multiply the amount of the particular debt deduction by the result of paragraph (a) .

820-50(3)    
An entity ' s net debt deductions for an income year is worked out as follows:

(a)    first, work out the sum of the entity ' s *debt deductions (disregarding this Division other than Subdivision 820-EAA ) for the income year;

(b)    next, work out the sum of each amount included in the entity ' s assessable income for that year that is:

(i) interest, an amount in the nature of interest, or any other amount that is economically equivalent to interest; or

(ii) any amount directly incurred by another entity in obtaining or maintaining the financial benefits received, or to be received, by the other entity under a * scheme giving rise to a * debt interest; or

(iii) any other expense that is incurred by another entity and that is specified in the regulations made for the purposes of this subparagraph;

(c)    next, subtract the result of paragraph (b) from the result of paragraph (a) .

820-50(4)    
To avoid doubt, an entity ' s net debt deductions for an income year can be a negative amount.

SECTION 820-51   Meaning of fixed ratio earnings limit and group ratio earnings limit  

820-51(1)    
An entity ' s fixed ratio earnings limit for an income year is 30 % of its * tax EBITDA for the income year.

820-51(2)    
An entity ' s group ratio earnings limit for an income year is its * group ratio for the income year multiplied by its * tax EBITDA for the income year.

SECTION 820-52   Meaning of tax EBITDA  

820-52(1)    
An entity ' s tax EBITDA for an income year is worked out as follows:

(a)    first, work out the entity ' s taxable income or *tax loss for the income year (disregarding the operation of this Division (other than Subdivision 820-EAA ) and treating a tax loss as a negative amount);

(b)    next, add the entity ' s * net debt deductions for the income year;

(c)    next, add the sum of the entity ' s deductions (if any) from its assessable income for the income year that are any of the following:

(i) *general deductions that relate to forestry establishment and preparation costs unless those costs relate to the clearing of native forests;

(ii) deductions under Divisions 40 and 43 (other than deductions for the entire amount of an expense incurred by the entity);

(iii) deductions under section 70-120 ;

(ca)    next, if the entity is an entity to which subsection 820-60(1) applies - add the *excess tax EBITDA amount (if any) worked out under that section for the income year;

(d)    next, make adjustments to the result of paragraph (c) or (ca) , as the case requires, in accordance with regulations (if any) made for the purposes of this paragraph.

If the result of paragraph (d) is less than zero, treat it as being zero.

Note:

The entity ' s net debt deductions for the income year can be a negative amount.

Tax losses from earlier income years

820-52(1A)    
In working out the taxable income or *tax loss of a *corporate tax entity for an income year for the purposes of subsection (1) , assume that:

(a)    the entity chooses to deduct, under subsection 36-17(2) or (3) , all of the entity ' s tax losses for *loss years occurring before the income year; and

(b)    subsection 36-17(5) does not apply to that choice.

Franked distributions

820-52(2)    
For the purposes of this section, disregard Division 207 , to the extent that Division results in an amount of, or a *share of, a *franking credit being included in the entity ' s assessable income for the income year.

Dividends etc.

820-52(3)    
In working out the taxable income or *tax loss of an entity for the purposes of subsection (1) , disregard any *dividend or *non-share dividend paid to the entity by an *associate entity and included in the entity ' s assessable income under section 44 of the Income Tax Assessment Act 1936 .

Trusts other than AMITs

820-52(4)    
If the entity is a trust other than an *AMIT:

(a)    treat the reference in subsection (1) to the entity ' s taxable income as being a reference to the * net income of the entity; and

(b)    treat the reference in subsection (1) to the entity ' s * net debt deductions as being a reference to the entity ' s net debt deductions taken into account in working out that net income; and

(c)    treat the reference in subsection (1) to the entity ' s deductions as being a reference to the entity ' s deductions taken into account in working out that net income; and

(d)    treat the references in subsection (1) to the entity ' s assessable income as being a reference to the entity ' s assessable income taken into account in working out that net income.

820-52(5)    
To avoid doubt, for the purposes of references in subsection (4) to net income, do not make the assumption in subsection 102UX(3) of the Income Tax Assessment Act 1936 .

Beneficiaries of trusts other than AMITs

820-52(6)    
In working out the taxable income or *tax loss of an entity for the purposes of subsection (1) , if the entity is a beneficiary of a trust other than an *AMIT, and is an *associate entity of the trust:

(a)    disregard the operation of the following provisions in relation to the trust:

(i) Subdivision 115-C ;

(ii) Division 6 of Part III of the Income Tax Assessment Act 1936 ; and

(b)    disregard distributions from the trust to the entity.

Attribution managed investment trusts

820-52(6A)    
If the entity is an *AMIT:

(a)    treat the reference in subsection (1) to the entity ' s taxable income as being a reference to the *net income of the entity; and

(b)    treat the reference in subsection (1) to the entity ' s *net debt deductions as being a reference to the entity ' s net debt deductions taken into account in working out that net income; and

(c)    treat the reference in subsection (1) to the entity ' s deductions as being a reference to the entity ' s deductions taken into account in working out that net income; and

(d)    treat the references in subsection (1) to the entity ' s assessable income as being a reference to the entity ' s assessable income taken into account in working out that net income.

Members of AMITs

820-52(6B)    
In working out the taxable income or *tax loss of an entity for the purposes of subsection (1) , if the entity is a member of an *AMIT, and is an *associate entity of the AMIT:

(a)    disregard the operation of Division 276 in relation to the AMIT; and

(b)    disregard distributions from the AMIT to the entity.

Partnerships

820-52(7)    
If the entity is a partnership:

(a)    treat the reference in subsection (1) to the entity ' s taxable income as being a reference to the * net income of the entity; and

(b)    treat the reference in subsection (1) to the entity ' s * net debt deductions as being a reference to the entity ' s net debt deductions taken into account in working out that net income.

(c)    treat the reference in subsection (1) to the entity ' s deductions as being a reference to the entity ' s deductions taken into account in working out that net income; and

(d)    treat the references in subsection (1) to the entity ' s assessable income as being a reference to the entity ' s assessable income taken into account in working out that net income.

Partners in partnerships

820-52(8)    
In working out the taxable income or * tax loss of an entity for the purposes of subsection (1) , if the entity is a partner in a partnership, and is an * associate entity of the partnership, disregard the operation of Division 5 of Part III of the Income Tax Assessment Act 1936 .

Associate entity test - TC control interest of 10 % or more

820-52(9)    
For the purposes of subsections (3) , (6) , (6B) and (8) , in determining whether an entity is an associate entity of another entity:

(aa)    disregard the requirement in subsections 820-905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820-905(1)(b) applies; and

(a)    treat the references in paragraphs 820-905(1)(a) and 820-905(2A)(a) to " an * associate interest of 50 % or more " as instead being a reference to " a * TC control interest of 10 % or more " ; and

(b)    treat subsection 820-860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and

(c)    treat the purposes mentioned in subparagraphs 820-870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection).

Notional deductions of R & D entities

820-52(10)    
In working out the taxable income or *tax loss of an entity for the purposes of subsection (1) , if the entity is an *R & D entity that is entitled to a notional deduction for an income year under Division 355 in relation to *R & D activities of the R & D entity, subtract an amount equivalent to the amount of the notional deduction.

SECTION 820-53   Meaning of group ratio, GR group, GR group parent and GR group member  

820-53(1)    
If an entity is a * GR group member for a period of a * GR group for the period, the entity ' s group ratio for the income year corresponding to the period is worked out as follows:

(a)    first, work out the * GR group net third party interest expense, for that period, of the GR group;

(b)    next, work out the * GR group EBITDA for that period of the GR group;

(c)    next, divide the result of paragraph (a) by the result of paragraph (b) .

If the result of paragraph (b) is zero, the entity ' s group ratio for the income year is zero.

Note:

The entity must keep records in accordance with section 820-985 if the entity works out a group ratio under this section.

820-53(2)    
A GR group , for a period, is:

(a)    if * audited consolidated financial statements for the period have been prepared for a worldwide parent entity (as described in subsection 820-935(6) ) - the group comprised of all of the following:

(i) the worldwide parent entity;

(ii) each other entity that is fully consolidated on a line-by-line basis in those audited consolidated financial statements; or

(b)    if paragraph (a) does not apply, and * global financial statements have been prepared for the period for a * global parent entity - the group comprised of all of the following:

(i) the global parent entity;

(ii) each other entity that is fully consolidated on a line-by-line basis in those global financial statements.

820-53(3)    
If paragraph (2)(a) applies:

(a)    the GR group parent for the period of the * GR group is the worldwide parent entity mentioned in that paragraph; and

(b)    each of the entities mentioned in that paragraph is a GR group member for the period of the * GR group.

820-53(4)    
If paragraph (2)(b) applies:

(a)    the GR group parent for the period of the * GR group is the * global parent entity mentioned in that paragraph; and

(b)    each of the entities mentioned in that paragraph is a GR group member for the period of the * GR group.

SECTION 820-54   Meaning of GR group net third party interest expense, financial statement net third party interest expense and adjusted net third party interest expense  

820-54(1)    
The GR group net third party interest expense , for a period, of a * GR group for the period, is the amount that would be the group ' s * financial statement net third party interest expense for the period, if:

(a)    where paragraph 820-53(2)(a) applies - the * audited consolidated financial statements for the period for the * GR group parent for the period of the group were prepared on the basis that the following were treated as interest:

(i) an amount in the nature of interest;

(ii) any other amount that is economically equivalent to interest; or

(b)    where paragraph 820-53(2)(b) applies - the * global financial statements for the period for the GR group parent for the period of the group were prepared on the basis that the following were treated as interest:

(i) an amount in the nature of interest;

(ii) any other amount that is economically equivalent to interest.

820-54(2)    
The financial statement net third party interest expense , for a period, of a * GR group for the period, is:

(a)    the amount of the * GR group ' s net third party interest expense for the period, as disclosed in the following statements:

(i) if paragraph 820-53(2)(a) applies - the * audited consolidated financial statements for the * GR group parent for the period for the GR group;

(ii) if paragraph 820-53(2)(b) applies - the * global financial statements for the GR group parent for the period for the GR group;

reduced by the amount of each payment (if any) covered by subsection (3) , to the extent that it was a factor in working out that net third party interest expense; or

(b)    if those statements do not disclose that net third party interest expense - the amount worked out as follows:

(i) first, identify the amount of the group ' s third party interest expenses for the period disclosed in those statements;

(ii) next, reduce the result of subparagraph (i) by the amount of each payment (if any) covered by subsection (3) , to the extent that it was a factor in working out those third party interest expenses;

(iii) next, reduce the result of subparagraph (ii) by the amount of the group ' s third party interest income for the period disclosed in those statements;

(iv) next, increase the result of subparagraph (iii) by the amount of each payment (if any) covered by subsection (3) , to the extent that it was a factor in working out that third party interest income.

820-54(3)    
For the purposes of subsection (2) , this subsection covers a payment if:

(a)    the payment is made by an entity to an * associate entity of the entity; and

(b)    either:

(i) the entity is a * GR group member for the period of the * GR group and the associate entity is not such a GR group member; or

(ii) the entity is not a GR group member for the period of the GR group and the associate entity is such a GR group member.

820-54(4)    
The adjusted net third party interest expense , for a period, of an entity or a * GR group is:

(a)    for an entity - the amount that would be the entity ' s net interest expense for the period if the following payments were disregarded:

(i) a payment that is made by the entity to an * associate entity of the entity;

(ii) a payment that is made by an associate entity of the entity to the entity; or

(b)    for a GR group - the amount that would be the GR group ' s net interest expense for the period if the following payments were disregarded:

(i) a payment that is made by a * GR group member of the GR group to an associate entity of any GR group member of the GR group;

(ii) a payment that is made by an associate entity of a GR group member of the GR group to any GR group member of the GR group.

820-54(5)    
For the purposes of subsections (3) and (4) , in determining whether an entity is an associate entity of another entity:

(aa)    disregard the requirement in subsections 820-905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820-905(1)(b) applies; and

(a)    treat the references in paragraphs 820-905(1)(a) and 820-905(2A)(a) to " an * associate interest of 50 % or more " as instead being a reference to " a * TC control interest of 20 % or more " ; and

(b)    treat subsection 820-860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and

(c)    treat the purposes mentioned in subparagraphs 820-870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection).

SECTION 820-55   Meaning of entity EBITDA and GR group EBITDA  

820-55(1)    
The entity EBITDA of an entity, for a period, is the sum ofthe following for the entity for the period:

(a)    the entity ' s net profit (disregarding tax expenses);

(b)    the entity ' s * adjusted net third party interest expense;

(c)    the entity ' s depreciation and amortisation expenses.

820-55(2)    
The GR group EBITDA , for a period, of a * GR group for the period, is the sum of the following:

(a)    the GR group ' s net profit (disregarding tax expenses);

(b)    the GR group ' s * adjusted net third party interest expense;

(c)    the GR group ' s depreciation and amortisation expenses;

as disclosed in:

(d)    if paragraph 820-53(2)(a) applies - the * audited consolidated financial statements for the * GR group parent for the period for the GR group; or

(e)    if paragraph 820-53(2)(b) applies - the * global financial statements for the GR group parent for the period for the GR group.

820-55(3)    
For the purposes of subsection (2) , in working out the * GR group ' s * GR group EBITDA for the period, if a * GR group member for the period of the GR group has an * entity EBITDA for the period of less than zero, disregard that entity EBITDA.

820-55(4)    
To avoid doubt, for the purposes of this section, an entity ' s, or a * GR group ' s, net profit (disregarding tax expenses) can be a negative amount.

SECTION 820-56   Special deduction for previously FRT disallowed amounts - fixed ratio test  

820-56(1)    
An entity can deduct the amount worked out under subsection (2) from its assessable income for the income year if:

(a)    the entity has not made a choice under subsection 820-46(3) or (4) in relation to the income year (fixed ratio test applies); and

(b)    the entity ' s * fixed ratio earnings limit for the income year exceeds the sum of the entity ' s * net debt deductions for the income year.

Note:

The entity ' s net debt deductions for the income year can be a negative amount.

820-56(2)    
Work out the amount of the deduction as follows:

(a)    first, work out the amount of the excess mentioned in paragraph (1)(b) ;

(b)    next, apply against that excess each of the entity ' s * FRT disallowed amounts for the previous 15 income years (to the extent that they have not already been applied under this paragraph in respect of any of those previous income years).

The amount of the deduction is the total amount applied under paragraph (b) .

820-56(3)    
For the purposes of paragraph (2)(b) :

(a)    apply * FRT disallowed amounts in sequence, where a FRT disallowed amount for an earlier income year is applied before a FRT disallowed amount from a later income year; and

(b)    apply FRT disallowed amounts up to, but not beyond, the excess mentioned in paragraph (1)(b) .

Note:

As a result of paragraph (3)(b) , part of a FRT disallowed amount may be applied against the excess mentioned in paragraph (1)(b) .

SECTION 820-57  

820-57   Meaning of FRT disallowed amount  

An entity has a fixed ratio test disallowed amount (or FRT disallowed amount ) for an income year equal to:

(a)    if * debt deductions of the entity for the income year are disallowed under subsection 820-46(1) and the amount disallowed is worked out in accordance with paragraph 820-50(1)(a) (fixed ratio test applies) - the amount disallowed; or

(b)    otherwise - zero.

SECTION 820-58   FRT disallowed amount is treated as zero where subsequent choice means fixed ratio test does not apply  

820-58(1)    
Subsection (2) applies if:

(a)    an entity has not made a choice under subsection 820-46(3) or (4) in relation to an income year; and

(b)    the entity makes a choice under subsection 820-46(3) or (4) in relation to a subsequent income year.

820-58(2)    
Despite section 820-57 , for the purpose of applying section 820-56 in respect of that subsequent income year and later income years, treat the entity as having a * FRT disallowed amount of zero for every income year before that subsequent income year.

SECTION 820-59   When FRT disallowed amount is treated as zero for companies and trusts  

820-59(1)    
This section applies if an entity is a company or a trust.

820-59(2)    
This section applies for the purposes of applying a * FRT disallowed amount of the entity for an income year (the disallowance year ) under paragraph 820-56(2)(b) , in order to work out the amount of a deduction from its assessable income for another income year (the deduction year ) under subsection 820-56(1) .

820-59(3)    
Despite section 820-57 , treat the * FRT disallowed amount for the disallowance year as being zero unless:

(a)    if the entity is a company - subsection (4) applies; or

(b)    if the entity is a trust - subsection (5) applies.

Rules for companies

820-59(4)    
This subsection applies if, assuming that:

(a)    the * FRT disallowed amount were a * tax loss; and

(b)    the disallowance year were the * loss year; and

(c)    the following provisions were disregarded:

(i) subsection 165-115B(3) ;

(ii) subsection 165-115BA(5) ;

(iii) section 415-35 ;

Divisions 165 , 166 and 167 would not prevent the company from deducting the entire amount of that tax loss in the deduction year.

Rules for trusts

820-59(5)    
This subsection applies if, assuming that:

(a)    the * FRT disallowed amount were a tax loss (within the meaning of Schedule 2F to the Income Tax Assessment Act 1936 ); and

(b)    the disallowance year were a loss year (within the meaning of that Schedule);

that Schedule would not prevent the entity from deducting the entire amount of that tax loss in the deduction year.

SECTION 820-60   Excess tax EBITDA amount  

Scope

820-60(1)    
This section applies to an entity (the controlling entity ) if:

(a)    the controlling entity is, for a period that is all or part of an income year, one of the following entities:

(i) a company that is an *Australian entity;

(ii) a unit trust that is a *resident trust for CGT purposes;

(iii) a *managed investment trust;

(iv) a partnership that is an Australian entity; and

(b)    the controlling entity is a *general class investor for all or part of the income year; and

(c)    the controlling entity has not made a choice under subsection 820-46(3) or (4) in relation to the income year; and

(d)    one or more other entities (each of which is a controlled entity ) satisfy the conditions in subsection (2) of this section in relation to the controlling entity for the income year.

820-60(2)    
An entity (the test entity ) satisfies the conditions in this subsection in relation to the controlling entity for an income year if:

(a)    the controlling entity has a *TC direct control interest of 50% or more in the test entity at any time during the income year; and

(b)    the test entity is, for a period that is all or part of the income year, one of the following entities:

(i) a company that is an *Australian entity;

(ii) a unit trust that is a *resident trust for CGT purposes;

(iii) a *managed investment trust;

(iv) a partnership that is an Australian entity; and

(c)    the test entity is a *general class investor for all or part of the income year; and

(d)    the test entity has not made a choice under subsection 820-46(3) or (4) in relation to the income year.

Excess tax EBITDA amount

820-60(3)    
The controlling entity ' s excess tax EBITDA amount for the income year is the amount worked out using the following method statement. Method statement

Modification of TC direct control interest - companies

820-60(4)    
For the purposes of this section, in working out whether the controlling entity holds a *TC direct control interest in a company, apply subsection 820-855(2) as if it instead included the modifications of Part X of the Income Tax Assessment Act 1936 set out in the following table.

Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item	Provisions	Modifications
1	Section 350 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section)	The section applies for the purposes of this section and Subdivision 820-H rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2	Subsection 350(1)	The reference to " greater or greatest " is taken to be a reference to " lesser or least "
3	Subsection 350(2)	The reference to " highest " is taken to be a reference to " lowest "
4	Subsections 350(6) and (7)	The subsections do not apply

Modification of TC direct control interest - trusts

820-60(5)    
For the purposes of this section, in working out whether the controlling entity holds a *TC direct control interest in a trust, apply subsection 820-860(2) as if it also included the modifications of Part X of the Income Tax Assessment Act 1936 set out in the following table.

Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item	Provisions	Modifications
3	Subsection 351(1)	The reference to " greater of those percentages " reads " lesser of those percentages "
4	Subsections 351(2) to (4)	The subsections do not apply

Modification of TC direct control interest - partnerships

820-60(6)    
For the purposes of this section, in working out whether the controlling entity holds a *TC direct control interest in a partnership, apply section 820-865 as if:

(a)    the reference to " greatest " were a reference to " least " ; and

(b)    paragraph 820-865(b) were omitted.

Modified meaning of Australian entity

820-60(7)    
For the purposes of this section, in determining whether an entity is an *Australian entity (including for the purposes of determining whether another entity is a *foreign entity) at a particular time:

(a)    for the purposes of paragraph 336(a) of the Income Tax Assessment Act 1936 , treat a partnership as being an Australian entity if, at that time, a *direct participation interest of 50% or more is held in the partnership by one or more of the following:

(i) an Australian resident;

(ii) an *Australian trust; and

(b)    disregard section 337 of that Act.

Subdivision 820-B - Thin capitalisation rules for outward investing financial entities (non-ADI)  

SECTION 820-65   What this Subdivision is about  

Operative provisions

SECTION 820-85   Thin capitalisation rule for outward investing financial entities (non-ADI)  

Thin capitalisation rule

820-85(1A)    

Subsection (1) applies if:

(a)    an entity is an * outward investing financial entity (non-ADI) (see subsection (2) ) for all of an income year; and

(b)    either:

(i) the entity has made a choice under subsection (2C) in relation to the income year; or

(ii) otherwise - the entity ' s * adjusted average debt (see subsection (3) ) for the income year exceeds its * maximum allowable debt (see section 820-90 ) for the income year.

Note:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $ 2 million or less, see section 820-35 .

820-85(1)    

This subsection disallows:

(a)    if paragraph (1A)(b)(i) applies - all or part of the entity ' s * debt deductions for the income year (to the extent that they are not attributable to an * overseas permanent establishment of the entity); or

(b)    if paragraph (1A)(b)(ii) applies - all or a part of each debt deduction of the entity for the income year (to the extent that it is not attributable to an overseas permanent establishment of the entity).

Note 1:

To work out the amount to be disallowed, see section 820-115 .

Note 2:

For the rules that apply to an entity that is an outward investing financial entity (non-ADI) for only a part of an income year, see section 820-120 in conjunction with subsection (2) of this section.

Note 3:

A consolidated group or MEC group may be an outward investing financial entity (non-ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB .

Outward investing financial entity (non-ADI)

820-85(2)    

The entity is an outward investing financial entity (non-ADI) for a period that is all or a part of an income year if, and only if, it is an * outward investor (financial) for that period (according to the items of the following table).

Outward investing financial entity (non-ADI)
Item	If:	and:	then:
1	the entity (the relevant entity ) is one or both of the following throughout a period that is all or a part of an income year:	the relevant entity is a *financial entity throughout that period	the relevant entity is an outward investing financial entity (non-ADI) for that period
	(a)	an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period);
	(b)	an Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period)
2	(a)	the entity (the relevant entity ) is an *Australian entity throughout a period that is all or a part of an income year; and	the relevant entity is a *financial entity throughout that period	the relevant entity is an outward investing financial entity (non-ADI) for that period
	(b)	throughout that period, the relevant entity is an *associate entity of another Australian entity; and
	(c)	that other Australian entity is an *outward investing financial entity (non-ADI) or an *outward investing entity (ADI) for that period

Note:

To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820-H .

820-85(2A)    

However, the entity is not an outward investing financial entity (non-ADI) for a period that is all or a part of an income year if it is a * general class investor for that year.

820-85(2B)    

Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).

820-85(2C)    

An entity that is an * outward investing financial entity (non-ADI) for a period that is all or part of an income year may make a choice under this subsection to apply the third party debt test in relation to that income year.

820-85(2D)    

Section 820-47 applies in relation to a choice under subsection (2C) in the same way that it applies in relation to a choice under subsection 820-46(3) or (4) .

Adjusted average debt

820-85(3)    

The entity ' s adjusted average debt for an income year is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity ' s *overseas permanent establishments. Method statement

Note:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

820-85(4)    
The entity ' s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.

SECTION 820-90   Maximum allowable debt  

Entity is not also an inward investment vehicle (financial)

820-90(1)    

The entity ' s maximum allowable debt for an income year is the greatest of the following amounts if the entity is not also an *inward investment vehicle (financial) for all or any part of that year:

(a)    the *safe harbour debt amount;

(b) (Repealed by No 23 of 2024)

(c)    

unless the entity has *worldwide equity of nil or a negative amount - the *worldwide gearing debt amount.

Entity is also an inward investment vehicle (financial)

820-90(2)    

The entity ' s maximum allowable debt for an income year is the greatest of the following amounts if the entity is also an *inward investment vehicle (financial) for all or any part of that year:

(a)    the *safe harbour debt amount;

(b) (Repealed by No 23 of 2024)

(c)    unless subsection (3) applies to the entity - the *worldwide gearing debt amount.

Inward investment vehicles that are not eligible for the worldwide gearing debt amount

820-90(3)    

This subsection applies to an entity, if:

(a)    the entity has *statement worldwide equity, or *statement worldwide assets, of nil or a negative amount; or

(b)    *audited consolidated financial statements for the entity for the income year do not exist; or

(c)    the result of applying the following formula is greater than 0.5:

	Average Australian assets of the entity
	*Statement worldwide assets of the entity for the income year

where:

average Australian assets
of an entity is the average value, for the statement period mentioned in subsection (4) , of all the assets of the entity, other than:

(a) any assets attributable to the entity ' s *overseas permanent establishments; or

(b) any *debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity debt of the entity; or

(c) any *equity interests or debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity equity of the entity.

820-90(4)    

For the purposes of the definition of average Australian assets in subsection (3) the statement period is the period for which the *audited consolidated financial statements for the entity for the income year have been prepared.

820-90(5)    

For the purposes of the formula in paragraph (3)(c) , if:

(a)    an amount is included in *statement worldwide assets in respect of an asset; and

(b)    the asset was acquired, held or otherwise dealt with by an entity for a purpose (other than an incidental purpose) that included ensuring that subsection (3) does not apply to an entity; and

(c)    as a result of the acquisition, holding or dealing with of the asset, the amount included in statement worldwide assets exceeds the amount (including nil) that would otherwise be so included;

apply the amount of the excess to reduce statement worldwide assets (or statement worldwide assets as reduced by a previous application of this subsection).

820-95   (Repealed) SECTION 820-95 Safe harbour debt amount - outward investor (general)  
(Repealed by No 23 of 2024)

SECTION 820-100   Safe harbour debt amount - outward investing financial entity (non-ADI)  

820-100(1)    

If the entity is an *outward investing financial entity (non-ADI) for the income year, the safe harbour debt amount is the lesser of the following amounts:

(a)    the *total debt amount (worked out under subsection (2) );

(b)    the *adjusted on-lent amount (worked out under subsection (3) ).

However, if the 2 amounts are equal, it is the total debt amount.

Total debt amount

820-100(2)    

The total debt amount is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity ' s *overseas permanent establishments. Method statement

Example:

GLM Limited, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $160 million.

The average values of its relevant excluded equity interests, associate entity debt, associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non-debt liabilities and zero-capital amount are $5 million, $5 million, $5 million, $9 million, $6 million, $5 million and $4 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 7) leaves $121 million. Multiplying $121 million by 15/16 results in $113.4375 million. Adding the average zero-capital amount of $4 million results in $117.4375 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $117.4375 million.

Adjusted on-lent amount

820-100(3)    

The adjusted on-lent amount is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity ' s *overseas permanent establishments. Method statement

Example:

GLM Limited, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $160 million.

The average values of its relevant excluded equity interests, associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non-debt liabilities and on-lent amount are $5 million, $5 million, $9 million, $6 million, $5 million and $35 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 6) leaves $95 million. Multiplying $95 million by ⅗ results in $57 million. Adding the average on-lent amount of $35 million results in $92 million. Reducing the result of step 8 by the associate entity debt amount of $5 million equals $87 million. As the company does not have any associate entity excess amount, the adjusted on-lent amount is therefore $87 million.

820-105   (Repealed) SECTION 820-105 Arm ' s length debt amount  
(Repealed by No 23 of 2024)

SECTION 820-110  

820-110   Worldwide gearing debt amount - outward investor that is not also an inward investment vehicle  

If the entity is an *outward investing financial entity (non-ADI) for that year, and not also an *inward investment vehicle (financial) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this subsection. Method statement

Example:

GLM Limited, a company that is an Australian entity, has an average value of worldwide debt of $120 million and an average value of worldwide equity of $40 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 3 and 4) and multiplying the result by $121 million (which is the result of step 7 of the method statement in subsection 820-100(2) ) equals $90.75 million. The average value of zero-capital amount (see step 7 of the method statement in subsection 820-100(2)) is $4 million. Adding that amount to $90.75 million results in $94.75 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $94.75 million.

SECTION 820-111  

820-111   Worldwide gearing debt amount - outward investor that is also an inward investment vehicle  

If the entity is an *outward investing financial entity (non-ADI) for the income year, and is also an *inward investment vehicle (financial) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this subsection. Method statement

Example:

TRR Limited, a company that is an Australian entity, has a worldwide parent entity in the United States of America. TRR Limited also has permanent establishments in Malaysia. TRR Limited has statement worldwide debt of $90 million and statement worldwide equity of $30 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $100 million (which is the result of step 7 of the method statement in subsection 820-100(2) ) equals $75 million. The zero capital amount is $5 million. Adding that amount to $75 million results in $80 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $80 million.

SECTION 820-115   Amount of debt deduction disallowed  

820-115(1)    

If subparagraph 820-85(1A)(b)(i) applies, the amount (the total disallowed amount ) disallowed under subsection 820-85(1) of the *debt deductions of an entity for an income year is the amount by which those debt deductions (to the extent that they are not attributable to an *overseas permanent establishment of the entity) exceed the entity ' s *third party earnings limit for the income year (see section 820-427A ).

Note:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

820-115(2)    

The amount by which a particular * debt deduction is disallowed as a result of subsection (1) is worked out as follows:

(a)    first, divide the total disallowed amount by the * debt deductions of the entity for the income year;

(b)    next, multiply the amount of the particular debt deduction by the result of paragraph (a) .

820-115(3)    

If subparagraph 820-85(1A)(b)(ii) applies, the amount of a * debt deduction of an entity for an income year disallowed under subsection 820-85(1) is worked out using the following formula:

Debt deduction   ×

Excess debt   Average debt

where:

average debt
means the sum of:

(a) the average value, for the income year, of the entity ' s *debt capital that is covered by step 1 of the method statement in subsection 820-85(3) ; and

(b) the average value, for that year, of the entity ' s *cost-free debt capital that is covered by step 5 of that method statement;

(disregarding any amount that is attributable to the entity ' s *overseas permanent establishments in working out the average values).

debt deduction
means each *debt deduction covered by subsection 820-85(1) .

excess debt
means the amount by which the entity ' s *adjusted average debt for that year (see subsection 820-85(3) ) exceeds its *maximum allowable debt for that year.

Note:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

SECTION 820-120   Application to part year periods  

820-120(1)    
This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year (to the extent that it is not attributable to an *overseas permanent establishment of the entity), if:

(a)    

the entity is an *outward investing financial entity (non-ADI) for that period; and

(b)    the entity ' s *adjusted average debt for that period exceeds the entity ' s *maximum allowable debt for that period.

Note:

To determine whether an entity is an outward investing entity (non-ADI) for that period, see subsection 820-85(2) .

820-120(2)    

The entity ' s adjusted average debt for that period is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity ' s *overseas permanent establishments. Method statement

820-120(3)    
The entity ' s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.

820-120(4)    

For the purposes of determining:

(a)    the *maximum allowable debt for the period mentioned in subsection (1); and

(b)    the amount of each *debt deduction to be disallowed;

sections 820-90 to 820-115 apply in relation to that entity and that period with the modifications set out in the following table:

Modifications of sections 820-90 to 820-115
Item	Provisions	Modifications
1	Sections 820-90 to 820-115	A reference to an income year is taken to be a reference to that period
2	Section 820-115	A reference to subsection 820-85(1) is taken to be a reference to subsection (1) of this section
3	Section 820-115	adjusted average debt is taken to have the meaning given by subsection (2) of this section average debt is taken to be the sum of: (a) the average value, for that period, of the entity ' s *debt capital that is covered by step 1 of the method statement in subsection (2) of this section; and (b) the average value, for that period, of the entity ' s *cost-free debt capital that is covered by step 5 of that method statement; (disregarding any amount that is attributable to the entity ' s *overseas permanent establishments in working out the average values).

Subdivision 820-C - Thin capitalisation rules for inward investing financial entities (non-ADI)  

SECTION 820-180   What this Subdivision is about  

Operative provisions

SECTION 820-185   Thin capitalisation rule for inward investing financial entities (non-ADI)  

Thin capitalisation rule

820-185(1A)    

Subsection (1) applies if:

(a)    an entity is an * inward investing financial entity (non-ADI) (see subsection (2) ) for all of an income year, but is not also an * outward investing financial entity (non-ADI) (see section 820-85 ) for all or any part of that year; and

(b)    either:

(i) the entity has made a choice under subsection (2C) in relation to the income year; or

(ii) otherwise - the entity ' s * adjusted average debt (see subsection (3) ) for the income year exceeds its * maximum allowable debt (see section 820-190 ) for the income year.

Note:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $ 2 million or less, see section 820-35 .

820-185(1)    

This subsection disallows:

(a)    if paragraph (1A)(b)(i) applies - all or part of the entity ' s * debt deductions for the income year; or

(b)    if paragraph (1A)(b)(ii) applies - all or a part of each debt deduction of the entity for the income year.

Note 1:

To work out the amount to be disallowed, see section 820-220 .

Note 2:

For the rules that apply to an entity that is an outward investing financial entity (non-ADI) as well as an inward investing financial entity (non-ADI), see Subdivision 820-B .

Note 3:

For the rules that apply to an entity that is an inward investing financial entity (non-ADI) for only a part of an income year, see section 820-225 in conjunction with subsection (2) of this section.

Note 4:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

Note 5:

A consolidated group or MEC group may be an inward investing financial entity (non-ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB .

Inward investing financial entity (non-ADI)

820-185(2)    

The entity is an inward investing financial entity (non-ADI) for a period that is all or a part of an income year if, and only if, it is:

(b)    an * inward investment vehicle (financial) for that period (as set out in item 1 of the following table); or

(d)    an * inward investor (financial) for that period (as set out in item 2 of that table).

Inward investing financial entity (non-ADI)
Item	If the entity is a:	and the entity:	the entity is an:
1	*foreign controlled Australian entity throughout a period that is all or a part of an income year	is a *financial entity throughout that period	inward investment vehicle (financial) for that period
2	*foreign entity throughout a period that is all or a part of an income year	is a financial entity throughout that period	inward investor (financial) for that period

Note 1:

To determine whether an entity is a foreign controlled Australian entity, see Subdivision 820-H .

Note 2:

An entity covered by item 2 of the table may berequired to keep certain records, see Subdivision 820-L .

820-185(2A)    

However, the entity is not an inward investing financial entity (non-ADI) for a period that is all or a part of an income year if it is a * general class investor for that year.

820-185(2B)    

Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).

820-185(2C)    

An entity that is an * inward investing financial entity (non-ADI) for a period that is all or part of an income year may make a choice under this subsection to apply the third party debt test in relation to that income year.

820-185(2D)    

Section 820-47 applies in relation to a choice under subsection (2C) in the same way that it applies in relation to a choice under subsection 820-46(3) or (4) .

Adjusted average debt

820-185(3)    

The entity ' s adjusted average debt for an income year is the result of applying the method statement in this subsection. Method statement

Note:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

820-185(4)    
The entity ' s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.

SECTION 820-190   Maximum allowable debt  

820-190(1)    
The entity ' s maximum allowable debt for an income year is the greatest of the following amounts:

(a)    the *safe harbour debt amount;

(b) (Repealed by No 23 of 2024)

(c)    unless subsection (2) applies to the entity - the *worldwide gearing debt amount.

Entities that are not eligible for the worldwide gearing debt amount

820-190(2)    
This subsection applies to an entity, if:

(a)    the entity has *statement worldwide equity, or *statement worldwide assets, of nil or a negative amount; or

(b)    *audited consolidated financial statements for the entity for the income year do not exist; or

(c)    the result of applying the following formula is greater than 0.5:

	Average Australian assets of the entity
	*Statement worldwide assets of the entity for the income year

where:

average Australian assets
:

(a) of an *Australian entity - is the average value, for the statement period mentioned in subsection (3) , of all the assets of the entity, other than:

(i) any *debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity debt of the entity; or

(ii) any *equity interests or debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity equity of the entity; and

(b) of a *foreign entity - is the average value, for the statement period mentioned in subsection (3) , of all the assets of the entity that are:

(i) located in Australia; or

(ii) attributable to the entity ' s *Australian permanent establishments; or

(iii) debt interests held by the entity, that were *issued by an *Australian entity and are *on issue;

(iv) equity interests held by the entity in an *Australian entity.

820-190(3)    
For the purposes of the definition of average Australian assets in subsection (2) the statement period is the period for which the *audited consolidated financial statements for the entity for the income year have been prepared.

820-190(4)    
For the purposes of the formula in paragraph (2)(c) , if:

(a)    an amount is included in *statement worldwide assets in respect of an asset; and

(b)    the asset was acquired, held or otherwise dealt with by an entity for a purpose (other than an incidental purpose) that included ensuring that subsection (2) does not apply to an entity; and

(c)    as a result of the acquisition, holding or dealing with of the asset, the amount included in statement worldwide assets exceeds the amount (including nil) that would otherwise be so included;

apply the amount of the excess to reduce statement worldwide assets (or statement worldwide assets as reduced by a previous application of this subsection).

820-195   (Repealed) SECTION 820-195 Safe harbour debt amount - inward investment vehicle (general)  
(Repealed by No 23 of 2024)

SECTION 820-200   Safe harbour debt amount - inward investment vehicle (financial)  

820-200(1)    
If the entity is an *inward investment vehicle (financial) for the income year, the safe harbour debt amount is the lesser of the following amounts:

(a) the *total debt amount (worked out under subsection (2));

(b) the *adjusted on-lent amount (worked out under subsection (3)).

However, if the 2 amounts are equal, it is the total debt amount.

Total debt amount

820-200(2)    

The total debt amount is the result of the method statement in this subsection. Method statement

Example:

KJW Finance Pty Ltd, a company that is an Australian entity, has an average value of assets of $120 million.

The average values of its excluded equity interests, associate entity debt, associate entity equity, its non-debt liabilities and its zero-capital amount are $5 million, $5 million, $3 million, $2 million and $5 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 5) leaves $100 million. Multiplying $100 million by 15/16 results in $93.75 million. Adding the zero-capital amount of $5 million to $93.75 million results in $98.75 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $98.75 million.

Adjusted on-lent amount

820-200(3)    

The adjusted on-lent amount is the result of applying the method statement in this subsection. Method statement

Example:

KJW Finance Pty Ltd, a company that is an Australian entity, has an average value of assets of $120 million.

The average values of its excluded equity interests, associate entity equity, non-debt liabilities and on-lent amount are $5 million, $3 million, $2 million and $35 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 4) leaves $75 million. Multiplying $75 million by ⅗ results in $45 million. Adding the average on-lent amount of $35 million results in $80 million. Reducing $80 million by the associate entity debt amount of $5 million results in $75 million. As the company does not have any associate entity excess amount, the adjusted on-lent amount is therefore $75 million.

820-205   (Repealed) SECTION 820-205 Safe harbour debt amount - inward investor (general)  
(Repealed by No 23 of 2024)

SECTION 820-210   Safe harbour debt amount - inward investor (financial)  

820-210(1)    
If the entity is an *inward investor (financial) for that year, the safe harbour debt amount is the lesser of the following amounts:

(a) the *total debt amount (worked out under subsection (2));

(b) the *adjusted on-lent amount (worked out under subsection (3)).

However, if the 2 amounts are equal, it is the total debt amount.

Total debt amount

820-210(2)    

The total debt amount is the result of applying the method statement in this subsection. Method statement

Example:

FXS Financial SA is a company that is not an Australian entity. The average value of its Australian investments is $120 million.

The average value of its relevant excluded equity interests, associate entity debt, associate entity equity, non-debt liabilities and zero-capital amount are $5 million, $5 million, $2 million, $3 million and $5 million respectively. Deducting those amounts from the result of step 1 (through applying steps 1A to 5) leaves $100 million. Multiplying $100 million by 15/16 results in $93.75 million. Adding the average zero-capital amount of $5 million results in $98.75 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $98.75 million.

Adjusted on-lent amount

820-210(3)    

The adjusted on-lent amount is the result of applying the method statement in this subsection. Method statement

Example:

FXS Financial SA is a company that is not an Australian entity. The average value of its Australian investments is $120 million.

The average value of its relevant excluded equity interests, associate entity equity, non-debt liabilities and on-lent amount are $5 million, $2 million, $3 million and $35 million respectively. Deducting those amounts from the result of step 1 (through applying steps 1A to 4) leaves $75 million. Multiplying $75 million by ⅗ results in $45 million. Adding the average on-lent amount of $35 million results in $80 million. Reducing the result of step 6 by the associate entity debt amount of $5 million results in $75 million. As the company does not have any associate entity excess amount, the adjusted on-lent amount is therefore $75 million.

820-215   (Repealed) SECTION 820-215 Arm ' s length debt amount  
(Repealed by No 23 of 2024)

820-216   (Repealed) SECTION 820-216 Worldwide gearing debt amount - inward investment vehicle (general)  
(Repealed by No 23 of 2024)

SECTION 820-217  

820-217   Worldwide gearing debt amount - inward investment vehicle (financial)  

If the entity is an *inward investment vehicle (financial) for the income year, and is not also an *outward investing financial entity (non-ADI) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this section. Method statement

Example:

RGR Limited, a company that is an Australian entity, has a worldwide parent entity in France. RGR Limited has statement worldwide debt of $90 million and statement worldwide equity of $30 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $100 million (which is the result of step 5 of the method statement in subsection 820-200(2) ) equals $75 million. The zero capital amount is $5 million. Adding that amount to $75 million results in $80 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $80 million.

820-218   (Repealed) SECTION 820-218 Worldwide gearing debt amount - inward investor (general)  
(Repealed by No 23 of 2024)

SECTION 820-219  

820-219   Worldwide gearing debt amount - inward investor (financial)  

If the entity is an *inward investor (financial) for the income year, the worldwide gearing debt amount is the result of applying the method statement in this section. Method statement

Example:

MSR Limited, a company that is not an Australian entity, has investments in Australia. MSR Limited has statement worldwide debt of $90 million and statement worldwide equity of $30 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $100 million (which is the result of step 5 of the method statement in subsection 820-210(2) ) equals $75 million. The zero-capital amount is $5 million. Adding that amount to $75 million results in $80 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $80 million.

SECTION 820-220   Amount of debt deduction disallowed  

820-220(1)    

If subparagraph 820-185(1A)(b)(i) applies, the amount (the total disallowed amount) disallowed under subsection 820-185(1) of the *debt deductions of an entity for an income year is the amount by which those debt deductions exceed the entity ' s *third party earnings limit for the income year (see section 820-427A ).

Note:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

820-220(2)    

The amount by which a particular * debt deduction is disallowed as a result of subsection (1) is worked out as follows:

(a)    first, divide the total disallowed amount by the * debt deductions of the entity for the income year;

(b)    next, multiply the amount of the particular debt deduction by the result of paragraph (a) .

820-220(3)    

If subparagraph 820-185(1A)(b)(ii) applies, the amount of a * debt deduction of an entity for an income year disallowed under subsection 820-185(1) is worked out using the following formula:

Debt deduction   ×

Excess debt   Average debt

where:

average debt
means the sum of:

(a) the average value, for the income year, of the entity ' s *debt capital that is covered by step 1 of the method statement in subsection 820-185(3) ; and

(b) the average value, for that year, of the entity ' s *cost-free debt capital that is covered by step 4 of that method statement.

debt deduction
means each *debt deduction of the entity for that year.

excess debt
means the amount by which the *adjusted average debt (see subsection 820-185(3) ) exceeds the entity ' s *maximum allowable debt for that year.

Note:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

SECTION 820-225   Application to part year periods  

820-225(1)    

This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year, if:

(a)    the entity is an *inward investing financial entity (non-ADI) for that period, but is not also an *outward investing financial entity (non-ADI) for all or any part of that period; and

(b)    the entity ' s *adjusted average debt for that period exceeds the entity ' s *maximum allowable debt for that period.

Note:

To determine whether an entity is an inward investing financial entity (non-ADI) for a period, see subsection 820-185(2) .

820-225(2)    

The entity ' s adjusted average debt for that period is the result of applying the method statement in this subsection. Method statement

Note:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

820-225(2A)    
The entity ' s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.

820-225(3)    

For the purposes of determining:

(a)    the *maximum allowable debt for the period mentioned in subsection (1) ; and

(b)    the amount of each *debt deduction to be disallowed;

sections 820-190 to 820-220 apply in relation to that entity and that period with the modifications set out in the following table:

Modifications of sections 820-190 to 820-220
Item	Provisions	Modifications
1	Sections 820-190 to 820-220	A reference to an income year is taken to be a reference to that period
2	Section 820-220	A reference to subsection 820-185(1) is taken to be a reference to subsection (1) of this section
3	Section 820-220	adjusted average debt is taken to have the meaning given by subsection (2) of this section
		average debt is taken to be the sum of: (a) the average value, for that period, of the entity ' s *debt capital that is covered by step 1 of the method statement in subsection (2) of this section; and (b) the average value, for that period, of the entity ' s *cost-free debt capital that is covered by step 4 of that method statement.

Subdivision 820-D - Thin capitalisation rules for outward investing entities (ADI)  

SECTION 820-295   What this Subdivision is about  

Operative provisions

SECTION 820-300   Thin capitalisation rule for outward investing entities (ADI)  

Thin capitalisation rule

820-300(1)    
This subsection disallows all or a part of each *debt deduction of an entity for an income year (to the extent that it is not attributable to an *overseas permanent establishment of the entity) if, for that year:

(a)    the entity is an *outward investing entity (ADI) (see subsection (2) ); and

(b)    the entity ' s *adjusted average equity capital (see subsection (3) ) is less than the entity ' s *minimum capital amount (see section 820-305 ).

Note 1:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less, see section 820-35 .

Note 2:

To work out the amount to be disallowed, see section 820-325 .

Note 3:

For the rules that apply to an entity that is an outward investing entity (ADI) for only part of an income year, see section 820-330 in conjunction with subsection (2) of this section.

Note 4:

A consolidated group or MEC group may be an outward investing entity (ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB .

Outward investing entity (ADI)

820-300(2)    
The entity is an outward investing entity (ADI) for a period that is all or a part of an income year if, and only if, throughout that period, the entity is an *ADI to whichat least one of the following paragraphs applies:

(a)    the entity is an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period);

(b)    the entity is an *Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period);

(c)    

the entity is:

(i) an Australian entity; and

(ii) an *associate entity of another entity that is an *outward investing financial entity (non-ADI) or an *outward investing entity (ADI) for that period.

Note:

To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820-H .

820-300(2A)    

However, the entity is not an outward investing entity (ADI) for a period that is all or a part of an income year if it is a * general class investor for that year.

820-300(2B)    

Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).

Adjusted average equity capital

820-300(3)    

The entity ' s adjusted average equity capital for an income year is:

(a)    the average value, for that year, of all the *ADI equity capital of the entity (other than ADI equity capital attributable to its *overseas permanent establishments); minus

(b)    the average value, for that year, of all the *controlled foreign entity equity of the entity (other than controlled foreign entity equity attributable to its overseas permanent establishments).

Note:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

820-300(4)    

For the purposes of paragraph (3)(a) , treat treasury shares (within the meaning of *accounting standard AASB 132) in the entity as included in the *ADI equity capital of the entity, to the extent that those shares are part of the entity's eligible tier 1 capital (within the meaning of the *prudential standards).

SECTION 820-305  

820-305   Minimum capital amount  

The entity ' s minimum capital amount for an income year is the least of the following amounts:

(a) the *safe harbour capital amount;

(b) the *arm ' s length capital amount;

(c) the *worldwide capital amount.

Note:

The entity cannot use the worldwide capital amount if the entity is also a foreign controlled Australian entity throughout that year, see section 820-320 .

SECTION 820-310   Safe harbour capital amount  

820-310(1)    

The safe harbour capital amount is the result of applying the method statement in this section. Method statement

Example:

The Southern Cross Bank is an Australian bank that carries on its banking business through its overseas permanent establishments and through foreign entities that it controls. For the income year, its average value of risk-weighted assets and intangible assets comprising capitalised software expenses is $150 million (having discounted those assets that are excluded by step 1) and the average value of its relevant tier 1 prudential capital deductions is $2 million. Multiplying $150 million by 6% equals $9 million, which is the result of step 2. Adding $2 million to $9 million equals $11 million, which is the safe harbour capital amount.

820-310(2)    

VBIF is the value of business in force at the time of acquisition of the relevant subsidiary (within the meaning of paragraph 5.3 of *accounting standard AASB 1038, as issued on 17 November 1998) of the entity.

820-310(3)    

*VBIF is taken to be nil at all times unless the value of VBIF at the time of acquisition of the relevant subsidiary was worked out by an *actuary according to Australian actuarial practice.

SECTION 820-315   Arm ' s length capital amount  

820-315(1)    
The arm ' s length capital amount is a notional amount that, having regard to:

(a) the factual assumptions set out in subsection (2); and

(b) the relevant factors mentioned in subsection (3);

would represent the minimum amount of *equity capital that the entity would reasonably be expected to have in carrying on the Australian business mentioned in subsection (2) throughout the income year if, throughout that year:

(c) the part of the entity carrying on that business had operated as if it were a separate entity; and

(d) that separate entity had been dealing at *arm ' s length with:

(i) the other part of the entity; and

(ii) all the *Australian controlled foreign entities of which the entity is an *Australian controller.

Note:

The entity must keep records in accordance with section 820-980 if the entity works out an amount under this section.

Factual assumptions

820-315(2)    
Irrespective of what actually happened during that year, the following assumptions must be made in working out that minimum amount:

(a) the entity ' s commercial activities in connection with Australia (the Australian business ) during that year do not include:

(i) any *business carried on by the entity at or through its *overseas permanent establishments; or

(ii) the holding of any *controlled foreign entity equity;

(b) the entity had carried on the Australian business that it actually carried on during that year;

(c) the nature of the entity ' s assets and liabilities (to the extent that they are attributable to the Australian business) had been as they were during that year;

(d) except as mentioned in subsection (1), the entity had carried on the Australian business in the same circumstances as what actually existed during that year.

Relevant factors

820-315(3)    
On the basis of the factual assumptions set out in subsection (2), the following factors must be taken into account in determining that minimum amount:

(a) the functions performed, the assets used, and the risks assumed, throughout that year, by:

(i) the entity; and

(ii) the entity in relation to the Australian business;

(b) the credit rating of the entity throughout that year, including the effect of that credit rating on all of the following:

(i) the entity ' s ability to borrow in relation to the Australian business;

(ii) the interest rate at which the entity borrowed in relation to that business;

(iii) the entity ' s gross profit margin in relation to that business;

(c) the capital ratios of the following throughout that year:

(i) the entity;

(ii) the entity in relation to the Australian business;

(iii) each of the entity ' s *associate entities that engage in commercial activities similar to the Australian business;

(d) the purposes for which *schemes for *debt capital and for *equity capital had been actually entered into, throughout that year, by:

(i) the entity; and

(ii) the entity in relation to the Australian business;

(e) the profit (within the meaning of the *accounting standards), and the return on capital, whether during that year or at any other time, of:

(i) the entity; and

(ii) the entity in relation to the Australian business;

(f) the commercial practices adopted by independent parties dealing with each other at *arm ' s length in the industry in which the entity carries on the Australian business throughout that year (whether in Australia or in comparable markets elsewhere);

(g) the way in which the entity financed its business (other than the Australian business) throughout that year;

(h) the general state of the Australian economy throughout that year;

(i) any other factors which are specified in the regulations made for the purposes of this section.

Commissioner ' s power

820-315(4)    
If the Commissioner considers an amount worked out by the entity under this section does not appropriately take into account the factual assumptions and the relevant factors, the Commissioner may substitute another amount that the Commissioner considers better reflects those assumptions and factors.

SECTION 820-320   Worldwide capital amount  

820-320(1)    
This section only applies if the entity is not also a *foreign controlled Australian entity throughout the income year.

820-320(2)    

The worldwide capital amount is the result of applying the method statement in this subsection. Method statement

Example:

Southern Cross Bank has an average value of risk-weighted assets of $150 million (having discounted those risk-weighted assets that are excluded by step 1) and the average value of its relevant tier 1 prudential capital deductions is $2 million. The entity ' s worldwide group capital ratio is 0.0875. Multiplying $150 million by 0.0875 equals $13.125 million, which is the result of step 3. Adding that amount to the average value of the relevant tier 1 prudential capital deductions equals $15.125 million, which is the worldwide capital amount.

Worldwide group capital ratio

820-320(3)    
The entity ' s worldwide group capital ratio for the income year is the result of applying the method statement in this subsection. Method statement

Example:

For the Southern Cross Bank, the average value of the tier 1 capital for the relevant consolidated group is $14 million. Dividing $14 million by the group ' s risk weighted assets of $160 million equals 0.0875, which is the worldwide group capital ratio.

SECTION 820-325  

820-325   Amount of debt deduction disallowed  

The amount of *debt deduction disallowed under subsection 820-300(1) is worked out using the following formula:

Debt deduction     ×

Capital shortfall   Average debt

where:

average debt
means the average value, for the income year, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year (other than any debt capital that is attributable to any of the entity ' s *overseas permanent establishments).

capital shortfall
means the amount by which the *adjusted average equity capital of the entity for that year (see subsection 820-300(3) ) is less than the entity ' s *minimum capital amount for that year.

debt deduction
means each *debt deduction covered by subsection 820-300(1) .

Note:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

SECTION 820-330   Application to part year periods  

820-330(1)    
This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year (to the extent that it is not attributable to an *overseas permanent establishment of the entity) if, for that period:

(a)    the entity is an *outward investing entity (ADI); and

(b)    the *adjusted average equity capital of the entity is less than the entity ' s *minimum capital amount.

Note:

To determine whether an entity is an outward investing entity (ADI) for that period, see subsection 820-300(2) .

820-330(2)    

The entity ' s adjusted average equity capital for that period is:

(a)    the average value, for that period, of all the ADI equity capital of the entity (other than ADI equity capital attributable to any of its *overseas permanent establishments); minus

(b)    the average value, for that period, of all the *controlled foreign entity equity of the entity (other than controlled foreign entity equity attributable to any of its overseas permanent establishments).

820-330(3)    
For the purposes of determining:

(a)    the entity ' s *minimum capital amount for that period; and

(b)    the amount of each *debt deduction to be disallowed;

sections 820-305 to 820-325 apply in relation to that entity and that period with the modifications set out in the following table:

Modifications of sections 820-305 to 820-325
Item	Provisions	Modifications
1	Sections 820-305 to 820-325	A reference to an income year is taken to be a reference to that period
2	Section 820-325	A reference to subsection 820-300(1) is taken to be a reference to subsection (1) of this section
3	Section 820-325	adjusted average equity capital has the meaning given by subsection (2) of this section
		average debt is taken to be the average value, for that period, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year, to the extent that the debt capital is not attributable to any of the entity ' s *overseas permanent establishments

Subdivision 820-E - Thin capitalisation rules for inward investing entities (ADI)  

SECTION 820-390   What this Subdivision is about  

Operative provisions

SECTION 820-395   Thin capitalisation rule for inward investing entities (ADI)  

Thin capitalisation rule

820-395(1)    
This subsection disallows all or a part of each *debt deduction of an entity for an income year if, for that year:

(a)    the entity is an *inward investing entity (ADI) (see subsection (2) ); and

(b)    the entity ' s *average equity capital (see subsection (3) ) is less than its *minimum capital amount (see section 820-400 );

to the extent that the debt deduction:

(c)    is attributable to an *Australian permanent establishment of the entity at or through which it carries on its banking business; and

(d)    is not an *allowable OB deduction.

Note 1:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less, see section 820-35 .

Note 2:

To work out the amount to be disallowed, see section 820-415 .

Note 3:

For the rules that apply to an entity that is an inward investing entity (ADI) for part of an income year, see section 820-420 in conjunction with subsection (2) of this section.

Note 4:

A consolidated group or MEC group may be an inward investing entity (ADI) to which this Subdivision applies: see Subdivision 820-FB .

Inward investing entity (ADI)

820-395(2)    
The entity is an inward investing entity (ADI) for a period that is all or a part of an income year if, and only if, throughout that period, the entity is a *foreign bank that carries on its banking business in Australia at or through one or more of its *Australian permanent establishments.

Note:

The entity is required to keep certain records, see Subdivision 820-L .

820-395(2A)    

However, the entity is not an inward investing entity (ADI) for a period that is all or a part of an income year if it is a * general class investor for that year.

820-395(2B)    

Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).

Average equity capital

820-395(3)    
The entity ' s average equity capital for an income year is the sum of the following:

(a)    

the average value, for that year, of the *ADI equity capital of the entity that:

(i) is attributable to the *Australian permanent establishments at or through which it carries on its banking business in Australia; but

(ii) has not been allocated to the *OB activities of the Australian permanent establishments;

(b)    the average value, for that year, of the total amounts that:

(i) are made available by the entity to the Australian permanent establishments of the entity as loans to the Australian permanent establishments; and

(ii) do not give rise to any *debt deductions of the entity for that or any other income year.

Note:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

SECTION 820-400  

820-400   Minimum capital amount  

The entity ' s minimum capital amount for an income year is the lesser of the following amounts:

(a) the *safe harbour capital amount;

(b) the *arm ' s length capital amount.

SECTION 820-405  

820-405   Safe harbour capital amount  

The entity ' s safe harbour capital amount for the income year is the result of applying the method statement in this section. Method statement

Example:

The Global Bank is a foreign bank that carries on its banking business in Australia through a permanent establishment. The average value of its relevant risk-weighted assets is $140 million. Multiplying that amount by 6% results in $8.4 million, which is the safe harbour capital amount.

SECTION 820-410   Arm ' s length capital amount  

820-410(1)    
The arm ' s length capital amount is a notional amount that, having regard to:

(a) the factual assumptions set out in subsection (2); and

(b) the relevant factors mentioned in subsection (3);

would represent the minimum amount of *equity capital that the entity would reasonably be expected to have in carrying on the Australian business mentioned in subsection (2) throughout the income year if, throughout that year:

(c) the part of the entity carrying on that business had operated as if it were a separate entity; and

(d) that separate entity had been dealing at *arm ' s length with the other part of the entity.

Note:

The entity must keep records in accordance with section 820-980 if the entity works out an amount under this section.

Factual assumptions

820-410(2)    
Irrespective of what actually happened during that year, the following assumptions must be made in working out that minimum amount:

(a) the entity ' s commercial activities in connection with Australia (the Australian business ) during that year consist only of banking business attributable to its *Australian permanent establishments (other than its *OB activities);

(b) the entity had carried on the Australian business that it actually carried on during that year;

(c) the nature of the entity ' s assets and liabilities (to the extent that they are attributable to the Australian business) had been as they were during that year;

(d) except as mentioned in subsection (1), the entity had carried on the Australian business in the same circumstances as what actually happened during that year.

Relevant factors

820-410(3)    
On the basis of the factual assumptions set out in subsection (2), the following factors must be taken into account in determining that minimum amount:

(a) the functions performed, the assets used, and the risks assumed, throughout that year, by:

(i) the entity; and

(ii) the entity in relation to the Australian business;

(b) the credit rating of the entity throughout that year, including the effect of that credit rating on all of the following:

(i) the entity ' s ability to borrow in relation to the Australian business;

(ii) the interest rate at which the entity borrowed in relation to that business;

(iii) the entity ' s gross profit margin in relation to that business;

(c) the capital ratios of the following throughout that year:

(i) the entity;

(ii) the entity in relation to the Australian business;

(iii) each of the entity ' s *associate entities that engage in commercial activities similar to the Australian business;

(d) the purposes for which *schemes for *debt capital and for *equity capital had been actually entered into, throughout that year, by:

(i) the entity; and

(ii) the entity in relation to the Australian business;

(e) the profit (within the meaning of the *accounting standards or any other accounting standards that would otherwise apply to the entity), and the return on capital, whether during that year or at any other time, of:

(i) the entity; and

(ii) the entity in relation to the Australian business;

(f) the commercial practices adopted by independent parties dealing with each other at *arm ' s length in the industry in which the entity carries on the Australian business throughout that year (whether in Australia or in comparable markets elsewhere);

(g) the general state of the Australian economy throughout that year;

(h) any other factors which are specified in the regulations made for the purposes of this section.

Commissioner ' s power

820-410(4)    
If the Commissioner considers an amount worked out by the entity under this section does not appropriately take into account the factual assumptions and the relevant factors, the Commissioner may substitute another amount that the Commissioner considers better reflects those assumptions and factors.

SECTION 820-415  

820-415   Amount of debt deduction disallowed  

The amount of *debt deduction disallowed under subsection 820-395(1) is worked out using the following formula:

Debt deduction     ×

Capital shortfall   Average debt

where:

average debt
means the average value, for the income year, of all the *debt capital of the entity that gives rise to *debt deductions of the entity (other than *allowable OB deductions) for that or any other income year.

capital shortfall
means the amount by which the entity ' s *average equity capital for that year (see subsection 820-395(3) ) is less than the entity ' s *minimum capital amount for that year.

debt deduction
means each *debt deduction of the entity (other than *allowable OB deduction) for the income year.

Note:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

SECTION 820-420   Application to part year periods  

820-420(1)    
This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year if, for that period:

(a)    the entity is an *inward investing entity (ADI); and

(b)    the entity ' s *average equity capital is less than its *minimum capital amount;

to the extent that the debt deduction:

(c)    is attributable to an *Australian permanent establishment of the entity at or through which it carries on its banking business; and

(d)    is not an *allowable OB deduction.

Note:

To determine whether an entity is an inward investing entity (ADI) for that period, see subsection 820-395(2) .

820-420(2)    
The entity ' s average equity capital for that period is the sum of the following:

(a)    the average value, for that period, of the *equity capital of the entity that:

(i) is attributable to its *Australian permanent establishments at or through which it carries on its banking business in Australia; but

(ii) has not been allocated to the *OB activities of the Australian permanent establishments;

(b)    the average value, for that period, of the total amounts that:

(i) are made available by the entity to the Australian permanent establishments of the entity as loans to the Australian permanent establishments; and

(ii) do not give rise to any *debt deductions of the entity for that or any other income year.

820-420(3)    
For the purposes of determining:

(a)    the entity ' s *minimum capital amount for that period; and

(b)    the amount of each *debt deduction to be disallowed;

sections 820-400 to 820-415 apply in relation to that entity and that period with the modifications set out in the following table:

Modifications of sections 820-400 to 820-415
Item	Provisions	Modifications
1	Sections 820-400 to 820-415	A reference to an income year is taken to be a reference to that period
2	Section 820-415	The reference to subsection 820-395(1) is taken to be a reference to subsection (1) of this section
3	Section 820-415	average debt is taken to be the average value, for that period, of all the *debt capital of the entity that gives rise to its *debt deductions (other than *allowable OB deductions) for that year that are amounts incurred by the entity during that period average equity capital has the meaning given by subsection (2) of this section

Subdivision 820-EAA - Debt deduction limitation rules for debt deduction creation (all relevant entities)  

SECTION 820-423   What this Subdivision is about  

Operative provisions

SECTION 820-423A   Debt deduction limitation rule for debt deduction creation (all relevant entities)  

Debt deduction limitation rule

820-423A(1)    
This subsection disallows all or part of a * debt deduction of an entity for an income year if, for that year:

(a)    the entity is any of the following for that year:

(i) a * general class investor;

(ii) an * outward investing financial entity (non-ADI);

(iii) an * inward investing financial entity (non-ADI); and

(aa)    the entity is not a *securitisation vehicle; and

(b)    subsection (2) or (5) applies.

Note 1:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less: see section 820-35 .

Note 1A:

This Subdivision does not apply to certain special purpose entities: see section 820-39 .

Note 2:

To work out the amount to be disallowed, see section 820-423B .

Acquisition of CGT asset, or legal or equitable obligation

820-423A(2)    
This subsection applies if all of the following conditions are satisfied:

(a)    an entity (the acquirer ) * acquires a * CGT asset, or a legal or equitable obligation, either directly, or indirectly through one or more interposed entities, from one or more other entities (each of which is a disposer );

(b)    one or more of the disposers (each of which is an associate disposer ) is an * associate pair of the acquirer;

(c)    the entity mentioned in subsection (1) (the relevant entity ) is:

(i) the acquirer; or

(ii) an associate pair of the acquirer; or

(iii) an associate pair of an associate disposer;

(d)    the relevant entity ' s * debt deduction mentioned in subsection (1) is, wholly or partly, in relation to any of the following:

(i) the acquisition mentioned in paragraph (a) of this subsection;

(ii) the acquirer ' s holding of the CGT asset, or legal or equitable obligation;

(e)    the relevant entity ' s debt deduction mentioned in subsection (1) is referable to an amount paid or payable, either directly or indirectly, to any of the following:

(i) an associate pair of the relevant entity;

(ii) an associate pair of the acquirer;

(iii) an associate pair of an associate disposer;

(f)    the acquisition mentioned in paragraph (a) of this subsection is not covered by section 820-423AA (which is about exceptions);

(g)    the relevant entity has not made a choice under subsection 820-46(4) to use the third party debt test for the income year mentioned in subsection (1) of this section.

820-423A(3)    
To avoid doubt, subsection (2) may apply more than once in relation to the * acquisition of a * CGT asset, or a legal or equitable obligation.

820-423A(3A)    
For the purposes of subsection (2) :

(a)    that subsection may apply in relation to an indirect *acquisition by an entity through one or more interposed entities even if an acquisition in the series is covered by section 820-423AA (which is about exceptions); and

(b)    in determining whether an acquisition occurs indirectly through one or more interposed entities:

(i) it is sufficient if acquisitions exist between each entity; and

(ii) it is not necessary to demonstrate that each acquisition in a series of acquisitions happened before the next acquisition.

Example:

Entity A acquires a membership interest in Entity B that is covered by the exception in subsection 820-423AA(1) . Entity B later acquires, from Entity C, a CGT asset that is not covered by an exception in that section. There may be an indirect acquisition of the CGT asset by Entity A.

820-423A(4)    
For the purposes of subsections (2) , (3) and (3A) , disregard paragraph (b) of the definition of " acquire " in subsection 995-1(1) .

Financial arrangements involving associate pairs

820-423A(5)    
This subsection applies if all of the following conditions are satisfied:

(a)    an entity (the payer ) enters into, or has a *financial arrangement with another entity;

(b)    the payer uses the financial arrangement to:

(i) fund; or

(ii) facilitate the funding of;

one or more payments or distributions, of which one or more is a payment or distribution that, to an extent:

(iii) the payer makes to an entity (an associate recipient ) that is an *associate pair of the payer; and

(iv) is covered by subsection (5A) (which is about types of payments or distributions);

(c)    the entity mentioned in subsection (1) (the relevant entity ) is any of the following:

(i) the payer;

(ii) an associate pair of the payer;

(iii) an associate pair of an associate recipient;

(d)    the relevant entity ' s *debt deduction mentioned in subsection (1) is, wholly or partly, in relation to the financial arrangement mentioned in paragraph (a) of this subsection;

(e)    the relevant entity ' s debt deduction is referable to an amount paid or payable, either directly or indirectly, to any of the following:

(i) an associate pair of the relevant entity;

(ii) an associate pair of the payer;

(iii) an associate pair of an associate recipient;

(f)    the relevant entity has not made a choice under subsection 820-46(4) to use the third party debt test for the income year mentioned in subsection (1) of this section.

820-423A(5A)    
This subsection covers the following:

(a)    a *dividend, *distribution or *non-share distribution;

(b)    a distribution by a trustee or partnership;

(c)    a return of capital, including a return of capital made by a distribution or payment made by a trustee or partnership;

(d)    a payment or distribution in respect of the cancellation or redemption of a *membership interest in an entity;

(e)    a *royalty, or a similar payment or distribution for the use of, or right to use, an asset;

(f)    a payment or distribution that is wholly or partly referable to the repayment of principal under a *debt interest if:

(i) the debt interest is issued by the payer; and

(ii) the debt interest is a *financial arrangement that satisfies paragraphs (5)(a) , (b) and (c) ;

(g)    a payment or distribution of a kind similar to a payment or distribution mentioned in the preceding paragraphs;

(h)    a payment or distribution prescribed by the regulations.

820-423A(6)    
For the purposes of paragraph (5)(b) :

(a)    the payments or distributions mentioned in that paragraph may be made:

(i) directly, or indirectly through one or more interposed entities (see subsection (7) ); and

(ii) before, at or after the time the payer enters into or has the *financial arrangement mentioned in paragraph (5)(a) ; and

(b)    a recipient may be the entity with whom the payer enters into or has the financial arrangement, or another entity.

820-423A(7)    
For the purposes of subparagraph (6)(a)(i) , in determining whether a payment or distribution is made indirectly through one or more interposed entities:

(a)    it is sufficient if payments exist between each interposed entity; and

(b)    it is not necessary to demonstrate that each payment in a series of payments funds the next payment, or is made after the previous payment.

SECTION 820-423AA   Exceptions for acquisition of certain CGT assets  
Acquisition of new membership interests in entities

820-423AA(1)    
For the purposes of paragraph 820-423A(2)(f) , the acquisition of a *CGT asset is covered by this section if:

(a)    the CGT asset is a *membership interest in:

(i) an *Australian entity; or

(ii) a *foreign entity that is a company; and

(b)    the membership interest has not previously been held by any entity.

Acquisition of certain new depreciating assets

820-423AA(2)    
For the purposes of paragraph 820-423A(2)(f) , the acquisition of a *CGT asset is covered by this section if all of the following conditions are satisfied:

(a)    the CGT asset is a *depreciating asset other than an intangible asset;

(b)    an entity (the acquirer ) holds the CGT asset immediately after its acquisition;

(c)    at the time of the acquisition, it is reasonable to conclude that the acquirer expects to use the CGT asset:

(i) for a *taxable purpose; and

(ii) within Australia; and

(iii) within 12 months;

(d)    at the time of theacquisition, the CGT asset has not been *installed ready for use, or previously used for a taxable purpose, by any of the following:

(i) the acquirer;

(ii) an associate disposer of the acquirer;

(iii) an *associate pair of the acquirer.

Acquisition of certain debt interests

820-423AA(3)    
For the purposes of paragraph 820-423A(2)(f) , the acquisition of a *CGT asset is covered by this section if all of the following conditions are satisfied:

(a)    the CGT asset is a *debt interest;

(b)    an entity (the acquirer ) holds the debt interest immediately after its acquisition;

(c)    the debt interest is issued by an *associate pair of the acquirer;

(d)    the debt interest has not previously been held by any entity.

SECTION 820-423B   Amount of debt deduction disallowed  

Acquisition of CGT asset, or legal or equitable obligation

820-423B(1)    
If the condition in subsection 820-423A(2) is met, the amount of the * debt deduction disallowed under subsection 820-423A(1) is the amount of the debt deduction, to the extent that the relevant entity mentioned in subsection 820-423A(2) incurred it in relation to any of the following:

(a)    the acquisition mentioned in subparagraph 820-423A(2)(d)(i) ;

(b)    the holding mentioned in subparagraph 820-423A(2)(d)(ii) .

Financial arrangements involving associate pairs

820-423B(2)    
If the conditions in subsection 820-423A(5) are met, then under subsection 820-423A(1) the *debt deduction is disallowed to the same extent as the extent to which the payer mentioned in paragraph 820-423A(5)(a) uses the *financial arrangement in a manner that satisfies paragraph 820-423A(5)(b) .

SECTION 820-423C  

820-423C   This Subdivision does not limit reduction of debt deductions under other provisions  

Nothing in this Subdivision limits other provisions of this Division in their application to reduce, or further reduce, * debt deductions of an entity.

SECTION 820-423D   Schemes relating to this Subdivision  

820-423D(1)    
Subsection (2) applies if the Commissioner is satisfied that:

(a)    it is reasonable to conclude that one or more entities (each of which is a participant ) entered into or carried out a * scheme for the principal purpose of, or for more than one principal purpose that included the purpose of, achieving any of the following results:

(i) subsection 820-423A(2) does not apply in relation to a * debt deduction;

(ii) subsection 820-423A(5) does not apply in relation to a debt deduction;

(whether or not the debt deduction is a debt deduction of any of the participants and whether or not any of them carried out the scheme or any part of the scheme); and

(b)    the scheme has achieved, or apart from this section would achieve, that purpose.

820-423D(2)    
The Commissioner may determine that this Act has, and is taken always to have had, effect as if:

(a)    subsection 820-423A(2) applies in relation to the * debt deduction; or

(b)    subsection 820-423A(5) applies in relation to the debt deduction.

820-423D(3)    
A determination under subsection (2) has effect accordingly.

820-423D(4)    
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.

820-423D(5)    
A determination under subsection (2) is not a legislative instrument.

820-423D(6)    
An entity who is dissatisfied with a determination under subsection (2) made in relation to the entity may object against the determination in the manner set out in Part IVC of the Taxation Administration Act 1953 .

SECTION 820-423E   Modified meaning of associate pair  

820-423E(1)    
This section applies for the purposes of determining whether, for the purposes of this Subdivision, an entity that is a unit trust is an associate pair of another entity.

Treating certain unit trusts as companies

820-423E(2)    
Subsection (3) applies if any of the following *CGT events are capable of applying to all of the units and interests in the trust:

(a)    *CGT event E4;

(b)    *CGT event E10.

820-423E(3)    
For the purposes of determining, under section 318 of the Income Tax Assessment Act 1936 , whether:

(a)    the trust is an *associate of another entity; or

(b)    another entity is an associate of the trust;

treat the trust as if it were a company.

Application of sufficient influence test

820-423E(4)    
In determining whether the trust is sufficiently influenced by another entity for the purposes of subsection 318(2) of the Income Tax Assessment Act 1936 , as applied by subsection (3) of this section:

(a)    treat the trust as sufficiently influenced by another entity or other entities if the trust is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the other entity or other entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); and

(b)    another entity or other entities are taken to hold a majority voting interest in the trust if either of the following percentages is not less than 50%:

(i) the percentage of the income of the trust represented by the share of the income to which the other entity or other entities are entitled, or that the other entity or other entities are entitled to acquire;

(ii) the percentage of the corpus of the trust represented by the share of the corpus to which the other entity or other entities are entitled, or that the other entity or other entities are entitled to acquire; and

(c)    disregard the operation that paragraphs 318(6)(b) and (c) of that Act would otherwise have by reason only of subsection (3) of this section.

820-423E(5)    
Subsection (6) applies in determining whether the trust:

(a)    is sufficiently influenced by another entity for the purposes of section 318 of the Income Tax Assessment Act 1936 ; or

(b)    sufficiently influences anotherentity for the purposes of that section.

820-423E(6)    
If:

(a)    there is any breach by any entity of the terms of a *debt interest issued by, or held by, the trust; and

(b)    there are reasonable grounds to believe that the breach occurred only to protect the interests of secured creditors in relation to the debt interest;

sufficient influence is not taken to exist in relation to the trust merely because of the breach.

SECTION 820-423F  

820-423F   Modified meaning of Australian entity  

For the purposes of this Subdivision, in determining whether an entity is an *Australian entity (including for the purposes of determining whether another entity is a *foreign entity) at a particular time:

(a)    for the purposes of paragraph 336(a) of the Income Tax Assessment Act 1936 , treat a partnership as being an Australian entity if, at that time, a *direct participation interest of 50% or more is held in the partnership by one or more of the following:

(i) an Australian resident;

(ii) an *Australian trust; and

(b)    disregard section 337 of that Act.

Subdivision 820-EAB - Third party debt concepts  

SECTION 820-427   What this Subdivision is about  

Operative provisions

SECTION 820-427A   Meaning of third party earnings limit and third party debt conditions  

820-427A(1)    
An entity ' s third party earnings limit for an income year is the sum of each * debt deduction of the entity for the income year (disregarding this Division) that is attributable to a * debt interest issued by the entity that satisfies the * third party debt conditions in relation to the income year.

820-427A(2)    
For the purposes of subsection (1) , treat a *debt deduction of an entity as being attributable to a *debt interest issued by the entity to the extent that:

(a)    the debt deduction is directly associated with hedging or managing the interest rate risk in respect of the debt interest; and

(b)    the debt deduction is not referable to an amount paid or payable, directly or indirectly, to an *associate entity (see section 820-427D ) of the entity.

820-427A(3)    
A * debt interest issued by an entity satisfies the third party debt conditions in relation to an income year if the following conditions are satisfied:

(a)    the entity issued the debt interest to an entity that is not an * associate entity (see section 820-427D ) of the entity;

(b)    the debt interest is not held at any time in the income year by an entity that is an associate entity of the entity;

(c)    disregarding recourse to minor or insignificant assets, the holder of the debt interest has recourse for payment of the debt to which the debt interest relates only to Australian assets that:

(i) are covered by subsection (4) ; and

(ii) are not rights covered by subsection (5) (about credit support rights);

(d)    the entity uses all, or substantially all, of the proceeds of issuing the debt interest to fund its commercial activities in connection with Australia that do not include:

(i) any * business carried on by the entity at or through its * overseas permanent establishments; and

(ii) the holding by the entity of any * associate entity debt, * controlled foreign entity debt or * controlled foreign entity equity;

(e)    the entity is an *Australian entity (see section 820-427E ).

820-427A(4)    
This subsection covers Australian assets that:

(a)    are held by the entity; or

(b)    are *membership interests in the entity (unless the entity has a legal or equitable interest, whether directly or indirectly, in an asset that is not an Australian asset); or

(c)    are held by an *Australian entity that is a *member of the *obligor group in relation to the *debt interest.

820-427A(5)    
This subsection covers a right under or in relation to a guarantee, security or other form of credit support, other than a right that:

(a)    is any of the following:

(i) a right that provides recourse, directly or indirectly, only to one or more Australian assets covered by subsection (4) that are not rights covered by this subsection;

(ii) a right that, assuming that the holder of the right exercised the right, would not reasonably be expected to allow, directly or indirectly, the holder or another entity to have recourse for payment of the debt mentioned in paragraph (3)(c) against an *associate entity (see section 820-427D ) of the entity that issued that debt interest;

(iii) a right that relates wholly to the creation or development of a *CGT asset that is, or is reasonably expected to be, land situated in Australia (including an interest in land, if the land is situated in Australia);

(iv) a right that relates wholly to the creation or development of a CGT asset that is, or is reasonably expected to be, moveable property situated, or to be situated, on land of a kind mentioned in subparagraph (iii) , where that moveable property is, or is reasonably expected to be, relevant to the income producing use of the land and situated on the land for the majority of its useful life;

(v) a right that relates wholly to the creation or development of a CGT asset that is, or is reasonably expected to be, offshore renewable energy infrastructure (within the meaning of the Offshore Electricity Infrastructure Act 2021 ) situated, or to be situated, in a declared area (within the meaning of that Act) for the majority of its useful life;

(vi) a right that relates wholly to the creation or development of a CGT asset that is, or is reasonably expected to be, offshore electricity transmission infrastructure (within the meaning of the Offshore Electricity Infrastructure Act 2021 ) that is directly related to offshore renewable energy infrastructure covered by subparagraph (v) ; and

(b)    assuming that the holder of the right exercised the right, the right would not reasonably be expected to allow, directly or indirectly, the holder or another entity to have recourse for payment of the debt mentioned in paragraph (3)(c) of this section against a *foreign entity that is an *associate entity of the entity that issued the *debt interest.

820-427A(6)    
For the purposes of subparagraphs (5)(a)(iii) , (iv) , (v) and (vi) , in determining whether a right relates wholly to the creation or development of a *CGT asset of a kind mentioned in the relevant subparagraph, disregard the extent (if any) to which the right relates incidentally to another matter.

SECTION 820-427B   Modified third party debt conditions for conduit financing  

820-427B(1)    
If a *debt interest satisfies the conditions in subsection 820-427C(1) in relation to an income year, then this section applies in relation to:

(a)    that debt interest (the relevant debt interest ); and

(b)    the debt interest that is the ultimate debt interest mentioned in subsection 820-427C(1) in relation to the relevant debt interest.

Special rules for third party debt conditions - ultimate debt interest and relevant debt interest

820-427B(2)    
In applying section 820-427A in relation to the income year, in relation to the relevant debt interest and the ultimate debt interest:

(a)    treat the reference in subparagraph 820-427A(3)(d)(ii) to *associate entity debt as being a reference to associate entity debt other than:

(i) a debt interest that satisfies the conditions in subsection 820-427C(1) in relation to the ultimate debt interest; or

(ii) a debt interest issued by an entity that is an *Australian entity and that has made a choice under subsection 820-46(4) to use the third party debt test for the income year; and

(b)    treat references in paragraphs 820-427A(4)(a) and (b) to the entity as including the conduit financer mentioned in paragraph 820-427C(1)(a) and each entity that issues a debt interest that satisfies the conditions in subsection 820-427C(1) in relation to the ultimate debt interest.

Special rules for third party debt conditions - relevant debt interest

820-427B(3)    
In applying subsection 820-427A(3) in relation to the income year, in relation to the relevant debt interest, in addition to applying subsection (2) of this section:

(a)    treat the conditions in paragraphs 820-427A(3)(a) and (b) as being satisfied; and

(b)    treat subsection 820-427A(3) as also including the condition that the ultimate debt interest satisfies the *third party debt conditions (having regard to subsection (2) of this section) in relation to the income year.

SECTION 820-427C   Conduit financing conditions  

820-427C(1)    
If, in relation to an income year:

(a)    an entity (the conduit financer )issues a *debt interest (the ultimate debt interest ) to an entity (the ultimate lender ) that is not an *associate entity (see section 820-427D ) of the conduit financer; and

(b)    an entity (the borrower ) that is an associate entity of the conduit financer issues another debt interest (the relevant debt interest ) to:

(i) the conduit financer; or

(ii) another entity (the conduit borrower ) that is an associate entity of the conduit financer and the borrower; and

(c)    the amount loaned under the relevant debt interest:

(i) if subparagraph (b)(i) applies - was financed by the conduit financer only with proceeds from the ultimate debt interest; or

(ii) if subparagraph (b)(ii) applies - was financed by the conduit borrower only with proceeds from another debt interest that is also a debt interest that satisfies the conditions in this subsection in relation to the ultimate debt interest because of a previous operation of this subsection; and

(d)    the terms of the relevant debt interest, to the extent that those terms relate to costs incurred by the borrower in relation to the relevant debt interest, are the same as the terms of the ultimate debt interest, to the extent that those terms relate to such costs incurred by the conduit financer in relation to the ultimate debt interest; and

(e)    the conduit financer, the borrower and each conduit borrower (if any) are *Australian entities (see section 820-427E ); and

(f)    it is not the case that subparagraph 820-46(1)(b)(i) or (ii) applies (fixed ratio test or group ratio test applies) to the conduit financer, the borrower or any conduit borrowers;

then the relevant debt interest satisfies the conditions in this subsection in relation to the income year.

820-427C(2)    
For the purposes of paragraph (1)(d) :

(a)    disregard the terms of a * debt interest that is:

(i) a relevant debt interest; or

(ii) the ultimate debt interest;

to the extent that those terms relate to the amount of the debt to which the debt interest relates; and

(b)    disregard the terms (if any) of the ultimate debt interest that have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of reasonable administrative costs that relate directly to the ultimate debt interest; and

(c)    disregard the terms (if any) of a relevant debt interest issued to the conduit financer that have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of reasonable administrative costs of the conduit financer that relate directly to the relevant debt interest; and

(d)    disregard the terms (if any) of a relevant debt interest, to the extent that those terms have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of costs of the conduit financer that:

(i) are a * debt deduction for the income year of the conduit financer; and

(ii) are a debt deduction that is treated as being attributable to the ultimate debt interest under subsection 820-427A(2) because it is directly associated with hedging or managing the interest rate risk in respect of the ultimate debt interest; and

(e)    disregard the terms (if any) of a relevant debt interest, to the extent that those terms have the effect of allowing (whether directly, or indirectly through one or more interposed borrowers) the recovery of costs of a borrower that:

(i) are a debt deduction for the income year of the borrower; and

(ii) are a debt deduction that is treated as being attributable to another debt interest under subsection 820-427A(2) because it is directly associated with hedging or managing the interest rate risk in respect of that other debt interest.

SECTION 820-427D   Modified meaning of associate entity  

820-427D(1)    
For the purposes of this Subdivision, in determining whether an entity is an associate entity of another entity:

(a)    treat the references in paragraphs 820-905(1)(a) and 820-905(2A)(a) to " an * associate interest of 50 % or more " as instead being:

(i) for the purposes of paragraph 820-427A(5)(b) - a reference to " a *TC control interest of 50% or more " ; or

(ii) for the purposes of any other provision in this Subdivision - a reference to " a * TC control interest of 20 % or more " ; and

(aa)    disregard the requirement in subsections 820-905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820-905(1)(b) applies; and

(b)    treat subsection 820-860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and

(c)    treat the purposes mentioned in subparagraphs 820-870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection).

820-427D(2)    
For the purposes of this Subdivision:

(a)    treat an entity (the first entity ) that has entered into a *cross-staple arrangement with another entity as an associate entity of that other entity; and

(b)    if that other entity is itself an associate entity of a conduit financer mentioned in section 820-427C (whether because of another operation of this subsection or otherwise) - treat the first entity as an associate entity of the conduit financer.

SECTION 820-427E  

820-427E   Modified meaning of Australian entity  

For the purposes of this Subdivision, in determining whether an entity is an *Australian entity at a particular time:

(a)    for the purposes of paragraph 336(a) of the Income Tax Assessment Act 1936 , treat a partnership as being an Australian entity if, at that time, a *direct participation interest of 50% or more is held in the partnership by one or more of the following:

(i) an Australian resident;

(ii) an *Australian trust; and

(b)    disregard section 337 of that Act.

Subdivision 820-EA - Some financial entities may choose to be treated as ADIs  

SECTION 820-430   When choice can be made, and what effect it has  

820-430(1)    

An entity may choose to be treated, for the purpose of this Division (except this Subdivision), as set out in the table. However, the entity can make the choice only if subsection (5) is satisfied.

Choice by financial entity to be treated as an ADI
	Column 1	Column 2
Item	For a period that the choice covers, and for which the entity would, apart from this Subdivision, have been:	The entity is treated as if it had instead been:
1	an *outward investing financial entity (non-ADI)	an *outward investing entity (ADI)
2	an *inward investor (financial)	an *inward investing entity (ADI)
3	an *inward investment vehicle (financial)	an *outward investing entity (ADI)

820-430(2)    
The choice:

(a)    has effect accordingly, except as provided in subsection (4) ; and

(b)    ceases to have effect only as provided in this Subdivision; and

(c)    covers each period:

(i) that started on or after a day specified in the choice (or on the day the choice is made if no day is specified); and

(ii) that is all or part of an income year.

820-430(3)    
Subdivision 820-E applies to the entity, in relation to a period for which this section treats it as an *inward investing entity (ADI), as if all the entity's *business were banking business of the entity.

820-430(4)    
The choice does not have effect for the purposes of determining whether the entity is covered by paragraph 820-910(2)(a) (about working out the associate entity debt of another entity).

Conditions for making the choice

820-430(5)    
For the income year that is or includes the first period for which the entity would be treated in accordance with the choice, the entity must satisfy:

(a)    subsection 820-435(1) ; or

(b)    subsections 820-435(2) and (3) .

Also, the entity must not have made a previous choice under this section that has ceased to have effect.

Conditions are retested every 3 years

820-430(6)    
The choice ceases to have effect, or is taken to have ceased to have effect, as appropriate, at the end of an income year covered by subsection (7) of this section, unless the entity:

(a)    satisfies subsection 820-435(1) for that income year; or

(b)    satisfies subsections 820-435(2) and (3) for that income year.

820-430(7)    
This subsection covers every third income year after the one referred to in subsection (5) .

SECTION 820-435   Conditions  

820-435(1)    
An entity satisfies this subsection for an income year if the average value, for that income year, of the entity's *on-lent amount is at least 80% of the average value, for that income year, of all the entity's assets.

820-435(2)    
An entity satisfies this subsection for an income year if the first period that is all or part of that income year, and for which the entity would be treated in accordance with a choice under section 820-430 , consists of one or more periods, each of which is either or both of these:

(a)    a period throughout which the entity is a *financial entity because of paragraph (d) of the definition of financial entity in subsection 995-1(1) (which covers licensed (or exempt) dealers in derivatives);

(b)    a period throughout which:

(i) the entity is the *head company of a *consolidated group or *MEC group; and

(ii) at least one *member of the group is a financial entity because of that paragraph.

820-435(3)    

An entity satisfies this subsection for an income year if it satisfies subsection (2) and the amount worked out using this formula is greater than or equal to 0.8:

On-lent amount + (UG on derivatives − UL on derivatives) Total assets − UL on derivatives

where:

on-lent amount
means the average value, for that income year, of the entity's *on-lent amount.

total assets
means the average value, for that income year, of all the entity's assets.

UG on derivatives
means the average value, for that income year, of the entity's assets consisting of unrealised gains on trading derivatives within the meaning of Chapter 7 of the Corporations Act 2001 .

UL on derivatives
means the lesser of:

(a) the average value, for that income year, of the entity's liabilities consisting of unrealised losses on trading derivatives within the meaning of Chapter 7 of the Corporations Act 2001 ; and

(b) the average value, for that income year, of the entity's assets consisting of unrealised gains on trading derivatives within the meaning of Chapter 7 of that Act.

On-lent amount increased for financial entity whose assets include precious metals

820-435(4)    
In working out whether an entity satisfies subsection (1) or (3) for an income year, the average value, for that income year, of the entity's *on-lent amount is increased by the average value, for that income year, of the entity's assets that consist of *precious metals, but only if the entity satisfies subsection (5) for that income year.

820-435(5)    
An entity satisfies this subsection for an income year if the first period that is all or part of that income year, and for which the entity would be treated in accordance with a choice under section 820-430 , consists of one or more periods, each of which is either or both of these:

(a)    a period throughout which the entity is a *financial entity;

(b)    a period throughout which:

(i) the entity is the *head company of a *consolidated group or *MEC group; and

(ii) at least one *member of the group is a financial entity.

SECTION 820-440   Revocation of choice  

820-440(1)    
A choice under section 820-430 can be revoked only with the written approval of the Commissioner. The Commissioner may approve a revocation only if satisfied that the entity's circumstances have changed significantly since the choice was made.

820-440(2)    
If revoked, the choice does not have effect for a period that starts on or after the day on which the Commissioner's approval is given, unless the revocation is expressed to take effect on an earlier day. In that case, it does not have effect for a period that starts on or after the earlier day.

SECTION 820-445  

820-445   How this Subdivision interacts with Subdivision 820-FA  

A choice under section 820-430 does not have effect for so much of a period as happens while the entity is a *subsidiary member of a *consolidated group or *MEC group.

Note:

If the head company of the group makes a choice under that section, that choice will have effect instead.

Subdivision 820-FA - How the thin capitalisation rules apply to consolidated groups and MEC groups  

SECTION 820-579   What this Subdivision is about  

Operative provisions

SECTION 820-581  

820-581   How this Division applies to head company for income year in which group comes into existence or ceases to exist  

If a *consolidated group or *MEC group:

(a)    comes into existence at a time during an income year that is not the start of the income year; or

(b)    ceases to exist at a time during an income year that is not the end of the income year;

then, for each of the following periods during that income year:

(c)    a period throughout which a company is the *head company of that group; or

(d)    a period throughout which that company is the head company of a different consolidated group or MEC group; or

(e)    a period throughout which that company is a *member of no consolidated group or MEC group;

this Division (except this section) is to have either:

(f)    a single application in relation to the whole of the period; or

(g)    2 or more applications, each in relation to a part of that period.

SECTION 820-583   Classification of head company  

General class investor

820-583(1)    

The * head company of a * consolidated group or of a * MEC group is a general class investor for a period that is all or part of an income year if:

(a)    for that period, the head company satisfies the requirement in subsection 820-46(2) ; and

(b)    no * member of the group is a * financial entity or * ADI at any time during that period.

820-583(2)    
(Repealed by No 23 of 2024)

Outward investing financial entity (non-ADI)

820-583(3)    

The *head company of a *consolidated group or of a *MEC group is an outward investing financial entity (non-ADI) for a period that is all or part of an income year if:

(a)    

for that period, the head company satisfies the condition in the second column of item 1 or 2 of the table in subsection 820-85(2) ; and

(b)    throughout that period, there is at least one *member of the group that is a *financial entity; and

(c)    no *member of the group is an *ADI at any time during that period.

Inward investing financial entity (non-ADI)

820-583(4)    

The * head company of a * consolidated group or of a * MEC group is an inward investing financial entity (non-ADI) for a period that is all or part of an income year if, and only if, it is an * inward investment vehicle (financial) for that period (because of subsection (6) ).

820-583(5)    
(Repealed by No 23 of 2024)

Inward investment vehicle (financial)

820-583(6)    

The *head company of a *consolidated group or of a *MEC group is an inward investment vehicle (financial) for a period that is all or part of an income year if:

(a)    throughout that period, the head company is a *foreign controlled Australian entity; and

(b)    throughout that period, there is at least one *member of the group that is a *financial entity; and

(c)    

no member of the group is an *ADI at any time during that period.

Outward investing entity (ADI)

820-583(7)    
The *head company of a *consolidated group or of a *MEC group is an outward investing entity (ADI) for a period that is all or part of an income year if, and only if:

(a)    apart from Part 3-90 (about consolidation of groups) and this Subdivision, at least one *member of the group would be an *outward investing entity (ADI) for that period; or

(b)    

these conditions are met:

(i) at least one member of the group would, apart from that Part and this Subdivision, be an *outward investing financial entity (non-ADI) for that period; and

(ii) at least one member of the group is an *ADI throughout that period.

SECTION 820-584  

820-584   Exempt special purpose entities treated as not being member of group  

While an entity meets the conditions in subsection 820-39(3) (about insolvency-remote special purpose entities established to manage economic risk), the entity is treated for the purposes of this Division (except this section) as not being a *member of a *consolidated group or *MEC group of which it is a member.

Note:

This section has the effect that the circumstances of the entity are not taken into account in applying this Division to the head company of the group. The entity itself is exempt from this Division because of section 820-39 .

SECTION 820-585   Exemption for consolidated group headed by foreign-controlled Australian ADI or its holding company  

820-585(1)    
This Division does not disallow any of a *debt deduction for an income year if:

(a)    the debt deduction is of the *head company of a *consolidated group and the head company satisfies subsection (2) for that income year; or

(b)    the debt deduction is an amount incurred by the head company of a consolidated group during a period that is part of that income year, and the head company satisfies subsection (2) for that period.

820-585(2)    

The *head company satisfies this subsection for a period that is all or part of an income year if, throughout that period:

(a)    the head company is both a *foreign controlled Australian company and an *ADI (and would also be an ADI apart from Part 3-90 (about consolidation of groups)); or

(b)    the head company:

(i) is a *foreign controlled Australian company; and

(ii) beneficially owns all the *membership interests in a *member of the group that is both a *foreign controlled Australian entity and an *ADI throughout that period; and

(iii) would, apart from Part 3-90 (about consolidation of groups), have no other assets and no *debt capital;

unless at least one member of the group would, apart from that Part and this Subdivision, be an *outward investing financial entity (non-ADI) or *outward investing entity (ADI) for all or part of that period.

820-585(3)    

Subsection (1) does not apply if, at each time in the period mentioned in subsection (2) , all the *ADIs that are *members of the group then are *specialist credit card institutions.

SECTION 820-587  

820-587   Additional application of Subdivision 820-D to MEC group that includes foreign-controlled Australian ADI  

Subdivision 820-D applies to the *head company of a *MEC group as if it were an *outward investing entity (ADI) for a period that is all or part of an income year if:

(a) the head company is not an outward investing entity (ADI) for that period; and

(b) throughout that period, at least one *member of the group is both a *foreign controlled Australian entity and an *ADI; and

(c) throughout that period, there is at least one *eligible tier-1 company of the *top company for the group that:

(i) is a member of the group; and

(ii) is not an ADI; and

(iii) has no *wholly-owned subsidiary that is an ADI.

SECTION 820-588   Choice to treat specialist credit card institutions as being financial entities and not ADIs  

820-588(1)    
If the conditions in subsection (2) are met in relation to a *consolidated group or *MEC group and a period that is all or part of an income year, this Division (except this section) has effect as if:

(a)    none of the *members of the group were an *ADI at any time in the period; and

(b)    each member of the group that is an ADI (ignoring paragraph (a) ) at any time in the period were a financial entity at that time.

Note 1:

One result of this Division having effect in that way is that Subdivision 820-D (and related provisions, such as section 820-589 ) will not apply in relation to the head company, because:

(a) the head company of the group will not be classified under section 820-583 as an outward investing entity (ADI); and

(b) section 820-587 will not apply that Subdivision.

Note 2:

Another result of this Division having effect in that way is that Subdivision 820-B or 820-C may apply in relation to the head company, because it may be classified under section 820-583 as either:

(a) an outward investing financial entity (non-ADI); or

(b) an inward investing financial entity (non-ADI) and an inward investment vehicle (financial).

820-588(2)    
The conditions are that:

(a)    at all times in the period at least one *member of the *consolidated group or *MEC group is an *ADI; and

(b)    each ADI that is a member of the group at any time in the period is a *specialist credit card institution at that time; and

(c)    the *head company of the group for the period chooses, before lodging its *income tax return for the income year, that this Division should have effect in that way in relation to the group and every period for which the conditions in paragraphs (a) and (b) are met in the income year.

820-588(3)    
An *ADI is a specialist credit card institution at a time if, at that time, the ADI's authority under section 9 of the Banking Act 1959 to carry on banking business (as defined in that Act) authorises the ADI to carry on only banking business that:

(a)    is participation in a payment system (as defined in the Payment Systems (Regulation) Act 1998 ) that is a credit card scheme and is designated under section 11 of that Act; and

(b)    is either or both of the following:

(i) credit card acquiring (as defined in regulations made for the purposes of the Banking Act 1959 );

(ii) credit card issuing (as defined in those regulations).

820-588(4)    
To avoid doubt, a choice for the purposes of paragraph (2)(c) cannot be revoked.

SECTION 820-589   How Subdivision 820-D applies to a MEC group  

820-589(1)    
This section has effect for the purposes of working out the *adjusted average equity capital of the *head company of a *MEC group for a period (the test period ) that is all or part of an income year if Subdivision 820-D applies to the head company in relation to that period.

Note:

Section 820-587 extends the application of Subdivision 820-D .

820-589(2)    
The *head company ' s *ADI equity capital at a particular time during the test period is to be worked out:

(a)    taking into account an *equity interest or *debt interest in the head company only if it is held at that time by an entity that is not a member of the group; and

(b)    on the basis that an equity interest or debt interest in an *eligible tier-1 company (other than the head company) that is a member of the group at that time is treated as an equity interest or debt interest (as appropriate) in the head company, but only if it is held at that time by an entity that is not a member of the group; and

(c)    on the basis of the information that would be contained in a set of consolidated accounts:

(i) prepared, in accordance with the *accounting standard on consolidated accounts, as at that time; and

(ii) covering the members of the group as at that time.

SECTION 820-590   Treatment of FRT disallowed amounts - joining case  

820-590(1)    
This section applies if:

(a)    an entity (the joining entity ) becomes a * member of a * consolidated group (the joined group ) at a time (the joining time ) in an income year (the joining year ); and

(b)    the joining entity had a * FRT disallowed amount for an income year ending before the joining time.

820-590(2)    
Subject to subsection (4) , the * FRT disallowed amount is transferred at the joining time from thejoining entity to the * head company of the joined group (even if they are the same entity).

820-590(3)    
To avoid doubt, the result of the transfer under subsection (2) is that the * head company of the joined group has the * FRT disallowed amount for the income year mentioned in paragraph (1)(b) .

820-590(4)    
The * FRT disallowed amount is transferred under subsection (2) only to the extent (if any) that the FRT disallowed amount could have been applied by the joining entity under paragraph 820-56(2)(b) in respect of an income year (the trial year ) consisting of the period described in subsection (5) if:

(a)    at the joining time, the joining entity had not become a * member of the joined group (but had been a * wholly-owned subsidiary of the * head company if the joining entity is not the head company); and

(b)    the amount applied by the joining entity under paragraph 820-56(2)(b) in respect of the trial year were not limited by the joining entity ' s excess mentioned in that paragraph in respect of the trial year.

820-590(5)    
For the purposes of subsection (4) , the period is the period:

(a)    starting at the latest of the following times:

(i) the time 12 months before the joining time;

(ii) the time the joining entity came into existence;

(iii) the time the joining entity last ceased to be a * subsidiary member of a * consolidated group, if the joining entity had been a member of a consolidated group before the joining time but was not a * member of a consolidated group just before the joining time; and

(b)    ending just after the joining time.

820-590(6)    
When working out, for the purposes of subsection (4) , whether the joining entity carried on, throughout the * trial year (or a period including the trial year):

(a)    the same business as the business it carried on at a particular time; or

(b)    a similar business to the business it carried on at that time;

assume that the entity carried on at and just after the joining time the same business that it carried on just before the joining time.

820-590(7)    
If the * FRT disallowed amount was for an income year all or part of which occurs in the trial year, the transfer of the FRT disallowed amount under subsection (2) is not prevented by the fact that the FRT disallowed amount was for that income year.

820-590(8)    
If, apart from this subsection, the * head company of the joined group would have 2 or more * FRT disallowed amounts (the transferred FRT disallowed amounts ) for a particular income year as a result of the operation of subsection (2) :

(a)    treat it as having only one FRT disallowed amount for the income year; and

(b)    treat that one FRT disallowed amount as being equal to the sum of the transferred FRT disallowed amounts.

SECTION 820-591   Effect of transfer of FRT disallowed amount  

820-591(1)    
This section applies if an * FRT disallowed amount is transferred under section 820-590 from the joining entity to the * head company of the joined group.

820-591(2)    

For the purposes of subsection 820-59(4) , this Act operates (except so far as the contrary intention appears) for the purposes of income years ending after the joining time as if the head company had the * FRT disallowed amount for the income year in which the joining time occurs.

820-591(3)    
For the purposes of applying subsection 820-59(4) in relation to the *FRT disallowed amount, treat the disallowance year mentioned in paragraph 820-59(4)(b) as starting at the time of the transfer.

SECTION 820-592   Cancelling the transfer of FRT disallowed amount  

820-592(1)    
The * head company of the joined group may choose to cancel the transfer of the FRT disallowed amount under section 820-590.

820-592(2)    
If the * head company of the joined group does so, this Act (except this section) operates for all income years ending after the transfer as if it had not occurred under section 820-590 .

820-592(3)    
The choice cannot be revoked.

SECTION 820-593  

820-593   FRT disallowed amount cannot be applied for income year ending after the joining time  

To the extent that the * FRT disallowed amount is not transferred under section 820-590 from the joining entity to the * head company of the joined group, the FRT disallowed amount cannot be applied under paragraph 820-56(2)(b) by any entity in respect of an income year ending after the joining time.

SECTION 820-594  

820-594   Treatment of FRT disallowed amounts - leaving case  

To avoid doubt, if the *head company of a *consolidated group has a *FRT disallowed amount and an entity ceases to be a *subsidiary member of the group, the entity is not taken because of section 701-40 (the exit history rule) to have the FRT disallowed amount.

Subdivision 820-FB - Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company  

SECTION 820-595   What this Subdivision is about  

Choice to group with branches of foreign banks and foreign financial entities

SECTION 820-597   Choice by head company of consolidated group or MEC group  

820-597(1)    
This section applies if there is a period (the grouping period ) for which all these conditions are met:

(a) the period was all or part of an income year of the *head company of a *consolidated group or *MEC group;

(b)the consolidated group or MEC group existed throughout the period;

(c) the head company and an entity (the establishment entity ) covered by one of the following subparagraphs are both members of the same *wholly-owned group throughout the period:

(i) a *foreign bank that carried on its banking *business in Australia through at least one *Australian permanent establishment at each time in the period;

(ii) a *foreign entity that was a *financial entity and had at least one Australian permanent establishment at each time in the period;

(d) there is not a longer period in the income year for which the conditions in paragraphs (a), (b) and (c) are met in relation to the head company and the establishment entity.

Note:

It does not matter whether the income year ended on the same day for the head company and the establishment entity.

820-597(2)    
The *head company may choose to have all of the *Australian permanent establishments of the establishment entity treated as part of the head company for the grouping period for the purposes of this Division.

820-597(3)    
If the conditions in subsection (1) are met in relation to the *head company and more than one other establishment entity, the head company may make a different choice in relation to each of the other establishment entities.

SECTION 820-599   Choice by Australian resident company outside consolidatable group and MEC group  

820-599(1)    
This section applies if there is a period (also the grouping period ) for which all these conditions are met:

(a) the period was all or part of an income year of a company (the single company );

(b) throughout the period the single company:

(i) was an *Australian entity; and

(ii) was not a *prescribed dual resident; and

(iii) was not a *member of a *consolidatable group; and

(iv) was not a member of a *consolidated group; and

(v) was not a member of a *MEC group;

(c) the single company and an entity (the establishment entity ) covered by one of the following subparagraphs are both members of the same *wholly-owned group throughout the period:

(i) a *foreign bank that carried on its banking *business in Australia through at least one *Australian permanent establishment at each time in the period;

(ii) a *foreign entity that was a *financial entity and had at least one Australian permanent establishment at each time in the period;

(d) there is not a longer period in the income year for which the conditions in paragraphs (a), (b) and (c) are met in relation to the single company and the establishment entity.

Note:

It does not matter whether the income year ended on the same day for the single company and the establishment entity.

820-599(2)    
The single company may choose to have all of the *Australian permanent establishments of the establishment entity treated as part of the single company for the grouping period for the purposes of this Division.

820-599(3)    
If the conditions in subsection (1) are met in relation to the single company and more than one other establishment entity, the single company may make a different choice in relation to each of the other establishment entities.

Effect of choice

SECTION 820-601  

820-601   Application  

Sections 820-603 to 820-615 apply if a choice is made under section 820-597 or 820-599 .

SECTION 820-603   General  

820-603(1)    

The choice cannot be revoked in relation to the grouping period. It binds the *head company or the single company, as appropriate, and the establishment entity.

820-603(2)    

The rest of this section applies:

(a) to each *Australian permanent establishment that:

(i) was an Australian permanent establishment of the establishment entity; and

(ii) if the establishment entity was a *foreign bank - was an Australian permanent establishment through which the entity carried on banking *business in Australia at any time in the grouping period; and

(b) in relation to each time (the test time ) that was in the grouping period and was when the Australian permanent establishment:

(i) was an Australian permanent establishment of the establishment entity; and

(ii) if the establishment entity was a foreign bank - was an Australian permanent establishment through which the entity carried on banking business in Australia.

820-603(3)    
In the case of a choice under section 820-597 , this Division (except Subdivision 820-FA , this Subdivision and Subdivision 820-L ) applies as if, at the test time, the *Australian permanent establishment:

(a) had been part of the *head company; and

(b) had not been part of the establishment entity; and

(c) were a *subsidiary member of the *consolidated group or *MEC group.

820-603(4)    
In the case of a choice under section 820-599 , this Division (except Subdivision 820-FA , this Subdivision and Subdivision 820-L ) applies as if, at the test time:

(a) the *Australian permanent establishment had been part of the single company and had not been part of the establishment entity; and

(b) the single company were a *consolidated group of which the single company was the *head company and the Australian permanent establishment was a *subsidiary member.

820-603(5)    
In either case, without limiting subsection (3) or (4), this Division (except Subdivision 820-FA , this Subdivision and Subdivision 820-L ) applies as if:

(a) the *Australian permanent establishment were an entity at that time; and

(b) each asset and liability of the establishment entity at the test time that is attributable to the Australian permanent establishment were an asset or liability of the Australian permanent establishment at that time; and

(c) without limiting paragraph (b) of this subsection, each cost that:

(i) is a *debt deduction of the establishment entity incurred at the test time; and

(ii) is attributable to the Australian permanent establishment;

were a cost incurred by the Australian permanent establishment at that time;

For the effects of disallowing debt deductions, see section 820-605 .

820-603(6)    

However, the application of this Division because of this section is subject to the modifications set out in sections 820-607 to 820-615 .

820-603(7)    
For the purposes of this Division (as applying because of this Subdivision), this Act (except this Division) applies as if the matters referred to in subsections (3), (4) and (5) of this section were the case.

Note:

For example, this means that a head company is treated for the purposes of this Division as if it had debt deductions based on the actual costs incurred by an Australian permanent establishment while it is treated as part of the head company because of this section.

SECTION 820-605  

820-605   Effect on establishment entity if certain debt deductions disallowed  

If:

(a) apart from this Division, a *debt deduction would be a deduction of the establishment entity for an income year; and

(b) this Division (as applying because of this Subdivision) disallows all or part of the deduction (treated as a deduction of the *head company or single company);

this section disallows the deduction of the establishment entity, or that part of it, as appropriate.

Note 1A:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

Note 1:

This Division does not disallow a debt deduction that the establishment entity incurs during the grouping period and that consists of a cost that is:

• attributable to an Australian permanent establishment covered by the choice under section 820-597 or 820-599 ; and

• paid or owed to the head company or single company.

The cost is not a debt deduction of the head company or single company for the purposes of this Division as applying because of this Subdivision. This is because subsection 820-603(3) or (4) treats the Australian permanent establishment as being part of the head company or single company, so the cost is treated as being paid or owed by the head company or single company to itself.

Because subsection 820-603(3) or (4) also treats the Australian permanent establishment as not being part of the establishment entity, the cost is not a debt deduction of the establishment entity, so it is not disallowed by this Division as applying to the establishment entity.

Note 2:

This Division also does not disallow a debt deduction that the head company or single company incurs during the grouping period and that consists of a cost that is:

• paid or owed to the establishment entity; and

• is attributable to an Australian permanent establishment covered by the choice under section 820-597 or 820-599 .

The cost is not a debt deduction of the head company or single company for the purposes of this Division as applying because of this Subdivision. This is because subsection 820-603(3) or (4) treats the Australian permanent establishment as being part of the head company or single company, so the cost is treated as being paid or owed by the head company or single company to itself.

SECTION 820-607  

820-607   Effect on test periods under this Division  

If, apart from this section, this Division (except this Subdivision) would have a single application to the *head company or single company, or to the establishment entity, in relation to a period (the test period ) that:

(a) is all or part of an income year of that entity; and

(b) overlaps the grouping period;

this Division (except this section) is to have separate applications to that entity as follows:

(c) a single application in relation to the period of overlap; and

(d) a single application in relation to the part (if any) of the test period that is before the period of overlap; and

(e) a single application in relation to the part (if any) of the test period that is after the period of overlap.

SECTION 820-609   Effect on classification of head company or single company  

820-609(1)    
The *head company or single company is an outward investing entity (ADI) for a period (the trial period ) that is all or part of the grouping period if:

(a)    apart from this Subdivision, the head company or single company would be an *outward investing entity (ADI) for the trial period; or

(b)    

apart from this Subdivision, the head company or single company:

(i) would be an * outward investing financial entity (non-ADI) for the trial period; and

(ii) at least one of the * Australian permanent establishments is a * permanent establishment through which a * foreign bank carries on banking * business in Australia.

820-609(2)    
The *head company is also an outward investing entity (ADI) for the trial period if, apart from this Subdivision:

(a)    

section 820-585 would prevent the disallowance of a *debt deduction for the income year including the trial period; or

(b)    section 820-587 would apply Subdivision 820-D to the head company as if it were an *outward investing entity (ADI) for the trial period.

820-609(3)    
The single company is also an outward investing entity (ADI) for the trial period if it is both a *foreign controlled Australian company and an *ADI for that period.

820-609(4)    
The *head company or single company is an inward investing entity (ADI) for the trial period if:

(a)    

apart from this Subdivision, it would be an *inward investment vehicle (financial), and not an *outward investing financial entity (non-ADI), for the trial period; and

(b)    at least one of the *Australian permanent establishments is a *permanent establishment through which a *foreign bank carries on banking *business in Australia.

820-609(5)    

The * head company or single company is an outward investing financial entity (non-ADI) for the trial period if, apart from this Subdivision:

(a)    it would be an * outward investing financial entity (non-ADI) for that period; and

(b)    at least one of the * Australian permanent establishments is a * permanent establishment of a * foreign entity that is a * financial entity; and

(c)    none of the Australian permanent establishments is a permanent establishment through which a * foreign bank carries on banking * business in Australia.

820-609(6)    

The * head company or single company is an inward investing financial entity (non-ADI) and an inward investment vehicle (financial) for the trial period if, apart from this Subdivision:

(a)    it would be an * inward investing financial entity (non-ADI) and an * inward investment vehicle (financial) for that period; and

(b)    it would not be an * outward investing financial entity (non-ADI) for that period; and

(c)    at least one of the * Australian permanent establishments is a * permanent establishment of a * foreign entity that is a * financial entity; and

(d)    none of the Australian permanent establishments is a permanent establishment through which a * foreign bank carries on banking * business in Australia.

820-609(7)    

This section has effect despite any other provision of this Division, except Subdivision 820-EA and section 820-610 .

Note:

If the head company or single company is an outward investing financial entity (non-ADI) or inward investment vehicle (financial) under this section and satisfies subsection 820-430(5) , it may choose under Subdivision 820-EA to be treated as an outward investing entity (ADI). Section 820-603 affects whether the company satisfies that subsection, by treating as part of the company each relevant foreign financial entity's Australian permanent establishment.

SECTION 820-610   Choice not to be outward investing entity (ADI) or inward investing entity (ADI)  

820-610(1)    
This section applies if:

(a)    apart from this section, the *head company or single company would, under section 820-609 , be an *outward investing entity (ADI) or an *inward investing entity (ADI) for the trial period; and

(b)    at all times in the trial period, each of the following entities that is an *ADI is a *specialist credit card institution:

(i) the head company or single company;

(ii) an establishment entity whose *Australian permanent establishments the head company or single company has chosen under section 820-597 or 820-599 to have treated as part of the company for the period.

820-610(2)    

The *head company or single company is an outward investing financial entity (non-ADI) for the trial period if:

(a)    apart from this section, the company would, under section 820-609 , be an *outward investing entity (ADI) for the trial period; and

(b)    

the company chooses, before lodging its *income tax return for the income year including the trial period, to be an outward investing financial entity (non-ADI) for that period.

820-610(3)    

The *head company or single company is an inward investing financial entity (non-ADI) and an inward investment vehicle (financial) for the trial period if:

(a)    apart from this section, the company would, under section 820-609 , be an *inward investing entity (ADI) for the trial period; and

(b)    

the company chooses, before lodging its *income tax return for the income year including the trial period, to be an inward investing financial entity (non-ADI) and an inward investment vehicle (financial) for that period.

820-610(4)    
This section has effect despite sections 820-85 , 820-185 and 820-609 .

SECTION 820-611   Values to be based on what would be in consolidated accounts for group  

820-611(1)    
For the purposes of this Division as applying because of this Subdivision, the value or amount of a particular matter as at a particular time during the grouping period is to be worked out, so far as practicable, on the basis of the information that would be contained in a set of consolidated accounts:

(a) prepared, in accordance with the *accounting standard on consolidated accounts, as at that time; and

(b) covering the *consolidated group, *MEC group or single company, as appropriate, and each *Australian permanent establishment that section 820-603 treats as part of the *head company or single company at that time.

Note:

This subsection does not depend on whether such a set of consolidated accounts was prepared, or had to be prepared, for other purposes.

820-611(2)    

To avoid doubt, subsection (1) also applies to working out the value or amount, as at a particular time, of a matter mentioned in any of sections 820-613 to 820-615 .

SECTION 820-613   How Subdivision 820-D applies  

820-613(1)    
This section has effect for the purposes of applying Subdivision 820-D to the *head company or single company in relation to a period (the test period ) that is all or part of the grouping period.

Note:

Subdivision 820-D applies to the head company or single company if it is classified as an outward investing entity (ADI) because of section 820-609 , either alone or in conjunction with a choice made by the company under section 820-430 .

Adjusted average equity capital

820-613(2)    

The *adjusted average equity capital of the *head company or single company for the test period is increased by the average value, for the period, of the amount worked out under subsection (3).

Note 1:

In the case of a choice under section 820-599 , paragraph 820-603(4)(b) treats the single company and the relevant Australian permanent establishments as a consolidated group.

Note 2:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

820-613(3)    

The amount worked out under this subsection as at a particular day is the total of the amounts worked out under the following paragraphs for each of the establishment entity ' s *Australian permanent establishments that section 820-603 treats as part of the *head company or single company on that day:

(a) so much of the establishment entity ' s *ADI equity capital, at the end of the day, as:

(i) is attributable to that Australian permanent establishment; and

(ii) has not been allocated to the *OB activities of the entity;

(b) the amounts that, as at the end of that day:

(i) are made available by the establishment entity to the Australian permanent establishment as loans to it; and

(ii) do not give rise to any *debt deductions of the entity for the income year or any other income year.

Note:

The amounts are to be worked out, so far as practicable, on the basis of the information that would be contained in a set of consolidated accounts. See section 820-611 .

Risk-weighted assets

820-613(4)    

For each of the establishment entity ' s *Australian permanent establishments that is covered by the choice, the *risk-weighted assets of the *head company or single company include that part of the entity ' s risk-weighted assets that:

(a) is attributable to that Australian permanent establishment; and

(b) is not attributable to the entity ' s *OB activities.

SECTION 820-615   How Subdivision 820-E applies  

820-615(1)    
This section has effect for the purposes of applying Subdivision 820-E to the *head company or single company in relation to a period (the test period ) that is all or part of the grouping period.

Note:

Subdivision 820-E applies to the head company or single company if it is classified as an inward investing entity (ADI) because of section 820-609 .

Average equity capital

820-615(2)    

The average equity capital of the *head company or single company for the test period is:

(a) the average value, for that period, of all the *ADI equity capital of the company; plus

(b) the average value, for that period, of the amount worked out under subsection 820-613(3) .

Note 1:

In the case of a choice under section 820-599 , paragraph 820-603(4)(b) treats the single company and the relevant Australian permanent establishments as a consolidated group.

Note 2:

To calculate an average value for the purposes of this Division, see Subdivision 820-G .

Safe harbour capital amount

820-615(3)    

The safe harbour capital amount of the *head company or single company for the test period is worked out using the following method statement. Method statement


Risk-weighted assets

820-615(4)    

For each of the establishment entity ' s *Australian permanent establishments covered by the choice, the *risk-weighted assets of the *head company or single company include that part of the entity ' s risk-weighted assets that:

(a) is attributable to that Australian permanent establishment; and

(b) is not attributable to the entity ' s *OB activities.

820-617   (Repealed) SECTION 820-617 Effect on safe harbour capital amount if single company is foreign-controlled Australian ADI and on-lends section 128F amounts  
(Repealed by No 101 of 2006)

Subdivision 820-G - Calculating the average values  

SECTION 820-625   What this Subdivision is about  

Note:

Section 820-25 of the Income Tax (Transitional Provisions) Act 1997 provides for a transitional rule that affects the operation of this Subdivision in relation to an income year that begins before 1 July 2002 and ends before 30 June 2003.

How to calculate the average values

SECTION 820-630   Methods of calculating average values  

Methods of calculation for entities that are not ADIs

820-630(1)    
An entity to which Subdivision 820-B or 820-C applies for a period that is all or a part of an income year must use one of the following methods to calculate the average value of a matter mentioned in that Subdivision for the purposes of that application:

(a)    the method set out in section 820-635 (the opening and closing balances method );

(b)    the method set out in section 820-640 (the 3 measurement days method );

(c)    the method set out in section 820-645 (the frequent measurement method ). .

Note 1:

This subsection therefore applies only to an outward investing financial entity (non-ADI) or an inward investing financial entity (non-ADI).

Note 2:

An entity cannot apply the 3 measurement days method if it is unable to meet the requirements in subsection 820-640(1) . An entity ' s ability to apply that method may therefore be limited.

820-630(2)    
The entity must use the same method to calculate all such average values for that period for the purposes of that application.

Commissioner ' s power

820-630(3)    
If the entity fails to comply with subsection (2) , the Commissioner may, irrespective of the methods used by the entity, recalculate all the average values for the entity and that period by using the opening and closing balances method.

Method of calculation for ADIs

820-630(4)    
An entity to which Subdivision 820-D or 820-E applies for a period that is all or a part of an income year must use the frequent measurement method to calculate the average value of a matter mentioned in that Subdivision for the purposes of that application.

Note:

This subsection therefore applies only to an outward investing entity (ADI) or an inward investing entity (ADI).

SECTION 820-635  

820-635   The opening and closing balances method  

An entity that uses the opening and closing balances method for a period must apply the following method statement to calculate the average value of a matter for that period. Method statement

Example:

ALWZ Corporation, a company that is an Australian entity, held assets valued at $95 million on the first day of an income year. It held assets valued at $105 million at the end of that year. Adding those amounts and dividing the result by 2 gives the average value of its assets for that year, which is $100 million.

SECTION 820-640   The 3 measurement days method  

Application

820-640(1)    
An entity must not use the 3 measurement days method for a period that is a part of an income year unless the following days occur during that period:

(a) the last day of the first half of the income year;

(b) one or both of the following days:

(i) the first day of that year;

(ii) the last day of that year.

Method statement

820-640(2)    
An entity that uses the 3 measurement days method for a period must apply the following method statement to calculate the average value of a matter for that period. Method statement

Example:

RJ Corporation held assets valued at $115 million on the first day of an income year. It held assets valued at $105 million on the last day of the first half of that year, and $80 million on the last day of that year. Adding these amounts and dividing the result by 3 gives the average value of its assets for that year, which is $100 million.

Measurement days

820-640(3)    
The following are the first , second and third measurement days :

(a) the first measurement day is the first day of the income year if it occurs during that period, otherwise it is the first day of that period;

(b) the second measurementday is the last day of the first half of that year;

(c) the third measurement day is the last day of that year if it occurs during that period, otherwise it is the last day of that period.

SECTION 820-645   The frequent measurement method  

820-645(1)    
An entity that uses the frequent measurement method for a period (the measurement period ) must calculate the average value of a matter for that period by applying:

(a) the method statement in subsection (2) (generally based on quarterly periods); or

(b) the method statement in subsection (4) (generally based on regular intervals).

This section does not prevent the entity from applying the method statement in subsection (2) for one matter and the method statement in subsection (4) for another matter in relation to that period.

820-645(2)    
This is the method statement for the purposes of paragraph (1)(a). Method statement

Example:

KJW Finance Corporation, a company that is an Australian entity, held assets valued at $130 million on the first day of an income year. On the last day of each quarterly period for that year it held assets valued at $140 million, $120 million, $110 million and $100 million respectively. Adding these amounts and dividing the result by 5 gives the average value of its assets for that year, which is $120 million.

Quarterly period

820-645(3)    
The quarterly periods of the income year are:

(a) the period consisting of the first, second and third months of that year; and

(b) each successive period of 3 months that occurs after that period during that year.

820-645(4)    
This is the method statement for the purposes of paragraph (1)(b): Method statement

Example:

TW Corporation, a company that is an Australian entity, adopts a weekly interval for the purposes of this subsection. The measurement period is a period of 12 weeks. On the first day of that period it had $70 million of debt capital. Its debt capital was $80 million on the last day of each of the first 7 weeks, and $95 million on the last day of the remaining 5 weeks. Adding these amounts and dividing the result by 13 (the number of measurement days) gives the average value of its debt capital for that period, which is $85 million.

Regular intervals

820-645(5)    
The regular intervals for the measurement period are:

(a) a period which consists of a fixed number of days or months (not less than one day and not more than 3 months) adopted by the entity and begins at the start of the first day of the measurement period; and

(b) each successive period of the same duration that occurs during the measurement period.

Note:

Examples of a regular interval therefore include a daily, weekly, fortnightly, monthly or quarterly interval.

820-645(6)    
The entity must use the same regular intervals when calculating the average values of different matters under subsection (4) for that period.

Special rules about values and valuation

SECTION 820-675   Amount to be expressed in Australian currency  

820-675(1)    
For the purposes of this Division, an amount (including a value used in a calculation under this Division) is to be expressed in Australian currency.

820-675(2)    
An entity must comply with the *accounting standards in converting an amount into Australian currency.

820-675(3)    
Subsection (2) has effect whether the *accounting standard would otherwise apply to the entity or not.

SECTION 820-680   Valuation of assets, liabilities and equity capital  

820-680(1)    

For the purposes of this Division, an entity must comply with the *accounting standards in determining what are its assets and liabilities and in calculating:

(a) the value of its assets; and

(b) the value of its liabilities (including its *debt capital); and

(c) the value of its *equity capital.

Note:

This requirement to comply with the accounting standards is modified in certain cases (see sections 820-310 and 820-682 ).

820-680(1A)    

In particular, for the purposes of this Division, the entity has an asset or liability at a particular time if, and only if, according to the *accounting standards, the asset or liability can or must be recognised at that time.

Note:

This application of the accounting standards is modified in certain cases (see section 820-682 ).

820-680(2)    

If:

(a) an entity is required by an Australian law to prepare financial statements for a period in accordance with the *accounting standards; and

(b) a matter mentioned in subsection (1) is determined or calculated in accordance with the accounting standards for the purposes of the financial statements in relation to the period;

then, for the purposes of this Division, the matter is to be determined or calculated in relation to the period, or any part of the period, in the same way as it is determined or calculated in the financial statements.

820-680(2A)    

If:

(a) a period in relation to which a matter mentioned in subsection (1) is determined or calculated (the current period ) is not the same as a period in relation to which paragraphs (2)(a) and (b) are satisfied; and

(b) the current period overlaps with one or more periods in relation to which paragraphs (2)(a) and (b) are satisfied;

then, for the purposes of this Division, the matter is to be determined or calculated in relation to the current period in the same way as it is determined or calculated in the financial statements for the most recent of the overlapping periods.

820-680(2B)    
(Repealed by No 65 of 2019)

820-680(2C)    
(Repealed by No 65 of 2019)

820-680(2D)    
(Repealed by No 65 of 2019)

820-680(2E)    
(Repealed by No 65 of 2019)

Accounting standards need not otherwise apply to the entity

820-680(3)    
Subsection (1) has effect whether the *accounting standard would otherwise apply to the entity or not.

SECTION 820-682   Recognition of assets and liabilities - modifying application of accounting standards  

Deferred tax assets and deferred tax liabilities

820-682(1)    

Despite subsections 820-680(1) , (1A) and (2) , an entity must not recognise:

(a) a deferred tax liability (within the meaning of the *accounting standards) as a liability for the purposes of this Division; or

(b) a deferred tax asset (within the meaning of the accounting standards) as an asset for the purposes of this Division.

Note:

Subsections 820-680(1) and (1A) require compliance with accounting standards.

Surpluses and deficits in defined benefit superannuation plans

820-682(2)    

Despite subsections 820-680(1) , (1A) and (2) , an entity must not recognise an amount relating to a defined benefit plan (within the meaning of the *accounting standards) as:

(a) a liability for the purposes of this Division; or

(b) an asset for the purposes of this Division.

Note:

Subsections 820-680(1) and (1A) require compliance with accounting standards.

Not applicable to ADIs

820-682(3)    
This section does not apply in relation to an entity for a period if, for the period, the entity is an *outward investing entity (ADI) or an *inward investing entity (ADI).

Not applicable to records about Australian permanent establishments

820-682(4)    
This section does not apply for the purposes of section 820-960 .

820-683   (Repealed) SECTION 820-683 Recognition of internally generated intangible items - modifying application of accounting standards  
(Repealed by No 65 of 2019)

820-684   (Repealed) SECTION 820-684 Valuation of intangible assets if no active market - modifying application of accounting standards  
(Repealed by No 65 of 2019)

SECTION 820-685  

820-685   Valuation of debt capital  

For the purposes of this Division, the regulations may make additional provisions for the valuation of the *debt capital of an entity.

SECTION 820-690  

820-690   Commissioner ' s power  

If the Commissioner considers that, in relation to a calculation under this Division, an entity has:

(a) overvalued its assets; or

(b) undervalued its liabilities (including its *debt capital);

the Commissioner may, having regard to the *accounting standards and this Subdivision, substitute a value that the Commissioner considers is appropriate.

Subdivision 820-H - Control of entities  

SECTION 820-740   What this Subdivision is about  

Australian controller of a foreign entity

SECTION 820-745  

820-745   What is an Australian controlled foreign entity?  

An Australian controlled foreign entity , in relation to a particular time, is an entity that is any of the following at that time:

(a) a *controlled foreign company (except a *corporate limited partnership);

(b) a *controlled foreign trust;

(c) a *controlled foreign corporate limited partnership.

SECTION 820-750  

820-750   What is an Australian controller of a controlled foreign company?  

An entity is an Australian controller of a *controlled foreign company mentioned in paragraph 820-745(a) at a particular time if, and only if, at that time:

(a) that entity is an *Australian entity holding a *TC control interest in the controlled foreign company that is 10% or more; or

(b) all of the following subparagraphs apply:

(i) the controlled foreign company is such a company because of paragraph 340(c) of the Income Tax Assessment Act 1936 ;

(ii) not more than 5 Australian entities, including that entity, control that controlled foreign company (either alone or together with *associate entities and whether or not any associate entity is also an Australian entity);

(iii) that entity holds a *TC control interest in the controlled foreign company that is at least 1%.

Note:

A corporate limited partnership that is a foreign entity may be a controlled foreign corporate limited partnership, see section 820-760 .

SECTION 820-755  

820-755   What is an Australian controller of a controlled foreign trust?  

An entity is an Australian controller of a *controlled foreign trust at a particular time if, and only if, at that time, the entity is an *Australian entity holding a *TC control interest in the trust that is 10% or more.

SECTION 820-760   What is an Australian controller of a controlled foreign corporate limited partnership?  

Australian controller of a controlled foreign corporate limited partnership

820-760(1)    
An entity is an Australian controller of a *controlled foreign corporate limited partnership at a particular time if, and only if, at least one of the following paragraphs applies to the entity at that time:

(a) the entity is an *Australian entity that is a *general partner of the partnership;

(b) the entity is an Australian entity holding a *TC control interest in the partnership that is 10% or more.

Controlled foreign corporate limited partnership

820-760(2)    
A *corporate limited partnership is a controlled foreign corporate limited partnership at a particular time if, and only if, at that time:

(a) it is not an *Australian entity; and

(b) at least one of the following subparagraphs applies to it:

(i) at least one *general partner of the partnership is an *Australian entity or an *Australian controlled foreign entity;

(ii) not more than 5 Australian entities (each of which holds a *TC control interest in the partnership that is at least 1%) hold a total of TC control interests in the partnership that is 50% or more.

Foreign controlled Australian entity

SECTION 820-780  

820-780   What is a foreign controlled Australian entity?  

A foreign controlled Australian entity , in relation to a particular time, is an entity that is any of the following at that time:

(a) a *foreign controlled Australian company;

(b) a *foreign controlled Australian trust;

(c) a *foreign controlled Australian partnership.

SECTION 820-785   What is a foreign controlled Australian company?  

820-785(1)    
A company (except a *corporate limited partnership) is a foreign controlled Australian company (or an FCAC ) at a particular time if, and only if, at that time, it is an *Australian entity to which at least one of the following paragraphs applies:

(a) not more than 5 *foreign entities (each of which holds a *TC control interest in the company that is at least 1%) hold a total of TC control interests in the company that is 50% or more;

(b) a foreign entity holds a TC control interest in the company that is 40% or more, and no other entity or entities (except an *associate entity of the foreign entity or entities including the foreign entity or its associate entities) control the company;

(c) not more than 5 foreign entities control the company (whether or not with associate entities and whether or not any associate entity is a foreign entity).

Note:

A corporate limited partnership that is an Australian entity may be a foreign controlled Australian partnership, see section 820-795 .

Exception

820-785(2)    
Despite subsection (1), a company is not an FCAC at a particular time if, at that time:

(a) the company would, apart from this subsection, be an FCAC only because of paragraph (1)(a) or (b); but

(b) the total of the following interests would be less than 20% if paragraphs 820-875(2)(a) and (b) were disregarded:

(i) the *TC direct control interest in the company held by the *foreign entity or entities mentioned in paragraph (1)(a) or (b);

(ii) the *TC indirect control interest in the company held by the foreign entity or entities;

(iii) the TC direct control interests in the company held by any *associate entities of the foreign entity or entities (other than any TC direct control interests that have been taken into account in calculating the interest mentioned in subparagraph (ii));

(iv) the TC indirect control interests in the company held by the entity's associate entities (other than any TC indirect control interests that have been taken into account in calculating the interest mentioned in subparagraph (ii)).

Note:

Paragraphs 820-875(2)(a) and (b) set out special rules under which an entity is taken to hold a TC control tracing interest in another entity that is equal to 100%, which could then be taken into account in calculating a TC indirect control interest.

SECTION 820-790   What is a foreign controlled Australian trust?  

820-790(1)    
A trust is a foreign controlled Australian trust (or an FCAT ) at a particular time if, and only if, at that time, it is an *Australian trust to which at least one of the following paragraphs applies:

(a) not more than 5 *foreign entities (each of which holds a *TC control interest in the trust that is at least 1%) hold a total of TC control interests in the trust that is 50% or more;

(b) a foreign entity holds a TC control interest in the trust that is 40% or more, and no other entity or entities (except an *associate entity of the foreign entity or entities including the foreign entity or its associate entities) control the trust;

(c) all of the following subparagraphs apply to the trust:

(i) at least one of the objects or beneficiaries of the trust is a foreign entity;

(ii) there has been at least one distribution of income or capital of the trust made to such an object or beneficiary (whether directly or indirectly) during the income year in which that particular time occurs, or during the preceding 2 income years;

(iii) the total TC control interests in the trust that are held by all its beneficiaries that are *Australian entities do not exceed 50%;

(d) a foreign entity is in a position to control the trust (see subsection (2)).

820-790(2)    
A *foreign entity is in a position to control a trust if, and only if:

(a) the entity, or an *associate entity of the entity, whether alone or with other associate entities (the relevant entity ), has the power to obtain the beneficial enjoyment of the trust ' s capital or income (whether or not by exercising its power of appointment or revocation, and whether with or without another entity ' s consent); or

(b) the relevant entity is able to control the application of the trust ' s capital or income in any manner (whether directly or indirectly); or

(c) the relevant entity is able to do a thing mentioned in paragraph (a) or (b) under a *scheme; or

(d) a trustee of the trust is accustomed or is under an obligation (whether formally or informally), or might reasonably be expected, to act in accordance with the relevant entity ' s directions, instructions or wishes; or

(e) the relevant entity is able to remove or appoint a trustee of the trust.

Exception

820-790(3)    
Despite subsection (1), a trust is not an FCAT at a particular time if, at that time:

(a) the trust would, apart from this subsection, be an FCAT only because of paragraph (1)(a) or (b); but

(b) the total of the following interests would be less than 20% if paragraphs 820-875(2)(a) and (b) were disregarded:

(i) the *TC direct control interest in the trust held by the *foreign entity or entities mentioned in paragraph (1)(a), (b) or (c);

(ii) the *TC indirect control interest in the trust held by the foreign entity or entities;

(iii) the TC direct control interests in the trust held by any *associate entities of the foreign entity or entities (other than any TC direct control interests that have been taken into account in calculating the interest mentioned in subparagraph (ii));

(iv) the TC indirect control interests in the trust held by the entity ' s associate entities (other than any TC indirect control interests that have been taken into account in calculating the interest mentioned in subparagraph (ii)).

Note:

Paragraphs 820-875(2)(a) and (b) set out special rules under which an entity is taken to hold a TC control tracing interest in another entity that is equal to 100%, which could then be taken into account in calculating a TC indirect control interest.

SECTION 820-795   What is a foreign controlled Australian partnership?  

Corporate limited partnership

820-795(1)    
A *corporate limited partnership is a foreign controlled Australian partnership (or an FCAP ) at a particular time if, and only if, at that time:

(a) it is an *Australian entity; and

(b) at least one of the following subparagraphs applies to it:

(i) not more than 5 *foreign entities (each of which holds a *TC control interest in the partnership that is at least 1%) hold a total of TC control interests in the partnership that are 50% or more;

(ii) at least one *general partner of the partnership is a foreign entityor a *foreign controlled Australian entity.

Partnership that is not a corporate limited partnership

820-795(2)    
A partnership other than a *corporate limited partnership is a foreign controlled Australian partnership (or an FCAP ) at a particular time if, and only if, at that time:

(a) at least one of the partners is an *Australian entity; and

(b) at least one of the following subparagraphs applies to it:

(i) not more than 5 *foreign entities (each of which holds a *TC control interest in the partnership that is at least 1%) hold a total of TC control interests in the partnership that is 50% or more;

(ii) a foreign entity holds a TC control interest in the partnership that is 40% or more, and no other entity or entities (except an *associate entity of the foreign entity or entities including the foreign entity or its associate entities) control the partnership.

Exception

820-795(3)    
Despite subsections (1) and (2), a partnership is not an FCAP at a particular time if, at that time:

(a) the partnership would, apart from this subsection, be an FCAP only because of subparagraph (1)(b)(i), (2)(b)(i) or (ii); but

(b) the total of the following interests would be less than 20% if paragraphs 820-875(2)(a) and (b) were disregarded:

(i) the *TC direct control interest in the partnership held by the *foreign entity or entities mentioned in subparagraph (1)(b)(i), (2)(b)(i) or (ii);

(ii) the *TC indirect control interest in the partnership held by the foreign entity or entities;

(iii) the TC direct control interests in the partnership held by any *associate entities of the foreign entity or entities (other than any TC direct control interests that have been taken into account in calculating the interest mentioned in subparagraph (ii));

(iv) the TC indirect control interests in the partnership held by the entity's associate entities (other than any TC indirect control interests that have been taken into account in calculating the interest mentioned in subparagraph (ii)).

Note:

Paragraphs 820-875(2)(a) and (b) set out special rules under which an entity is taken to hold a TC control tracing interest in another entity that is equal to 100%, which could then be taken into account in calculating a TC indirect control interest.

Thin capitalisation control interest

SECTION 820-815   General rule about thin capitalisation control interest in a company, trust or partnership  

Meaning of TC control interest

820-815(1)    
The thin capitalisation control interest (or TC control interest ) that an entity holds in a company, trust or partnership at a particular time is the total of the following interests:

(a) the *TC direct control interest (if any) held by the entity in the company, trust or partnership at that time;

(b) the *TC indirect control interest (if any) held by the entity in the company, trust or partnership at that time;

(c) the TC direct control interests (if any) held by the entity ' s *associate entities in the company, trust or partnership at that time;

(d) the TC indirect control interests (if any) held by the entity ' s associate entities in the company, trust or partnership at that time.

This section has effect subject to sections 820-820 to 820-835 (which set out special rules to avoid double counting).

Note:

For the rules about a TC direct control interest, see sections 820-855 to 820-865 . For the rules about a TC indirect control interest, see sections 820-870 to 820-875 .

820-815(2)    

This section does not apply to an *associate entity of the entity if:

(a) the associate entity is a *foreign entity and the associate entity is such an associate entity only because of subsection 820-905(3A) ; or

(b) the associate entity is such an associate entity only because of subsection 820-905(3B) .

SECTION 820-820   Special rules about calculating TC control interest held by an entity  

820-820(1)    
This section applies for the purposes of calculating the *TC control interest that an entity holds in a company, trust or partnership.

820-820(2)    
Disregard a *TC indirect control interest held by the entity to the extent to which it is calculated by reference to:

(a) a *TC direct control interest taken into account under paragraph 820-815(c) ; or

(b) a TC indirect control interest taken into account under paragraph 820-815(d) .

820-820(3)    

Disregard a *TC indirect control interest held by an *associate entity of the entity to the extent to which it is calculated by reference to:

(a) a *TC direct control interest taken into account under paragraph 820-815(a) or (c); or

(b) a TC indirect control interest taken into account under paragraph 820-815(b) or (d).

820-820(3A)    

Subsection (3) does not apply to an *associate entity of the entity if:

(a) the associate entity is a *foreign entity and the associate entity is such an associate entity only because of subsection 820-905(3A) ; or

(b) the associate entity is such an associate entity only because of subsection 820-905(3B) .

820-820(4)    
Take into account only one of the following things if both would otherwise be counted in calculating the *TC control interest:

(a) the holding of a *TC direct control interest by the entity or any other entity;

(b) an entitlement to acquire that TC direct control interest.

820-820(5)    
The operation of this section in relation to an entity does not prevent the operation of section 820-825 in relation to a group of entities that includes that entity.

SECTION 820-825   Special rules about calculating TC control interests held by a group of entities  

820-825(1)    
This section applies for the purposes of calculating the total *TC control interests that a group of entities holds in a company, trust or partnership.

820-825(2)    

Take into account a particular *TC direct control interest or *TC indirect control interest only once if it would otherwise be counted more than once because the entity holding it is an *associate entity of one or more entities in the group.

820-825(2A)    

Subsection (2) does not apply to an *associate entity of one or more entities in the group if:

(a) the associate entity is a *foreign entity and the associate entity is such an associate entity only because of subsection 820-905(3A) ; or

(b) the associate entity is such an associate entity only because of subsection 820-905(3B) .

820-825(3)    
Take into account only one of the following things if both of them would otherwise be counted in calculating the total *TC control interests:

(a) the holding of a *TC direct control interest by an entity;

(b) an entitlement to acquire that TC direct control interest.

820-825(4)    
The operation of this section in relation to a group of entities does not prevent the operation of section 820-820 in relation to an entity that is a member of that group.

SECTION 820-830   Special rules about determining percentage of TC control interest  

820-830(1)    
This section applies for the purposes of determining whether an entity, or a group of entities, holds at least a particular percentage of *TC control interests for the purposes of a provision in this Subdivision.

820-830(2)    
If, apart from this subsection, an entity, or each of 2 or more entities, would hold a *TC direct control interest equal to 100%, or a *TC control tracing interest equal to 100%, in another entity (the controlled entity ):

(a) only the entity, or one of the 2 or more entities, is to be taken to hold that particular interest in the controlled entity equal to 100%; and

(b) another entity is not to be taken to hold that particular interest in the controlled entity (whether or not it would, apart from this subsection, hold that interest in the controlled entity equal to 100%).

SECTION 820-835  

820-835   Commissioner ' s power  

For the purposes of this Subdivision, the Commissioner may decide:

(a) which one of 2 things is to be taken into account for the purposes of subsection 820-820(4) or subsection 820-825(3) ; or

(b) which one of 2 or more entities is to be chosen for the purposes of paragraph 820-830(2)(a) .

TC direct control interest, TC indirect control interest and TC control tracing interest

SECTION 820-855   TC direct control interest in a company  

820-855(1)    
A thin capitalisation direct control interest (or a TC direct control interest ) that an entity holds in a company (except a *corporate limited partnership) at a particular time is the percentage of the direct control interest (if any) that the entity holds in the company at that time under the provisions applied by subsection (2).

Note:

For the TC direct control interest that an entity holds in a corporate limited partnership, see section 820-865 .

820-855(2)    
For the purposes of subsection (1), provisions of Part X of the Income Tax Assessment Act 1936 are applied with the modifications set out in the following table.

Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item	Provisions	Modifications
1	Section 350 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section)	The section applies for the purposes of this Subdivision rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2	Subsections 350(6) and (7)	If section 350 is used for the purposes of determining whether or not a company is a *foreign controlled Australian company, the subsections apply as if subsection (6) referred to *foreign entities and foreign entity rather than *Australian entities and Australian entity
		If section 350 is used for the purposes of determining whether or not an entity is an *Australian controller of a *controlled foreign company, the subsections do not apply
3	Section 350	A reference to an *associate is taken to be a reference to an *associate entity

SECTION 820-860   TC direct control interest in a trust  

820-860(1)    
A thin capitalisation direct control interest (or a TC direct control interest ) that an entity holds in a trust at a particular time is the percentage of the direct control interest (if any) that the entity holds in the trust at that time under the provisions applied by subsection (2).

820-860(2)    
For the purposes of subsection (1), provisions of Part X of the Income Tax Assessment Act 1936 are applied with the modifications set out in the following table.

Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item	Provisions	Modifications
1	Section 351 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section)	The section applies for the purposes of this Subdivision rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2	Subsections 351(3) and (4)	The subsections do not apply

820-860(3)    
In addition, for the purposes of determining whether or not an entity (other than a trust mentioned in paragraph (a) or (b)) is a *foreign controlled Australian entity:

(a) if a trust is covered by paragraph 820-790(1)(c) - a foreign entity that is an object of the trust at a particular time is taken to hold, at that time, a TC direct control interest in the trust that is equal to 100%; and

(b) if a trust is covered by paragraph 820-790(1)(d) - a foreign entity that is in a position to control the trust at a particular time is taken to hold, at that time, a *TC direct control interest in the trust that is equal to 100%.

Note:

The foreign entity therefore holds a TC control tracing interest in the trust (see section 820-875 ). That interest may then be taken into account in calculating any TC indirect control interest that the foreign entity holds in another entity in relation to which the trust is an interposed entity (see section 820-870 ). As a result, that other entity may become a foreign controlled Australian entity.

SECTION 820-865  

820-865   TC direct control interest in a partnership  

A thin capitalisation direct control interest (or a TC direct control interest ) that an entity holds in a partnership at a particular time is whichever of the following percentages is applicable, and if there are 2 or more such percentages, the greatest of them:

(a) in the case of a *corporate limited partnership - 100% if the entity is a *general partner of the partnership;

(b) in the case of a partnership that is not a corporate limited partnership - the percentage of the control of voting power in the partnership that the entity has at that time;

(c) in any case - the percentage that the entity holds, or is entitled to acquire, at that time, of any of the following:

(i) the total amount of assets or capital contributed to the partnership;

(ii) the total rights of partners to distributions of capital, assets or profits on the dissolution of the partnership;

(iii) the total rights of partners to distributions of capital, assets or profits otherwise than on the dissolution of the partnership.

SECTION 820-870   TC indirect control interest in a company, trust or partnership  

What is a TC indirect control interest?

820-870(1)    
An entity holds a thin capitalisation indirect control interest (or a TC indirect control interest ) in a company, trust or partnership at a particular time if, and only if:

(a) there is an interposed entity, or a continuous series of at least 2 interposed entities, between that entity and the company, trust or partnership; and

(b) the interposed entity, or each of the interposed entities, is:

(i) a *foreign controlled Australian entity if this section is used for the purposes of determining whether or not an entity is a foreign controlled Australian entity; or

(ii) an *Australian controlled foreign entity if this section is used for the purposes of determining whether or not an entity is an Australian controlled foreign entity or an *Australian controller of such an entity.

Note:

In the case of a continuous series of interposed entities between an entity and a company, trust or partnership, the entity must hold a TC control tracing interest in the first interposed entity (see subsection (2)). In addition, under subsection (2), each interposed entity in the series must hold a TC control tracing interest in the next interposed entity (except in the case of the last one, which holds a TC control tracing interest in the company, trust or partnership).

What is an interposed entity?

820-870(2)    
For the purposes of this section, an entity (the middle entity ) is interposed between 2 other entities at a particular time if, and only if, at that time:

(a) the first of those 2 entities holds a *TC control tracing interest in the middle entity; and

(b) the middle entity holds a TC control tracing interest in the second of those 2 entities.

Note:

For the rules about a TC control tracing interest, see section 820-875 .

How to calculate a TC indirect control interest

820-870(3)    
The *TC indirect control interest that an entity (the top entity ) holds in a company, trust or partnership at a particular time is calculated in accordance with subsection (4), (5) or (6) (as appropriate).

One interposed entity only

820-870(4)    
The *TC indirect control interest is the result of applying the following method statement if there is only one interposed entity between the top entity and the company, trust or partnership at that time. Method statement

2 interposed entities

820-870(5)    
The *TC indirect control interest is the result of applying the following method statement if there are 2 interposed entities between the top entity and the company, trust or partnership at that time. Method statement

More than 2 interposed entities

820-870(6)    
The *TC indirect control interest is the result of applying the following method statement if there are more than 2 interposed entities between the top entity and the company, trust or partnership at that time. Method statement

SECTION 820-875   TC control tracing interest in a company, trust or partnership  

820-875(1)    
A thin capitalisation control tracing interest (or a TC control tracing interest ) that an entity holds in a company, trust or a partnership at a particular time is equal to the *TC direct control interest in the company, trust or partnership that the entity holds at that time.

820-875(2)    
Despite subsection (1), an entity is taken to hold a *TC control tracing interest in a company, trust or partnership that is equal to 100% at a particular time if, at that time:

(a) the entity and its *associate entities hold a total of *TC direct control interests in the company, trust or partnership that is 50% or more; or

(b) the following subparagraphs apply:

(i) the entity (the controlling entity ) and its associate entities hold a total of TC direct control interests that is 40% or more in the company, trust or partnership;

(ii) no other entity or entities (except the controlling entity, its associate entities or entities including the controlling entity or its associate entities) control the company, trust or partnership; or

(c) the entity (whether or not together with associate entities) controls the company, trust or partnership.

820-875(3)    
Paragraph (2)(b) does not apply if the *TC direct control interests mentioned in subparagraph (2)(b)(i) are held in a *corporate limited partnership.

Subdivision 820-HA - Controlled foreign entity debt and controlled foreign entity equity  

SECTION 820-880   What this Subdivision is about  

SECTION 820-881  

820-881   Application  

This Subdivision applies to:

(a)    

an entity (the relevant entity ) that is a *general class investor, an *outward investing entity (non-ADI), or an *outward investing entity (ADI), for a period (the relevant period ) that is all or a part of an income year; and

(b)    each entity ( controlled entity of the relevant entity ) that is an *Australian controlled foreign entity of which:

(i) the relevant entity is an *Australian controller; or

(ii) an *associate entity of the relevant entity is an Australian controller.

SECTION 820-885   What is controlled foreign entity debt ?  

820-885(1)    
The relevant entity's controlled foreign entity debt at a particular time during the relevant period is the total value of all the *debt interests held by the relevant entity at that time that satisfy all of the following:

(a) the interests are *on issue at that time;

(b) each of the interests was *issued by an entity that is a controlled entity of the relevant entity at that time;

(c) each of the interests gives rise to a cost, at any time, that is covered by paragraph 820-40(1)(a) .

820-885(2)    
For the purposes of subsection (1), take into account the value of a *debt interest issued by a controlled entity of the relevant entity only to the extent that the interest is not attributable to any of the following assets that are held by the controlled entity throughout the relevant period:

(a) assets attributable to the controlled entity's *Australian permanent establishments;

(b) other assets that are held by the controlled entity for the purposes of producing assessable income of the controlled entity.

SECTION 820-890   What is controlled foreign entity equity ?  

820-890(1)    
The relevant entity's controlled foreign entity equity at a particular time during the relevant period is the total value of:

(a) all the *equity interests that the entity holds, at that time, in entities that are controlled entities of the relevant entity at that time; and

(b) all the *debt interests *on issue and held by the entity at that time that satisfy both of the following:

(i) the interests were *issued by entities that are controlled entities of the relevant entity at that time;

(ii) none of the interests gives rise to any cost, at any time, that is covered by paragraph 820-40(1)(a) .

820-890(2)    
For the purposes of subsection (1), take into account the value of an *equity interest in, or a *debt interest issued by, a controlled entity of the relevant entity only to the extent that the interest is not attributable to any of the following assets that are held by the controlled entity throughout the relevant period:

(a) assets attributable to the controlled entity's *Australian permanent establishments;

(b) other assets that are held by the controlled entity for the purposes of producing assessable income of the controlled entity.

Subdivision 820-I - Associate entities  

SECTION 820-900   What this Subdivision is about  

SECTION 820-905   Associate entity  

Meaning of associate entity

820-905(1)    
An entity (the first entity ) that is not an individual is an associate entity of another entity at a particular time if, at that time, the first entity is an *associate of that other entity and at least one of the following paragraphs applies:

(a)    that other entity holds an *associate interest of 50% or more in the first entity (see subsections (4) to (8) );

(b)    the first entity is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of that other entity in relation to:

(i) the distribution or retention of the first entity ' s profits; or

(ii) the financial policies relating to the first entity ' s assets, *debt capital or *equity capital;

whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed entities.

However, this subsection does not apply to the first entity in its capacity as the *responsible entity of a *registered scheme (see subsection (2A) ).

820-905(1A)    

Subsection (1) does not apply if the other entity is any of the following:

(a)    a trustee of a * complying superannuation entity (other than a * self managed superannuation fund);

(b)    *wholly-owned subsidiary of a complying superannuation entity (other than a self managed superannuation fund).

820-905(2)    
An entity (the first entity ) that is an individual is an associate entity of another entity at a particular time if, at that time:

(a)    the first entity is an *associate of that other entity; and

(b)    the first entity:

(i) is accustomed or under an obligation (whether formal or informal); or

(ii) might reasonably be expected;

to act in accordance with the directions, instructions or wishes of that other entity in relation to the first entity ' s financial affairs, whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed entities.

820-905(2A)    
An entity (the first entity ), in its capacity as the *responsible entity of a *registered scheme at a particular time, is an associate entity of another entity at that time if the first entity, in that capacity, is an *associate of that other entity at that time and at least one of the following paragraphs applies at that time:

(a)    that other entity holds an *associate interest of 50% or more in the registered scheme (see subsections (4) to (8) );

(b)    that other entity holds an associate interest of 20% or more in the registered scheme and the first entity, in that capacity, is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of that other entity in relation to:

(i) the distribution or retention of the profits of the registered scheme; or

(ii) the financial policies relating to the assets, *debt capital or *equity capital of the registered scheme;

whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed entities.

Note:

The first entity, in another capacity, may also be an associate entity of an entity under another provision of this section (see also section 960-100 ).

820-905(2B)    

For the purposes of Subdivision 820-AA , and of sections 820-910 , 820-915 and 820-920 , if the first entity mentioned in subsection (1) or (2A) is a trust (other than a *public trading trust) or a partnership:

(a)    treat the reference in paragraph (1)(a) or (2A)(a) to 50% as instead being a reference to 10%; and

(b)    if subsection (2C) applies - treat the other entity mentioned in subsection (1) or (2A) as holding an *associate interest in the first entity mentioned in that subsection of 10%; and

(c)    disregard subsection 318(5) of the Income Tax Assessment Act 1936 ; and

(d)    if subsection (2D) applies - in determining whether an entity is an *associate of another entity, treat the benefiting entity mentioned in that subsection as being a partner in the partnership.

820-905(2C)    

This subsection applies if:

(a)    the other entity mentioned in subsection (1) or (2A) holds an *associate interest in the first entity mentioned in that subsection of less than 10%; and

(b)    it is reasonable to conclude that the entity, or one of the entities, who created the circumstance described in paragraph (a) of this subsection did so for the principal purpose of, or for more than one principal purpose that included the purpose of, ensuring that the first entity will not be an *associate entity of the other entity.

820-905(2D)    

This subsection applies if:

(a)    a trust (other than a *public trading trust) is a partner in a partnership; and

(b)    another entity (the benefiting entity ) benefits under the trust (as determined in accordance with paragraph 318(6)(a) of the Income Tax Assessment Act 1936 ).

820-905(3)    
Subsection (1) or (2A) also has effect as if the first entity satisfies paragraph (b) of that subsection at a particular time if any of the following is expected to act in the manner mentioned in that paragraph at that time:

(a)    a director of the first entity if it is a company;

(b)    a partner of the first entity if it is a partnership;

(c)    the *general partner of the first entity if it is a *corporate limited partnership;

(d)    the trustee of the first entity if it is a trust;

(e)    a member of the first entity ' s committee of management if it is an unincorporated association or body.

820-905(3A)    
If:

(a)    an entity (the first entity ) is an *associate entity of another entity (the head entity ) under subsection (1) , (2) , (2A) or (3) at a particular time; and

(b)    a third entity is also an associate entity of the head entity under subsection (1) , (2) , (2A) or (3) at that time;

the first entity is an associate entity of the third entity at that time.

820-905(3B)    
If an entity (the first entity ) is an *associate entity of another entity under subsection (1) , (2) , (2A) , (3) or (3A) at a particular time, that other entity is also an associate entity of the first entity at that time.

820-905(3C)    
However, an entity in its capacity as the *responsible entity of a *registered scheme (the responsible entity ) is not an *associate entity of another entity under subsection (3B) at a particular time if, at that time, the responsible entity:

(a)    would be an associate entity of that other entity under subsection (3B) (apart from the effect of this subsection); but

(b)    is not an associate entity of that other entity under subsection (2A) .

Associate interest in a company (except a corporate limited partnership)

820-905(4)    
An associate interest that an entity holds in a company (except a *corporate limited partnership) at a particular time is the percentage of the direct control interest (if any) that the entity holds in the company at that time under the provisions applied by subsection (5) .

820-905(5)    
For the purposes of subsection (4) , provisions of Part X of the Income Tax Assessment Act 1936 are applied with the modifications set out in the following table:

Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item	Provisions	Modifications
1	Section 350 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section)	The section applies for the purposes of this subsection rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2	Subsections 350(6) and (7)	The subsections do not apply

Associate interest in a trust

820-905(6)    
An associate interest that an entity holds in a trust at a particular time is the percentage of the direct control interest (if any) that the entity holds in the trust at that time under the provisions applied by subsection (7) .

820-905(7)    
For the purposes of subsection (6) , provisions of Part X of the Income Tax Assessment Act 1936 are applied with the modifications set out in the following table:

Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item	Provisions	Modifications
1	Section 351 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section)	The section applies for the purposes of this subsection rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2	Subsections 351(3) and (4)	The subsections do not apply

Associate interest in a partnership

820-905(8)    
An associate interest that an entity holds in a partnership at a particular time is whichever of the following percentages is applicable, and if there are 2 or more such percentages, the greatest of them:

(a)    in the case of a *corporate limited partnership - 100% if the entity is a *general partner of the partnership;

(b)    in the case of a partnership that is not a corporate limited partnership - the percentage of the control of voting power in the partnership that the entity has at that time;

(c)    in any other case - the percentage that the entity holds, oris entitled to acquire, at that time, of any of the following:

(i) the total amount of assets or capital contributed to the partnership;

(ii) the total rights of partners to distributions of capital, assets or profits on the dissolution of the partnership;

(iii) the total rights of partners to distributions of capital, assets or profits otherwise than on the dissolution of the partnership.

SECTION 820-910   Associate entity debt  

820-910(1)    

This section applies to an entity (the relevant entity ) that is a *general class investor, an *outward investing financial entity (non-ADI), or an *inward investing financial entity (non-ADI), for a period (the relevant period ) that is all or a part of an income year.

820-910(2)    

This section also applies, for the relevant entity, to an *associate entity (a relevant associate entity ) of the relevant entity, if:

(a)    

either:

(i) the associate entity is an *outward investing financial entity (non-ADI) or an *inward investment vehicle (financial), for the relevant period; or

(ii) the associate entity is an *inward investor (financial) for the relevant period, and the condition in subsection (2A) of this section is satisfied; and

(b)    

neither section 820-35 ($2 million debt deductions threshold) nor section 820-37 (exemption for entity with 90% Australian assets) prevents Subdivision 820-B , 820-C , 820-D or 820-E from disallowing any *debt deduction of the relevant associate entity for the income year; and

(c)    for some or all of the relevant period, the relevant associate entity does not meet the conditions in subsection 820-39(3) (about exemption of certain special purpose entities); and

(d)    the relevant associate entity is not an *exempt entity for the income year.

820-910(2A)    

The condition referred to in subparagraph (2)(a)(ii) is that the relevant period consists of one or more periods each of which is either or both of these:

(a)    a period throughout which the *associate entity carries on its *business in Australia at or through one or more of its *Australian permanent establishments;

(b)    a period throughout which the associate entity holds any of the following assets:

(i) assets that are attributable to the associate entity ' s Australian permanent establishments;

(ii) other assets that are held for the purposes of producing the associate entity ' s assessable income.

820-910(3)    
The relevant entity ' s associate entity debt at a particular time during the relevant period is the total value of all the *debt interests held by the relevant entity at that time that satisfy all of the following:

(a)    the interests are *on issue at that time;

(b)    each of the interests was *issued by a relevant associate entity;

(c)    each of the interests gives rise to costs:

(i) that are *debt deductions, for an income year, of the relevant associate entity that issued the interest; and

(ii) to the extent that the costs are not amounts mentioned in paragraph 820-40(2)(c) and are costs ordinarily payable to an entity other than the relevant entity - that are assessable income of the relevant entity for an income year;

(d)    

the terms and conditions for each of the interests are those that would apply if the relevant entity and the relevant associate entity that issued the interest were dealing at *arm' s length with each other.

820-910(4)    
For the purposes of subsection (3) , take into account the value of a *debt interest issued by a *foreign entity only to the extent that the interest is attributable to any of the following assets that are held by the foreign entity throughout the relevant period:

(a)    assets that are attributable to the foreign entity ' s *Australian permanent establishments;

(b)    other assets held by the foreign entity for the purposes of producing the foreign entity ' s assessable income.

SECTION 820-915   Associate entity equity  

820-915(1)    

This section applies to an entity (the relevant entity ) that is an *outward investing financial entity (non-ADI) or an *inward investing financial entity (non-ADI) for a period (the relevant period ) that is all or a part of an income year.

820-915(2)    
This section also applies, for the relevant entity, to each entity ( relevant associate entity ) that is an *associate entity of the relevant entity and that is:

(a)    an *Australian entity; or

(b)    a *foreign entity that, throughout the relevant period, holds any of the following assets:

(i) assets that are attributable to the foreign entity ' s *Australian permanent establishments;

(ii) other assets that are held for the purposes of producing the foreign entity ' s assessable income.

820-915(3)    
The relevant entity ' s associate entity equity at a particular time during the relevant period is the total value of:

(a)    all the *equity interests that the entity holds, at that time, in relevant associate entities; and

(b)    all the *debt interests *on issue and held by the relevant entity at that time that satisfy all of the following:

(i) the interests were *issued by relevant associate entities;

(ii) neither the value of each of the interests, nor any part of that value, is all or a part of any *cost-free debt capital of the issuer of the interest at that time;

(iii) none of the interests gives rise to any cost, at any time, that is covered by paragraph 820-40(1)(a) ; and

(c)    all the debt interests on issue and held by the relevant entity at that time that satisfy both of the following:

(i) the interests were issued by relevant associate entities;

(ii) each of the interests gives rise to a cost, at any time, that is covered by paragraph 820-40(1)(a) , but the cost is not deductible from the assessable income of the issuer of the interest for any income year.

820-915(4)    
For the purposes of subsection (3) , take into account the value of an *equity interest in, or a *debt interest issued by, a *foreign entity only to the extent that the interest is attributable to assets covered by subparagraph (2)(b)(i) or (ii) that are held by the foreign entity throughout the relevant period.

SECTION 820-920   Associate entity excess amount  

820-920(1)    

This section applies to an entity (the relevant entity ) that is an *outward investing financial entity (non-ADI) or an *inward investing financial entity (non-ADI) for a period that is all or a part of an income year.

820-920(2)    

The relevant entity ' s associate entity excess amount at a particular time during that period is the result of applying the method statement in this subsection. Method statement

820-920(3)    

An *associate entity ' s premium excess amount at a particular time during that period is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to an entity ' s *overseas permanent establishments if it is an *outward investing financial entity (non-ADI) at that time. Method statement

820-920(4)    

The *associate entity ' s attributable safe harbour excess amount at a particular time during that period is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to an entity ' s *overseas permanent establishments if it is an *outward investing financial entity (non-ADI) at that time. Method statement

820-920(5)    

For the purposes of the method statement in subsection (4) , this subsection covers a *debt interest at a particular time if the interest satisfies all of the following:

(a)    the interest is *on issue at that time;

(b)    neither the value of the interest, nor any part of that value, is all or a part of any *cost-free debt capital of the issuer of the interest at that time;

(c)    the interest does not give rise to any cost, at any time, that is covered by paragraph 820-40(1)(a) .

820-920(6)    

For the purposes of the method statement in subsection (4) , this subsection covers a *debt interest at a particular time if the interest satisfies both of the following:

(a)    the interest is *on issue at that time;

(b)    the interest gives rise to a cost, at any time, that is covered by paragraph 820-40(1)(a) , but the cost is not deductible from the assessable income of the issuer of the interest for any income year.

Subdivision 820-J - Equity interest in a trust or partnership  

SECTION 820-925   What this Subdivision is about  

SECTION 820-930   Equity interest in a trust or partnership  

Application of provisions

820-930(1)    

For the purposes of this Division and Division 230 , an equity interest in an entity that is a trust or partnership has the meaning given by the provisions in Division 974 that are applied with the following modifications:

Modifications of Division 974
Item	Provisions	Modifications
1	Subdivisions 974-C and 974-D	A reference in those provisions to a company is taken to be a reference to an entity that is a trust or a partnership
2	Subdivisions 974-C and 974-D	A reference in those provisions to the equity test in subsection 974-75(1) is taken to be a reference to the equity test in subsection (2) of this section
3	Section 974-75	The section does not apply and subsections (2) to (4) of this section apply instead
4	Section 974-80	The example does not apply
5	Section 974-95	A reference in those provisions to the table in subsection 974-75(1) is taken to be a reference to the table in subsection (2) of this section
6	Subsection 974-95(4)	The subsection does not apply
7	Subdivision 974-F	The Subdivision applies for the purposes of this section
8	Subdivisions 974-C, 974-D and 974-F	A reference in those provisions to the regulations is taken to be a reference to the regulations made under the provisions applied by this subsection

Note:

An interest that satisfies both the equity test and the debt test set out in Subdivision 974-B is treated as a debt interest and not an equity interest (see that Subdivision in conjunction with the provisions applied by subsection (1)).

Equity tests

820-930(2)    

A *scheme satisfies the equity test in this subsection in relation to an entity that is a trust or partnership if the scheme gives rise to an interest set out in the following table:

Equity interests
Item	Interest
1	In the case of a trust, an interest as a beneficiary of the trust
	In the case of a partnership, an interest as a partner in the partnership
2	An interest that carries a right to a variable or fixed return from the entity if either the right itself, or the amount of the return, is in substance or effect *contingent on aspects of the economic performance (whether past, current or future) of:
	(a)	the entity; or
	(b)	a part of the entity ' s activities; or
	(c)	an *associate of the entity or a part of the activities of an associate of the entity
	The return may be a return of an amount invested in the interest
3	An interest that carries a right to a variable or fixed return from the entity if either the right itself, or the amount of the return, is at the discretion of:
	(a)	the entity; or
	(b)	an *associate of the entity
	The return may be a return of an amount invested in the interest
4	An *interest issued by the entity that:
	(a)	gives its holder (or an *associate of the holder) a right to be issued with an *equity interest in the entity or an associate of the entity; or
	(b)	is an interest that will, or may, convert into an equity interest in the entity or an associate of the entity

This subsection has effect subject to subsection (3) (requirement for financing arrangement).

Note:

Section 974-90 as applied by subsection (1) allows regulations to be made clarifying when a right or return is taken to be at the discretion of an entity or an associate.

Financing arrangement

820-930(3)    
A *scheme that would otherwise give rise to an *equity interest in an entity that is a trust or partnership because of an item in the table in subsection (2) (other than item 1) does not give rise to an equity interest in the entity unless the scheme is a *financing arrangement (see section 974-130 as applied by this section) for the trust or partnership.

Form interest may take

820-930(4)    
The interest referred to in item 2, 3 or 4 in the table in subsection (2) may take the form of a proprietary right, a chose in action or any other form.

Regulations

820-930(5)    
Subject to regulations made under subsection (6), the regulations made under Subdivisions 974-C , 974-D and 974-F are applied for the purposes of this section as if they were regulations made under the provisions applied by subsection (1).

820-930(6)    
Regulations may be made under the provisions applied by subsection (1) specifically in relation to:

(a) an *equity interest in a trust; or

(b) an equity interest in a partnership.

Subdivision 820-JA - Worldwide debt and equity concepts  

SECTION 820-931   What this Subdivision is about  

Operative provisions

SECTION 820-932   Worldwide debt and worldwide equity  

Worldwide debt

820-932(1)    
An entity ' s worldwide debt at a particular time, means the total of the following amounts:

(a) all the *debt interests issued by the entity:

(i) to entities other than any *Australian controlled foreign entities (the controlled entities ) of which the entity is an *Australian controller at that time; and

(ii) that are still *on issue at that time;

(b) all the debt interests issued by the controlled entities:

(i) to entities other than the entity or other controlled entities; and

(ii) that are still on issue at that time.

Worldwide equity

820-932(2)    
An entity ' s worldwide equity at a particular time, means the total of the following amounts:

(a) all the *equity capital of the entity as at that time, but worked out disregarding *equity interests in the entity held at that time by *Australian controlled foreign entities (the controlled entities ) of which the entity is an *Australian controller at that time;

(b) all the equity capital of the controlled entities as at that time, but worked out disregarding equity interests in the controlled entities held at that time by:

(i) the entity; or

(ii) other controlled entities.

SECTION 820-933   Statement worldwide debt, statement worldwide equity and statement worldwide assets  

Statement worldwide debt

820-933(1)    
An entity ' s statement worldwide debt for a period is the amount (see subsection (4)) of liabilities for the entity for the period, reduced (but not below zero) by the sum of the following amounts (see subsection (4)) for the entity for the period:

(a) provisions;

(b) liabilities in relation to distributions to equity participants;

(c) trade payables;

(d) deferred tax liabilities;

(e) liabilities relating to employee benefits;

(f) current tax liabilities;

(g) deferred revenue;

(h) liabilities relating to insurance;

(i) any other amount specified in a legislative instrument under subsection (5).

Statement worldwide equity

820-933(2)    
An entity ' s statement worldwide equity for a period means the amount (see subsection (4)) of net assets for the entity for the period.

Statement worldwide assets

820-933(3)    
An entity ' s statement worldwide assets for a period means the amount (see subsection (4)) of assets for the entity for the period.

Amounts from audited consolidated financial statements to be used

820-933(4)    
For the purposes of this section:

(a) an amount for an entity for a period is taken to be that amount as shown in the *audited consolidated financial statements for the entity for the period; and

(b) sections 820-680 and 820-682 do not apply.

Other amounts

820-933(5)    
The Minister may, by legislative instrument, specify one or more amounts for the purposes of paragraph (1)(i).

SECTION 820-935   Meaning of audited consolidated financial statements  

820-935(1)    
Audited consolidated financial statements for an entity for a period are:

(a) the financial statements that meet the requirements in subsection (2) for the entity for the period; or

(b) if more than one set of financial statements meet the requirements in subsection (2) for the entity for the period - whichever of those sets of financial statements the entity chooses.

820-935(2)    
Financial statements meet the requirements in this subsection for an entity for a period (the relevant period ) if:

(a) the statements have been prepared on a consolidated basis in relation to the entity and one or more other entities in accordance with standards covered by subsection (3) or (4) (the recognised overseas accounting standards ); and

(b) one of the entities is a worldwide parent entity mentioned in subsection (6); and

(c) the statements show the amounts mentioned in subsections 820-933(1) , (2) and (3) (however described) on that consolidated basis and in accordance with those standards; and

(d) the statements have been audited (and the auditor ' s report is unqualified) in accordance with a requirement in the law of:

(i) a foreign jurisdiction mentioned in subsection (3) of this section; or

(ii) another jurisdiction that has adopted the standards mentioned in subsection (4); and

(e) the statements are for the most recent period ending:

(i) no later than the end of the relevant period; and

(ii) no earlier than 12 months before the start of the relevant period.

Recognised overseas accounting standards

820-935(3)    
This subsection covers the standards (however described) that apply to the preparation of financial statements and are made, or adopted, by the responsible body in any of the following (a foreign jurisdiction ):

(a) the European Union;

(aa) the United Kingdom;

(b) the United States of America;

(c) Canada;

(d) Japan;

(e) New Zealand;

(f) a jurisdiction specified in an instrument under subsection (5).

820-935(4)    
This subsection covers the international financial reporting standards that are made or adopted by the International Accounting Standards Board.

820-935(5)    
The Minister may, by legislative instrument, specify one or more jurisdictions for the purposes of paragraph (3)(f).

Worldwide parent entity

820-935(6)    
For the purposes of paragraph (2)(b), an entity in relation to which financial statements have been prepared is a worldwide parent entity if, for the purposes of the standards in accordance with which the statements were prepared, the entity is not controlled by another entity.

Subdivision 820-K - Zero-capital amount  

SECTION 820-940   What this Subdivision is about  

SECTION 820-942   How to work out the zero-capital amount  

820-942(1)    

An entity ' s zero-capital amount at a particular time is the result of the method statement in this subsection. Method statement

820-942(2A)    

This subsection covers an asset that:

(a) the entity provided as security for the performance of its obligations in relation to securities it acquired under a reciprocal purchase agreement (otherwise known as a repurchase agreement), sell-buyback arrangement or securities loan arrangement; and

(b) does not consist of *shares.

Securitisation vehicle

820-942(2)    
An entity is a securitisation vehicle if:

(a) it is an entity established for the purposes of acquiring, funding and holding *securitised assets (see subsection (3)); and

(b) it has acquired the securitised assets from another entity (the originator ); and

(c) the acquisition of the securitised assets is wholly funded by the issuing of *debt interests by the entity; and

(d) in issuing the debt interests, the entity does not receive any guarantee, security or other form of credit support from any of its *associate entities, the originator or any associate entity of the originator; and

(e) the entity has not issued debt interests for any purpose other than for the purpose of funding the acquisition of the securitised assets; and

(f) there are no debt interests issued to the entity by any of the entity ' s associate entities, the originator or any associate entity of the originator; and

(g) any *arrangements the entity has with any of its associate entities, the originator or any associate entity of the originator are those that would reasonably be expected to have been entered into by parties dealing at *arm ' s length with each other.

Note:

An entity that does not qualify as a securitisation vehicle may be exempt from the thin capitalisation rules under section 820-39 .

Securitised assets

820-942(3)    
An asset of an entity is a securitised asset if:

(a) the entity is a *securitisation vehicle; and

(b) the asset consists of:

(i) *debt interests issued by an entity other than the originator in relation to the securitisation vehicle that is mentioned in paragraph (2)(b); or

(ii) a lease for the hire of goods that would be a lease covered by paragraph (b) of the definition of on-lent amount if a reference to an entity in that definition were a reference to that originator; or

(iii)a *scheme that, apart from the operation of paragraph 974-25(1)(b) , would have given rise to a debt interest covered by subparagraph (i); and

(c) the asset provides security for the issuing of debt interests that funded the acquisition of the asset by the securitisation vehicle (see paragraph (2)(c)).

What is the required credit rating?

820-942(4)    
For the purposes of step 2 of the method statement in subsection (1), the required credit rating for an entity issuing a *debt interest is:

(a) if the interest is a *subordinated debt interest - a long-term foreign currency corporate credit rating of at least A (or equivalent) given to the entity by an internationally recognised rating agency; or

(b) if the interest is not a subordinated debt interest - a long-term foreign currency corporate credit rating of at least BBB (or equivalent) given to the entity by an internationally recognised rating agency.

When must an entity have the required credit rating

820-942(5)    
The entity must have the required credit rating as specified in any of the following paragraphs:

(a) the entity had the required credit rating for the *debt interest when the interest was issued;

(b) the following subparagraphs apply:

(i) the entity did not have any long-term foreign currency corporate credit rating given to it by an internationally recognised rating agency when the debt interest was issued; but

(ii) the entity had the required credit rating for that interest at any time during the period of 6 months immediately before the interest was issued;

(c) the following subparagraphs apply:

(i) when the debt interest was issued, and throughout the period of 6 months immediately before the interest was issued, the entity did not have any long-term foreign currency corporate credit rating given to it by an internationally recognised rating agency; but

(ii) the entity has the required credit rating for that interest at any time during the period of 6 months immediately after the interest was issued.

Subdivision 820-KA - Cost-free debt capital and excluded equity interests  

SECTION 820-945   What this Subdivision is about  

SECTION 820-946   Cost-free debt capital and excluded equity interest  

820-946(1)    

This subsection applies to an entity for a period (the relevant period ) that is all or a part of an income year if the entity satisfies all of the following:

(a)    

the entity is an *outward investing financial entity (non-ADI) or *inward investing financial entity (non-ADI) for that period;

(b)    if the entity is a *foreign entity - the entity holds any of the following assets throughout that period:

(i) assets that are attributable to the entity ' s *Australian permanent establishments;

(ii) other assets that are held for the purposes of producing the entity ' s assessable income;

(c)    

neither section 820-35 ($2 million debt deductions threshold) nor section 820-37 (exemption for entity with 90% Australian assets) prevents Subdivision 820-B , 820-C , 820-D or 820-E from disallowing any *debt deduction of the entity for the income year;

(da)    

for some or all of that period, the entity does not meet the conditions in subsection 820-39(3) (about exemption of certain special purpose entities);

(d)    the entity is not an *exempt entity for the income year.

Note:

Paragraph (c) corresponds to the threshold tests for this Division set out in sections 820-35 and 820-37 .

820-946(2)    
The cost-free debt capital of the entity at a particular time during the relevant period is the total value of all the *debt interests *issued by the entity that satisfy all of the following:

(a)    the interests are *on issue at that time;

(b)    none of the interests gives rise to any cost, at any time, that is covered by paragraph 820-40(1)(a) ;

(c)    each of the interests is covered by subsection (3) or (4) of this section at that time.

820-946(2A)    

An *equity interest in the entity is an excluded equity interest at a particular time during the relevant period if, and only if:

(a)    if subsection (1) does not apply to the holder of the interest for all or part of the relevant period:

(i) the entity is an *associate of the holder; and

(ii) at that time, the interest has been *on issue for a period of less than 180 days; or

(b)    if subsection (1) applies to the holder for all or part of the relevant period:

(i) the entity is an associate of the holder; and

(ii) at that time, the interest has been on issue for a period of less than 180 days; and

(iii) the interest is covered by subsection (3) at that time.

However, the interest is taken not to have been an excluded equity interest at the time if the total period for which the interest remains on issue is 180 days or more.

820-946(3)    

This subsection covers a *debt interest or *equity interest held by an entity (the holder ) at the particular time mentioned in subsection (2) or (2A) if:

(a)    subsection (1) also applies to the holder for a period (the overlapped period ) that is, or includes, all or a part of the relevant period; and

(b)    for the purposes of applying this Division to both the holder and the issuer of the interest (the issuer ), and in relation to only that part of the overlapped period that falls within the relevant period, either or both of the following apply:

(i) the *valuation days used to calculate the average value of the holder ' s assets are different from the valuation days used to calculate the issuer ' s *adjusted average debt;

(ii) the number of valuation days used to calculate the average value of the holder ' s assets are different from the number of valuation days used to calculate the issuer ' s adjusted average debt.

820-946(4)    

This subsection covers a *debt interest held by an entity (the holder ) at the particular time mentioned in subsection (2) if:

(a)    subsection (1) does not apply to the holder for a period that is, or includes, all or a part of the relevant period; and

(b)    at that time, the debt interest has been *on issue for a period of less than 180 days.

However, if the total period for which the interest remains on issue is 180 days or more, this subsection is taken not to have covered the interest at that time.

820-946(5)    
For the purposes of subsection (2) , take into account the value of a *debt interest issued by a *foreign entity only to the extent that the interest is attributable to assets covered by subparagraph (1)(b)(i) or (ii) that are held by the foreign entity throughout the relevant period.

Subdivision 820-L - Record keeping requirements  

SECTION 820-950   What this Subdivision is about  

Records about Australian permanent establishments

SECTION 820-960   Records about Australian permanent establishments  

820-960(1)    
If an entity:

(a)    

is an *inward investor (financial) or *inward investing entity (ADI), for all or a part of an income year; and

(b)    carries on its *business at or through one or more of its *Australian permanent establishments throughout that year; and

(c)    has total revenues attributable to those Australian permanent establishments for that year that are at least $2,000,000;

the entity must keep for that year the records for which subsection (1A) or (1B) provides.

Note:

A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section).

Australian accounting standards

820-960(1A)    
If the entity chooses this subsection, it must keep the following records for the *Australian permanent establishments:

(a)    a statement of financial position (within the meaning of the *accounting standards);

(b)    a statement of financial performance (within the meaning of those standards).

The statements must:

(c)    be prepared in accordance with the *accounting standards (in particular, but not limited to, accounting standards AASB 1001, AASB 1018 and AASB 1040); and

(d)    include all the notes required to accompany them under the standards.

Note:

For exemptions, see section 820-962 .

Overseas and international accounting standards

820-960(1B)    
If the entity chooses this subsection, it must keep for the *Australian permanent establishments the statements (however described) that, under standards covered by subsection (1C) or (1D) (the overseas or international accounting standards ), correspond to the statements referred to in subsection (1A) . The statements must:

(a)    be prepared in accordance with those standards; and

(b)    include all the notes required to accompany them under those standards.

820-960(1C)    
This subsection covers the standards (however described) that correspond to the *accounting standards and are made by the responsible body in:

(a)    the United Kingdom of Great Britain and Northern Ireland; or

(b)    the United States of America; or

(c)    Canada; or

(d)    New Zealand; or

(e)    Japan; or

(f)    the French Republic; or

(g)    the Federal Republic of Germany.

820-960(1D)    
This subsection covers the international accounting standards made or adopted by the International Accounting Standards Board.

Requirements for the records under subsection (1A) or (1B)

820-960(2)    
The entity must prepare the records for which subsection (1A) or (1B) provides:

(a)    

before the time by which the entity must lodge its *income tax return for the income year; and

(b)    as if:

(i) the *Australian permanent establishments were an entity (the notional entity ) for which those records would be required to be prepared under the *accounting standards or the overseas or international accounting standards, as appropriate; and

(ii) for the purposes of the statement of financial position or the corresponding statement, as appropriate - the assets, liabilities (including *debt capital) and *equity capital that are attributable to the Australian permanent establishments for that income year were assets, liabilities and equity of the notional entity for that year; and

(iii) for the purposes of the statement of financial performance or the corresponding statement, as appropriate - the revenues and expenses that are attributable to the Australian permanent establishments for that year were the revenues and expenses of the notional entity for that year; and

(iv) the *accounting standards, or the overseas or international accounting standards, as appropriate, referred to income years instead of financial years or the corresponding term in the overseas or international accounting standards.

Commissioner ' s power to exempt from complying with Australian accounting standards

820-960(4)    
(Repealed by No 64 of 2020)

820-960(5)    
(Repealed by No 64 of 2020)

Excluding Australian permanent establishments not covered by applicable double tax treaty

820-960(6)    
An entity need not comply with this section for an income year in relation to an *Australian permanent establishment if:

(a)    throughout that year, the entity was, for the purposes of a double tax agreement (within the meaning of Part X of the Income Tax Assessment Act 1936 ) in relation to a foreign country, a resident of that foreign country (even if the entity was also an Australian resident or a resident of another foreign country); and

(b)    throughout the period during that year when the entity was carrying on its *business at or through that Australian permanent establishment, the Australian permanent establishment was not a permanent establishment within the meaning of that double tax agreement.

SECTION 820-962   Records about Australian permanent establishments - exemptions from Australian accounting standards  
General exemption

820-962(1)    
The Commissioner may, by legislative instrument, exempt, for the purposes of subsection 820-960(1A) , a specified class of entities from the requirement to comply with all or part of the *accounting standards for one or more income years if the Commissioner is satisfied that it would be unreasonable for the entities in that class be required to so comply.

Note:

The Commissioner ' s power under this subsection does not extend to the overseas or international accounting standards.

Application for specific exemption

820-962(2)    
An entity (the applicant ) may apply to the Commissioner, in the *approved form, for an exemption from the requirement to comply with all or part of the *accounting standards for one or more income years for the purposes of subsection 820-960(1A) .

820-962(3)    
The Commissioner may grant the exemption in whole or in part if the Commissioner is satisfied that it would be unreasonable for the applicant to be required to so comply.

Note:

The Commissioner ' s power under this subsection does not extend to the overseas or international accounting standards.

820-962(4)    
The Commissioner must give the applicant written notice if the Commissioner:

(a) grants the exemption; or

(b) refuses to grant the exemption.

820-962(5)    
The Commissioner is taken to have refused to grant the exemption if the Commissioner fails to give the applicant a notice under subsection (4) within 60 daysafter the application is made.

820-962(6)    
A notice under subsection (4) is not a legislative instrument.

SECTION 820-965  

820-965   Review of Commissioner ' s decision  

A person who is dissatisfied with a decision of the Commissioner under subsection 820-962(3) may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953 .

Records about arm's length amounts

SECTION 820-980   Records about arm ' s length capital amount  

820-980(1)    

An entity must keep records under this section for an *arm ' s length capital amount that the entity worked out for the purposes of this Division.

820-980(2)    

The records must contain particulars about the factual assumptions and relevant factors mentioned in section 820-315 or 820-410 (as appropriate) that have been taken into account in working out that amount.

820-980(3)    

The entity must prepare the records before the time by which the entity must lodge its *income tax return for the income year in relation to all or a part of which the amount is worked out.

Note:

A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section) .

SECTION 820-985   Records about group ratio  

820-985(1)    

An entity must keep records under this section for a group ratio that the entity worked out for the purposes of this Division.

820-985(2)    
The records must:

(a)    contain particulars that have been taken into account in working out the *group ratio; and

(b)    be sufficient for a reasonable person to understand how the group ratio has been worked out.

820-985(3)    

The entity must prepare the records before the earlier of the following times:

(a)    the time by which the entity must lodge its *income tax return for the income year in relation to all or a part of which the amount is worked out;

(b)    the time at which the entity lodges its *income tax return for that income year.

Note:

A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section).

Offences committed by certain entities

SECTION 820-990   Offences - treatment of partnerships  

820-990(1)    
The provisions set out in the following paragraphs (the relevant provisions ) apply, in relation to records required to be kept under this Subdivision, to a partnership as if it were a person, but with the modifications set out in this section:

(a)    

sections 820-960 , 820-962 , 820-980 and 820-985 ;

(b)    section 262A of the Income Tax Assessment Act 1936 ;

(c)    Part III of the Taxation Administration Act 1953 .

820-990(2)    
If the relevant provisions would otherwise require or permit something to be done by the partnership, the thing may be done by one or more of the partners on behalf of the partnership.

820-990(3)    
An obligation that would otherwise be imposed on the partnership by the relevant provisions:

(a)    is imposed on each partner instead; but

(b)    may be discharged by any of the partners.

820-990(4)    
The partners are jointly and severally liable to pay an amount that would otherwise be payable by the partnership under the relevant provisions.

820-990(5)    
An offence against any of the relevant provisions that would otherwise be committed by the partnership is taken to have been committed by each partner who:

(a)    did the relevant act or made the relevant omission; or

(b)    aided, abetted, counselled or procured the relevant act or omission; or

(c)    was in any way knowingly concerned in, or party to, the relevant act or omission (whether directly or indirectly or whether by any act or omission of the partner).

820-990(6)    
For the purposes of subsection (5) :

(a)    to establish that a partnership engaged in a particular conduct, it is sufficient to show that the conduct was engaged in by a partner:

(i) in the ordinary course of the business of the partnership; or

(ii) within the scope of the actual or apparent authority of the partner; and

(b)    to establish that a partnership had a particular state of mind when it engaged in that conduct, it is sufficient to show that the partner had the relevant state of mind.

820-990(7)    
For the purposes of the relevant provisions, a change in the composition of a partnership does not affect the continuity of the partnership.

SECTION 820-995   Offences - treatment of unincorporated companies  

820-995(1)    
The provisions set out in the following paragraphs (the relevant provisions ) apply, in relation to records required to be kept under this Subdivision, to an unincorporated company as if it were a person, but with the modifications set out in this section:

(a)    

sections 820-960 , 820-962 , 820-980 and 820-985 ;

(b)    section 262A of the Income Tax Assessment Act 1936 ;

(c)    Part III of the Taxation Administration Act 1953 .

820-995(2)    
If the relevant provisions would otherwise require or permit something to be done by the company, the thing may be done by one or more members of the company ' s committee of management (the members ) on behalf of the company.

820-995(3)    
An obligation that would otherwise be imposed on the company by the relevant provisions:

(a)    is imposed on each member instead; but

(b)    may be discharged by any of the members.

820-995(4)    
The members are jointly and severally liable to pay an amount that would otherwise be payable by the company under the relevant provisions.

820-995(5)    
An offence against any of the relevant provisions that would otherwise be committed by the company is taken to have been committed by each member who:

(a)    did the relevant act or made the relevant omission; or

(b)    aided, abetted, counselled or procured the relevant act or omission; or

(c)    was in any way knowingly concerned in, or party to, the relevant act or omission (whether directly or indirectly or whether by any act or omission of the member).

820-995(6)    
For the purposes of subsection (5) , to establish that the company had a particular state of mind when it engaged in a particular conduct, it is sufficient to show that a member had the relevant state of mind.

Division 830 - Foreign hybrids  

Guide to Division 830  

SECTION 830-1   What this Division is about  

Subdivision 830-A - Meaning of " foreign hybrid "  

SECTION 830-5  

830-5   Foreign hybrid  

The expression foreign hybrid means:

(a) a *foreign hybrid limited partnership; or

(b) a *foreign hybrid company.

SECTION 830-10   Foreign hybrid limited partnership  

830-10(1)    

Subject to subsection (2), a ^* limited partnership is a foreign hybrid limited partnership in relation to an income year if:

(a) it was formed in a foreign country; and

(b) *foreign income tax (except *credit absorption tax or *unitary tax) is imposed under the law of the foreign country on the partners, not the limited partnership, in respect of the income or profits of the partnership for the income year; and

(c) at no time during the income year is the limited partnership, for the purposes of a law of any foreign country that imposes foreign income tax (except credit absorption tax or unitary tax) on entities because they are residents of the foreign country, a resident of that country; and

(d) disregarding subsection 94D(5) of the Income Tax Assessment Act 1936 , at no time during the income year is it an Australian resident; and

(e) disregarding that subsection, in relation to the same income year of another taxpayer:

(i) the limited partnership is a *CFC at the end of a *statutory accounting period that ends in the income year; and

(ii) at the end of the statutory accounting period, the taxpayer is an *attributable taxpayer in relation to the CFC with an *attribution percentage greater than nil.

830-10(2)    

If a partner is not an ^* attributable taxpayer in relation to a ^* limited partnership, then, for the purposes of applying the Income Tax Assessment Act 1936 and this Act in relation to the partner ' s interest in the limited partnership, the limited partnership is a foreign hybrid limited partnership in relation to an income year for the partner if, and only if, the partner:

(a) has made an election under former subsection 485AA(1) of the Income Tax Assessment Act 1936 ; or

(b) makes an election under this paragraph;

in relation to the partner ' s interest in the partnership.

830-10(3)    

For the purposes of subsection (2), the limited partnership is a foreign hybrid limited partnership in relation to any income year during which an election referred to in paragraph (2)(a) or (2)(b) is in force.

830-10(4)    

An election can only be made under paragraph (2)(b) if:

(a) disregarding subsection 94D(6) of the Income Tax Assessment Act 1936 :

(i) at the end of the income year in which the election is made, the partner has an interest in a FIF (within the meaning of former Part XI of that Act) that is a ^* corporate limited partnership; and

(ii) the interest consists of a ^* share in the FIF; and

(b) the limited partnership satisfies paragraphs (1)(a) to (d) in relation to the income year in which the election is made.

830-10(5)    

An election under paragraph (2)(b) must be made:

(a) on or before the day on which the partner lodges the partner ' s income tax return for the income year; or

(b) within a further time allowed by the Commissioner.

830-10(6)    

The election:

(a) is in force during the income year and all later income years; and

(b) is irrevocable.

SECTION 830-15   Foreign hybrid company  

830-15(1)    

Subject to subsection (5), a company is a foreign hybrid company in relation to an income year if:

(a) at all times during the income year when the company is in existence, the partnership treatment requirements for the income year in subsection (2) or (3) are satisfied; and

(b) at no time during the income year is the company, for the purposes of a law of any foreign country that imposes *foreign income tax (except *credit absorption tax or *unitary tax) on entities because they are residents of the foreign country, a resident of that country; and

(c) at no time during the income year is the company an Australian resident; and

(d) disregarding this Division, in relation to the same income year of another taxpayer:

(i) the company is a *CFC at the end of a *statutory accounting period that ends in the income year; and

(ii) at the end of the statutory accounting period, the taxpayer is an *attributable taxpayer in relation to the CFC with an *attribution percentage greater than nil.

Partnership treatment requirements specific to USA

830-15(2)    
For the purposes of paragraph (1)(a), the partnership treatment requirements are satisfied if:

(a) the company was formed in the United States of America; and

(b) for the purposes of the law of that country relating to *foreign income tax (except *credit absorption tax or *unitary tax) imposed by that country, the company is a limited liability company that:

(i) is treated as a partnership; or

(ii) is an eligible entity that is disregarded as an entity separate from its owner.

Partnership treatment requirements relating to any foreign country

830-15(3)    
For the purposes of paragraph (1)(a), the partnership treatment requirements are also satisfied if:

(a) the company was formed in a foreign country (which may be the United States of America); and

(b) for the purposes of the law of that country relating to *foreign income tax (except *credit absorption tax or *unitary tax) imposed by that country, the company is treated as a partnership; and

(c) regulations are in force setting out requirements to be satisfied by a company in relation to the income year for the purposes of this paragraph, and the company satisfies those requirements.

830-15(4)    
Regulations for the purposes of paragraph (3)(c) cannot set out requirements in relation to any income year before the one in which the regulations are made.

830-15(5)    

If a shareholder is not an ^* attributable taxpayer in relation to a company, then, for the purposes of applying the Income Tax Assessment Act 1936 and this Act in relation to the shareholder ' s ^* share or shares in the company, the company is a foreign hybrid company in relation to an income year for the shareholder if, and only if, the shareholder:

(a) has made an election under former subsection 485AA(2) of the Income Tax Assessment Act 1936 ; or

(b) makes an election under this paragraph;

in relation to the shareholder ' s share or shares in the company.

830-15(6)    

For the purposes of subsection (5), the company is a foreign hybrid company in relation to any income year during which the election referred to in paragraph (5)(a) or (5)(b) is in force.

830-15(7)    

An election can only be made under paragraph (5)(b) if:

(a) in relation to the income year in which the election is made, the company:

(i) is a FIF (within the meaning of former Part XI of the Income Tax Assessment Act 1936 ); and

(ii) satisfies paragraphs (1)(a) to (c); and

(b) at the end of the income year in which the election is made, the shareholder ' s interest in the FIF consists of one or more ^* shares in the FIF.

830-15(8)    

An election under paragraph (5)(b) must be made:

(a) on or before the day on which the shareholder lodges the shareholder ' s income tax return for the income year; or

(b) within a further time allowed by the Commissioner.

830-15(9)    

The election:

(a) is in force during the income year and all later income years; and

(b) is irrevocable.

Subdivision 830-B - Extension of normal partnership provisions to foreign hybrid companies  

Note:

The normal partnership provisions will apply of their own force to foreign hybrids that are foreign hybrid limited partnerships.

SECTION 830-20  

830-20   Treatment of company as a partnership  

If a company is a *foreign hybrid company in relation to an income year, the *foreign hybrid tax provisions apply as if the company were a partnership, and for that purpose the following provisions of this Subdivision have effect.

SECTION 830-25  

830-25   Partners are the shareholders in the company  

The partners in the partnership are the *shareholders in the company.

SECTION 830-30  

830-30   Individual interest of a partner in net income etc. equals percentage of notional distribution of company's profits  

The individual interest of a partner in the *net income or *partnership loss of the partnership of the income year is equal to the percentage that, if the profits of the company for the income year were distributed at the end of the income year to its *shareholders:

(a) if paragraph (b) does not apply - as dividends; or

(b) if the company's *constitution or other rules provide for the distribution of profits other than as dividends - in accordance with the constitution or those rules;

the partner, as a shareholder, could reasonably be expected to receive of the total distribution.

SECTION 830-35   Partner's interest in assets  

830-35(1)    
The interest that each partner has in the assets of the partnership, under the partnership agreement, is equal to the percentage in subsection (2).

830-35(2)    
The percentage is the percentage that, if the capital of the company were distributed to its *shareholders on a winding-up of the company at the end of the income year, the partner, as a shareholder, could reasonably be expected to receive of the total distribution.

SECTION 830-40   Control and disposal of share in partnership income  

830-40(1)    
This section applies for the purposes of determining under section 94 of the Income Tax Assessment Act 1936 whether the partnership is soconstituted or controlled, or its operations are so conducted, that a partner does not have the real and effective control and disposal of the partner's share, or a part of the partner's share, in the *net income of the partnership of an income year.

830-40(2)    
The reference to the partner's share, or a part of the partner's share, in the *net income is a reference to any rights that the *shareholder has under the *constitution or other rules of the company that were taken into account under section 830-30 in working out the individual interest of the partner in the partnership's net income or *partnership loss of the income year.

Subdivision 830-C - Special rules applicable while an entity is a foreign hybrid  

Note:

In the case of a foreign hybrid company, references in this Subdivision that relate to partnerships are to be read subject to Subdivision 830-B . For example, a reference to a partner will be a reference to a shareholder in the company who is treated by Subdivision 830-B as a partner.

SECTION 830-45   Partner's revenue and net capital losses from foreign hybrid not to exceed partner's loss exposure amount  

830-45(1)    
This section applies to a *limited partner in a *foreign hybrid in relation to an income year if the sum of the following amounts:

(a) any amount (a foreign hybrid revenue loss amount ) allowable to the partner as a deduction under subsection 92(2) of the Income Tax Assessment Act 1936 in respect of a *partnership loss of the foreign hybrid for the income year;

(b) any *foreign hybrid net capital loss amount of the partner in respect of the foreign hybrid for the income year;

exceeds the partner's *loss exposure amount for the income year.

Reduction in foreign hybrid revenue loss amount or foreign hybrid net capital loss amount

830-45(2)    
If this section applies, the amount mentioned in paragraph (1)(a) or (b), or each of the amounts mentioned in those paragraphs, is reduced so that in total they equal the partner's *loss exposure amount. The partner must choose how much of the reduction is applied to each of the amounts.

Effect of reducing foreign hybrid net capital loss amount

830-45(3)    
If the partner's *foreign hybrid net capital loss amount in respect of the *foreign hybrid for the income year is reduced under subsection (2), the partner's *net capital gain or *net capital loss for the income year is worked out by assuming that the *capital gains and *capital losses taken into account in working out the partner's foreign hybrid net capital loss amount were instead a capital loss equal to the foreign hybrid net capital loss amount after the reduction.

SECTION 830-50   Deduction etc. where partner's foreign hybrid revenue loss amount and foreign hybrid net capital loss amount are less than partner's loss exposure amount  

830-50(1)    
This section applies if:

(a) the sum of a partner's *foreign hybrid revenue loss amount and *foreign hybrid net capital loss amount for a *foreign hybrid for an income year does not exceed the partner's *loss exposure amount for the foreign hybrid for the income year (the difference being the partner's available loss exposure amount ); and

(b) the partner has one or more *outstanding foreign hybrid revenue loss amounts or one or more *outstanding foreign hybrid net capital loss amounts, or both, in respect of the foreign hybrid for the income year.

Where sum of outstanding foreign hybrid revenue loss amounts and outstanding foreign hybrid net capital loss amounts does not exceed available loss exposure amount

830-50(2)    
If the sum of the *outstanding foreign hybrid revenue loss amounts and the *outstanding foreign hybrid net capital loss amounts does not exceed the *available loss exposure amount:

(a) a deduction is allowable to the partner for the income year equal to the sum of the outstanding foreign hybrid revenue loss amounts; and

(b) the partner makes a *capital loss for the income year under section 104-270 equal to the sum of the outstanding foreign hybrid net capital loss amounts.

Where sum of outstanding foreign hybrid revenue loss amounts and outstanding foreign hybrid net capital loss amounts exceeds available loss exposure amount

830-50(3)    
If the sum of the *outstanding foreign hybrid revenue loss amounts and the *outstanding foreign hybrid net capital loss amounts exceeds the *available loss exposure amount, then either or both of the following apply:

(a) a deduction is allowable to the partner for the income year equal to some or all of the outstanding foreign hybrid revenue loss amounts;

(b) the partner makes a *capital loss under section 104-270 equal to some or all of the outstanding foreign hybrid net capital loss amounts;

such that the sum of the deduction and the capital loss equals the available loss exposure amount.

Partner to choose how to apply subsection (3)

830-50(4)    
The partner must choose:

(a) which of paragraphs (3)(a) and (b) is to apply or whether both are to apply; and

(b) the amount of the deduction or *capital loss, or the amounts of both; and

(c) the particular outstanding foreign hybrid revenue loss amounts or outstanding foreign hybrid net capital loss amounts, or both, to which they relate.

SECTION 830-55  

830-55   Meaning of foreign hybrid net capital loss amount  

If:

(a) the sum of a partner's *capital losses from *CGT events happening during an income year in relation to a *foreign hybrid or *CGT assets of a foreign hybrid;

exceeds:

(b) the sum of the partner's *capital gains from CGT events happening during the income year in relation to the foreign hybrid or CGT assets of the foreign hybrid;

the partner has a foreign hybrid net capital loss amount in respect of the foreign hybrid for the income year equal to the excess.

SECTION 830-60   Meaning of loss exposure amount  

830-60(1)    
The loss exposure amount of a partner in a *foreign hybrid for an income year is worked out as follows: Method statement

Contribution in case of foreign hybrid company

830-60(2)    
For the purposes of step 1 in the method statement in subsection (1), if:

(a) the *foreign hybrid is a *foreign hybrid company; and

(b) the partner *acquired its *shares in the company from another shareholder; and

(c) the payment or other consideration for the acquisition of the shares did not constitute the making of a contribution by the partner to the foreign hybrid;

the payment or other consideration is taken:

(d) to be a contribution by the partner to the foreign hybrid; and

(e) to be so contributed for as long as the partner holds the shares; and

(f) to have been repaid to the partner to the extent of any payment that:

(i) the foreign hybrid makes to the partner in respect of the share; and

(ii) theforeign hybrid describes as a return of capital; and

(iii) is attributable to the period during which the partner has held the shares.

SECTION 830-65   Meaning of outstanding foreign hybrid revenue loss amount  

830-65(1)    
This section applies if a *foreign hybrid revenue loss amount of a partner in a *foreign hybrid in relation to an income year (the reduction year ) is reduced under subsection 830-45(2) .

830-65(2)    
The partner has, for each later income year, an outstanding foreign hybrid revenue loss amount equal to the amount of the reduction, less the sum of any deductions allowable to the partner under subsection 830-50(2) or (3) in respect of the outstanding foreign hybrid revenue loss amount for income years between the reduction year and the later income year.

Outstanding foreign hybrid revenue loss amount not to form part of tax loss

830-65(3)    

To avoid doubt, a partner ' s *outstanding foreign hybrid revenue loss amount for an income year cannot form part of a *tax loss for the purposes of Division 36 or 160 .

SECTION 830-70   Meaning of outstanding foreign hybrid net capital loss amount  

830-70(1)    
This section applies if a *foreign hybrid net capital loss amount of a partner in a *foreign hybrid in relation to an income year (the reduction year ) is reduced under subsection 830-45(2) .

830-70(2)    
The partner has, for each later income year, an outstanding foreign hybrid net capital loss amount equal to the amount of the reduction, less the sum of any *capital losses that, as a result of subsection 830-50(2) or (3), the partner makes in respect of *CGT event K12 in respect of the outstanding foreign hybrid net capital loss amount for income years between the reduction year and the later income year.

SECTION 830-75   Extended meaning of subject to foreign tax  

Where entity becomes a partner

830-75(1)    
If:

(a) an entity becomes a partner (the first partner ) in a *foreign hybrid in relation to an income year; and

(b) a gain or profit of a capital nature accrues to another partner as a result of the disposal of the whole or part of that other partner's interest in an asset of the foreign hybrid that happens when the first partner becomes a partner; and

(c) apart from this subsection, the gain or profit is not *subject to foreign tax in a *listed country in any *tax accounting period; and

(d) if the foreign hybrid had disposed of the whole or an equivalent part of the asset at the time of the disposal of the whole or the part of the interest, any gain or profit of a capital nature that accrued to the foreign hybrid in respect of the disposal would have been subject to foreign tax in a listed country in a tax accounting period;

then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d).

Where partner increases its interest

830-75(2)    
If:

(a) an entity is a partner (the first partner ) that increases its interest in a *foreign hybrid in relation to an income year; and

(b) a gain or profit of a capital nature accrues to another partner as a result of the disposal of the whole or part of that other partner's interest in an asset of the foreign hybrid that happens when the first partner increases its interest in the foreign hybrid; and

(c) apart from this subsection, the gain or profit is not *subject to foreign tax in a *listed country in any *tax accounting period; and

(d) if the foreign hybrid had disposed of the whole or an equivalent part of the asset at the time of the disposal of the whole or the part of the interest, any gain or profit of a capital nature that accrued to the foreign hybrid in respect of the disposal would have been subject to foreign tax in a listed country in a tax accounting period;

then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d).

Where entity ceases to be a partner

830-75(3)    
If:

(a) an entity ceases to be a partner in a *foreign hybrid in relation to an income year; and

(b) a gain or profit of a capital nature accrues to the entity as a result of the disposal of its interest in an asset of the foreign hybrid that happens when the entity ceases to be a partner; and

(c) apart from this subsection, the gain or profit is not *subject to foreign tax in a *listed country in any *tax accounting period; and

(d) any gain or profit of a capital nature that accrues to the entity as a result of the disposal of its interest in the foreign hybrid that happens when the entity ceases to be a partner is subject to foreign tax in a listed country in a tax accounting period;

then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d).

Where partner disposes of part of its interest

830-75(4)    
If:

(a) an entity is a partner that disposes of part of its interest in a *foreign hybrid in relation to an income year; and

(b) a gain or profit of a capital nature accrues to the entity as a result of the disposal of part of its interest in an asset of the foreign hybrid that happens when the entity disposes of the part of its interest in the foreign hybrid; and

(c) apart from this subsection, the gain or profit is not *subject to foreign tax in a *listed country in any *tax accounting period; and

(d) any gain or profit of a capital nature that accrues to the entity as a result of the disposal of the part of its interest in the foreign hybrid is subject to foreign tax in a listed country in a tax accounting period;

then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d).

Subdivision 830-D - Special rules applicable when an entity becomes or ceases to be a foreign hybrid  

Note:

In the case of a foreign hybrid company, references in this Subdivision that relate to partnerships are to be read subject to Subdivision 830-B . For example, a reference to a partner will be a reference to a shareholder in the company who is treated by Subdivision 830-B as a partner.

SECTION 830-80   Setting the tax cost of partners ' interests in the assets of an entity that becomes a foreign hybrid  

830-80(1)    
This section applies if:

(a) an entity is a *foreign hybrid in relation to an income year (the hybrid year ); and

(b) the entity was in existence at the end of the preceding income year (which may be the income year before this Division first applies to the entity); and

(c) the entity was not a foreign hybrid in relation to that preceding income year.

830-80(2)    
For the purposes of applying an *asset-based income tax regime for the hybrid year and each later income year in relation to which the entity continues to be a foreign hybrid, the *tax cost is set at the start of the hybrid year, for each asset of the *foreign hybrid in which each partner has an interest at that time.

SECTION 830-85   Setting the tax cost of assets of an entity when it ceases to be a foreign hybrid  

830-85(1)    
This section applies if:

(a) an entity is a *foreign hybrid in relation to an income year; and

(b) the entity is in existence at the start of the next income year; and

(c) the entity is not a foreign hybrid in relation to that income year (the post-hybrid year ).

830-85(2)    
For the purposes of applying an *asset-based income tax regime for the post-hybrid year and each later income year in relation to which the entity continues not to be a foreign hybrid, the *tax cost is set at the start of the post-hybrid year, for each asset of the entity at that time.

SECTION 830-90  

830-90   What the expression tax cost is set means  

The following table explains what the expression tax cost is set at the start of the hybrid year or the post-hybrid year means, in relation to an asset in which a partner has an interest or in relation to an asset of the entity, for the purposes of each *asset-based income tax regime:

Tax cost is set
Item	If the following asset-based income tax regime is to apply:	The expressionmeans that:
1	Subdivisions 40-A to 40-D, sections 40-425 to 40-445 and Subdivision 328-D	the *adjustable value of the interest or the asset at the start of the hybrid year or the post-hybrid year is varied so that it equals the partner ' s *tax cost setting amount for the interest, or the entity ' s tax cost setting amount for the asset, at that time in relation to the *asset-based income tax regime
2	Division 70	the value of the interest or the asset at the start of the hybrid year or the post-hybrid year under Division 70 is varied so that it equals the partner ' s *tax cost setting amount for the interest, or the entity ' s tax cost setting amount for the asset, at that time in relation to the *asset-based income tax regime
3	Part 3-1 or 3-3	the *cost base or *reduced cost base of the interest or the asset at the start of the hybrid year or the post-hybrid year is varied so that it equals the partner ' s *tax cost setting amount for the interest, or the entity ' s tax cost setting amount for the asset, at that time in relation to the *asset-based income tax regime
4	Division 16E of Part III of the Income Tax Assessment Act 1936	the Division applies as if the interest or the asset were *acquired by the partner or the entity at the start of the hybrid year or the post-hybrid year for a payment equal to the partner ' s *tax cost setting amount for the interest, or the entity ' s tax cost setting amount for the asset, at that time in relation to the *asset-based income tax regime
5	Any other provision of this Act or the Income Tax Assessment Act 1936	the cost of the interest or asset at the start of the hybrid year or the post-hybrid year is varied so that it equals the partner ' s *tax cost setting amount for the interest, or the entity ' s tax cost setting amount for the asset, at that time in relation to the *asset-based income tax regime

SECTION 830-95   What the expression tax cost setting amount means  

830-95(1)    
A partner ' s tax cost setting amount for an interest of the partner in an asset at the start of the hybrid year, in relation to an *asset-based income tax regime, is worked out as follows: Method statement

830-95(2)    
Work out whether the partner paid a premium or received a discount for its interest in the asset using the following method statement: Method statement

830-95(3)    
The entity ' s tax cost setting amount for an asset at the start of the post-hybrid year in relation to an *asset-based income tax regime is equal to the sum of what the partners ' *tax costs for their interests in the asset would be at that time for the purpose of applying the asset-based income tax regime if the entity had continued to be a *foreign hybrid in relation to that income year.

SECTION 830-100  

830-100   What the expression tax cost means  

The tax cost of a partner's interest in an asset or of an asset of the entity for the purposes of applying an *asset-based income tax regime at the start of the post-hybrid year or the hybrid year is worked out using the following table:

Tax cost of an asset
Item	If the asset-based income tax regime is:	the tax cost of the interest or the asset is:
1	Subdivisions 40-A to 40-D, sections 40-425 to 40-445 and Subdivision 328-D	the *adjustable value of the interest or the asset at the start of the post-hybrid year or the hybrid year
2	Division 70	the value of the interest or the asset at the start of the post-hybrid year or the hybrid year under Division 70
3	Part 3-1 or 3-3	the *cost base or *reduced cost base of the interest or the asset at the start of the post-hybrid year or the hybrid year
4	Division 16E of Part III of the Income Tax Assessment Act 1936	the amount that the partner or entity would need to receive if it were to dispose of the interest or asset at the start of the post-hybrid year or the hybrid year without an amount being assessable income of, or deductible to, the partner or entity under section 159GS of the Income Tax Assessment Act 1936
5	Any other provision of this Act or the Income Tax Assessment Act 1936	the cost of the interest or the asset at the start of the post-hybrid year or the hybrid year

SECTION 830-105  

830-105   What the expression asset-based income tax regime means  

The provisions listed in the first column in relation to each item in the table in section 830-100 are an asset-based income tax regime .

SECTION 830-110  

830-110   No disposal of assets etc. on entity becoming or ceasing to be a foreign hybrid  

To avoid doubt, the fact that an entity becomes or ceases to be a *foreign hybrid in relation to an income year does not cause:

(a) a *CGT event to happen to any *CGT asset consisting of:

(i) any *share or interest in the entity; or

(ii) any interest in an asset of the entity; or

(b) a disposal or any other event to happen to any other asset consisting of such a share or interest.

SECTION 830-115   Tax losses cannot be transferred to a foreign hybrid  

830-115(1)    
If an entity is a *foreign hybrid in relation to an income year, it cannot deduct in that income year a *tax loss for a *loss year in relation to which it was not a foreign hybrid.

Former foreign hybrid can deduct tax losses for income years before it became a foreign hybrid

830-115(2)    
This section does not prevent an entity that:

(a) is not a *foreign hybrid in relation to an income year (the post-hybrid year ); and

(b) was a foreign hybrid in relation to a previous income year; and

(c) was not a foreign hybrid in relation to an income year (the pre-hybrid year ) before the previous year;

from deducting, in the post-hybrid year, a *tax loss for the pre-hybrid year.

SECTION 830-120  

830-120   End of CFC's last statutory accounting period  

If:

(a) a taxpayer is a partner in an entity that becomes a *foreign hybrid in relation to an income year; and

(b) the entity was a *CFC at the end of the taxpayer's preceding income year; and

(c) the last *statutory accounting period of the CFC did not end at the end of the taxpayer's preceding income year; and

(d) if it had so ended, the taxpayer would have been an *attributable taxpayer in relation to the CFC;

for the purposes of working out the *attributable income of the CFC for the taxpayer in respect of the last statutory accounting period of the CFC, that statutory accounting period ends at the end of the taxpayer's preceding income year.

SECTION 830-125   How long interest in asset, or asset, held  

Partner's interest in asset when entity becomes a foreign hybrid

830-125(1)    
If an entity becomes a *foreign hybrid company in relation to an income year, the interest that a partner has in an asset as mentioned in section 830-35 is taken to have been held by the partner (except for the purposes of having the *tax cost of the interest set) from the later of the following times:

(a) when the entity *acquired the asset;

(b) when the partner acquired its *shares in the entity.

Entity's asset when it ceases to be a foreign hybrid company

830-125(2)    
If:

(a) an entity is not a *foreign hybrid company in relation to an income year (the post-hybrid year ); and

(b) the entity was a *foreign hybrid company in relation to the preceding income year; and

(c) during:

(i) that preceding income year; or

(ii) any earlier income year in relation to which the entity was also a foreign hybrid;

but not at the start of the first income year in relation to which the entity was a foreign hybrid company, the partners in the foreign hybrid company *acquired an interest in an asset that is an asset of the entity at the start of the post-hybrid year;

the asset is taken to have been held by the entity (except for the purposes of having the *tax cost of the asset set) from the time the partners acquired their interests in the asset.

Division 832 - Hybrid mismatch rules  

Guide to Division 832  

SECTION 832-1   What this Division is about  

Subdivision 832-A - Preliminary  

Guide to Subdivision 832-A

SECTION 832-5   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-10	Entitlement to receive payment
832-15	Entitlement to receive non-cash benefits
832-20	Losses that arise from payments or parts of payments
832-25	Recipients and payers of a payment
832-30	How this Division applies to entities
832-35	Single entity rule otherwise not disregarded
832-40	Schemes outside Australia
832-45	Relationship between this Division and other charging provisions in this Act
832-50	Relationship between this Division and Division 820
832-55	Division does not affect foreign residence rules
832-60	Valuation of trading stock affected by hybrid mismatch rules

Operative provisions

SECTION 832-10  

832-10   Entitlement to receive payment  

This Division applies as if an entity (the payer ) had made a payment to another entity (the recipient ) if the recipient is entitled to receive the payment from the payer, even if the payment is not required to be made until a later time.

SECTION 832-15  

832-15   Entitlement to receive non-cash benefits  

This Division applies as if an entity (the payer ) had made a payment to another entity (the recipient ) if the recipient received a *non-cash benefit from the payer.

SECTION 832-20   Losses that arise from payments or parts of payments  

832-20(1)    
This section applies if:

(a) a loss gives rise to:

(i) a deduction for an entity (the payer ) for an income year; or

(ii) a *foreign income tax deduction for an entity (also the payer ) for a *foreign tax period; and

(b) in working out the amount of the loss:

(i) all or a part of a payment made, or to be made, to one or more other entities is taken into account; or

(ii) 2 or more payments made, or to be made, to one or more other entities are taken into account.

Note:

This section also applies to losses from Division 230 financial arrangements: see section 832-780 .

Payments made to only one entity

832-20(2)    
If, in working out the amount of the loss, a payment or payments made to only one entity (the recipient ) are taken into account, this Division applies as if:

(a) at the end of the income year or *foreign tax period identified in paragraph (1)(a), the payer made a payment to the recipient; and

(b) the amount of the payment was equal to the amount of the deduction or *foreign income tax deduction; and

(c) the payment gave rise to the deduction or foreign income tax deduction.

Payments made to 2 or more entities

832-20(3)    
If, in working out the amount of the loss, a payment or payments made to 2 or more entities (each of which is a recipient ) are taken into account, this Division applies as if:

(a) at the end of the income year or *foreign tax period identified in paragraph (1)(a), the payer made a payment to each recipient; and

(b) the amount of each payment was equal to so much of the amount of the deduction or *foreign income tax deduction as is reasonable having regard to the amounts of the payments actually made to the recipients; and

(c) the payment gave rise to a deduction or foreign income tax deduction equal to the amount of the payment.

Working out whether the payment has been subject to tax

832-20(4)    
In working out for the purposes of this Division the extent to which a payment that is taken by this section to have been made is *subject to Australian income tax or *subject to foreign income tax, regard is to be had to the actual payments made to the recipient.

SECTION 832-25   Recipients and payers of a payment  

832-25(1)    
To the extent this Division applies to a payment only because of section 832-10 or 832-15 (a payment provision ), it applies as if:

(a) the entity that made the payment were the entity identified in the payment provision as the payer; and

(b) the recipient of the payment were the entity identified in the payment provision as the recipient.

832-25(2)    
If a payment would, apart from this subsection, be made to 2 or more recipients, then this Division applies as if each part of the payment made to each such recipient were a separate payment.

SECTION 832-30   How this Division applies to entities  

Identifying payments between entities etc.

832-30(1)    
A number of provisions in this Division refer to an entity making a payment to another entity. In determining for the purposes of this Division whether an entity makes or receives a payment, the following are to be disregarded:

(a) subsection 701-1(1) (the single entity rule);

(b) Part IIIB of the Income Tax Assessment Act 1936 ;

(c) any law of a foreign country that, for the purposes of a foreign tax, treats a different entity as having made the payment, or disregards the payment.

Note 1:

The purpose of this subsection is to establish a uniform basis for recognising " payments " between entities across all jurisdictions. (Note that in some countries, a " payment " recognised by this subsection will not have a tax consequence because the payment is disregarded for tax purposes).

Note 2:

As a consequence of paragraph (1)(a), a subsidiary member of a consolidated group or MEC group may be a hybrid payer under section 832-320 or a deducting hybrid under section 832-550 (it cannot be a reverse hybrid because of subparagraph 832-410(2)(b)(ii) ).

832-30(2)    
In addition, in the case of a trust or partnership, the trust or partnership, instead of a trustee or partner, is taken, for the purposes of this Division, to do the following things:

(a) make or receive a payment;

(b) hold, acquire or dispose of an asset, interest or other property;

(c) enter into or carry out a *scheme or a part of a scheme.

Identifying income or profits of entities

832-30(3)    
A number of provisions in this Division refer to the income or profits of an entity. For the purposes of this Division, things recognised in accordance with subsection (1) or (2) as being done by an entity are to be taken into account in identifying the income or profits of the entity.

Assessable income and deductions

832-30(4)    
A reference in this Division to an amount being included in the assessable income of an entity, or being allowable, or not allowable, as a deduction to an entity, is taken to be a reference to an amount that is so included, or allowable or not allowable, as the case requires, in determining:

(a) in the case of an entity that is a trust - the entity ' s *net income; or

(b) in the case of a partnership - the partnership ' s net income or *partnership loss.

This section does not affect the interpretation of other provisions

832-30(5)    
Nothing in this section affects whether *tax or *foreign income tax is imposed on an entity.

832-30(6)    
Nothing in this section limits, by implication, any other provision of this Act.

SECTION 832-35  

832-35   Single entity rule otherwise not disregarded  

Subject to section 832-30 , subsection 701-1(1) (the single entity rule) is not disregarded in applying this Division.

SECTION 832-40  

832-40   Schemes outside Australia  

This Division applies in relation to a payment whether or not the *scheme under which the payment is made has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

SECTION 832-45   Relationship between this Division and other charging provisions in this Act  

832-45(1)    
This section applies if an amount is included in the assessable income of an entity under a provision of this Division in relation to a payment.

832-45(2)    
An amount in relation to the payment that is to be included in the assessable income of the entity under a provision (other than a provision of this Division) is to be reduced to the extent (if any) necessary to ensure that the total amount included in the entity ' s assessable income in relation to the payment does not exceed the amount of the payment.

Relationship with section 230-20

832-45(3)    
This section applies despite section 230-20 (about taxation of financial arrangements).

SECTION 832-50   Relationship between this Division and Division 820  

832-50(1)    
In determining for the purposes of this Division whether a payment gives rise to a deduction, and the amount of the deduction, disregard the effect of Division 820 (about thin capitalisation).

832-50(2)    
Nothing in this Division limits Division 820 (about thin capitalisation) in its application to reduce, or further reduce, *debt deductions of an entity.

SECTION 832-55  

832-55   Division does not affect foreign residence rules  

Nothing in this Division affects the operation of the provisions of Division 6 that provide for the significance of foreign residence for the assessability of ordinary and statutory income.

Note:

Amounts included in assessable income under this Division may be ordinary or statutory income for the purposes of Division 6 .

SECTION 832-60  

832-60   Valuation of trading stock affected by hybrid mismatch rules  

If:

(a) an amount of a deduction for an outgoing is disallowed under this Division; and

(b) the outgoing was incurred in connection with acquiring an item of *trading stock; and

(c) the item is on hand at the end of an income year;

the amount disallowed is to be disregarded in working out the *cost, market selling value or replacement value of the item at the end of the income year under section 70-45 .

Subdivision 832-B - Concepts relating to mismatches  

Guide to Subdivision 832-B

SECTION 832-100   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-105	When a payment gives rise to a deduction/non-inclusion mismatch
832-110	When a payment gives rise to a deduction/deduction mismatch
832-115	Disregard effect of Division in determining deductions
832-120	Meaning of foreign income tax deduction
832-125	Meaning of subject to Australian income tax
832-130	Meaning of subject to foreign income tax
832-135	Safe harbour for translation rates

Operative provisions

SECTION 832-105   When a payment gives rise to a deduction/non-inclusion mismatch  

Australian deduction

832-105(1)    
If:

(a) a deduction (other than a deduction that is solely attributable to a *currency exchange rate effect) is allowable to an entity in an income year in respect of a payment (including a part or share of the payment); and

(b) the amount of the deduction exceeds the sum of the amounts of the payment that are:

(i) *subject to foreign income tax in a foreign country in a *foreign tax period that starts no later than 12 months after the end of the income year; or

(ii) *subject to Australian income tax for the income year;

then the deduction is the deduction component of a deduction/non-inclusion mismatch to which the payment gives rise.

Note:

A deduction/non-inclusion mismatch might give rise to a hybrid financial instrument mismatch (see Subdivision 832-C ), a hybrid payer mismatch (see Subdivision 832-D ), a reverse hybrid mismatch (see Subdivision 832-E ), or a branch hybrid mismatch (see Subdivision 832-F ).

Foreign income tax deduction

832-105(2)    
If:

(a) an entity is entitled to a *foreign income tax deduction in a foreign country in a *foreign tax period in respect of a payment (including a part or share of the payment); and

(b) the amount of the foreign income tax deduction exceeds the sum of the amounts of the payment that are:

(i) *subject to foreign income tax in a foreign country in a foreign tax period that starts no later than 12 months after the end of the foreign tax period in which the foreign income tax deduction arose; or

(ii) *subject to Australian income tax for an income year that starts no later than 12 months after the end of the foreign tax period in which the foreign income tax deduction arose; and

(c) the foreign income tax deduction is not solely attributable to:

(i) any currency exchange rate fluctuations; or

(ii) a difference between an expressly or implicitly agreed currency exchange rate for a future date or time and the applicable currency exchange rate at that date or time;

then the foreign income tax deduction is the deduction component of a deduction/non-inclusion mismatch to which the payment gives rise.

Amount of the deduction/non-inclusion mismatch

832-105(3)    
The amount of the *deduction/non-inclusion mismatch is the amount of the excess worked out under paragraph (1)(b) or (2)(b), as applicable.

SECTION 832-110   When a payment gives rise to a deduction/deduction mismatch  

832-110(1)    
A payment gives rise to a deduction/deduction mismatch if the payment, or a part or share of the payment:

(a) gives rise to a *foreign income tax deduction in a foreign country in a *foreign tax period; and

(b) also gives rise to:

(i) a deduction in an income year; or

(ii) a foreign income tax deduction in a foreign country (other than the country mentioned in paragraph (a)).

Note:

A deduction/deduction mismatch might give rise to a deducting hybrid mismatch (see Subdivision 832-G ).

832-110(2)    
Each of the following is a deduction component of the *deduction/deduction mismatch:

(a) the *foreign income tax deduction mentioned in paragraph (1)(a);

(b) the deduction mentioned in subparagraph (1)(b)(i), or the foreign income tax deduction mentioned in subparagraph (1)(b)(ii), as the case requires.

Amount of the deduction/deduction mismatch

832-110(3)    
The amount of the *deduction/deduction mismatch is the lesser of:

(a) the amount of the *foreign income tax deduction mentioned in paragraph (1)(a); and

(b) the sum of the amounts of the deduction, or foreign income tax deduction, mentioned in subparagraph (1)(b)(i) or (ii).

Extended operation in relation to non-payment deductions

832-110(4)    
This section applies in relation to the following amounts in the same way as it applies in relation to a payment:

(a) an amount representing the decline in value of an asset;

(b) an amount representing a share in the net loss of a partnership or other transparent entity.

832-110(5)    
If:

(a) an amount representing a share in the net loss of a partnership gives rise to a deduction; and

(b) in a foreign country:

(i) the same share in the income or profits of the partnership forms part of the tax base of an entity under a law of the foreign country dealing with *foreign income tax (except a tax covered by subsection 832-130(7) ); but

(ii) that share is brought to account in that tax base on an item-by-item basis, instead of on a net basis;

the amount is taken for the purposes of subsection (1) to also give rise to a *foreign income tax deduction in the foreign country, for an amount representing the share in the net loss of the partnership, and equal to the amount of the deduction mentioned in paragraph (a).

832-110(6)    
For the purposes of subsection (4), a reference in this Division to the *scheme under which a payment is made is taken to be a reference to:

(a) if paragraph (4)(a) applies - the scheme under which the asset is held; or

(b) if paragraph (4)(b) applies - the scheme under which the net loss arose.

SECTION 832-115  

832-115   Disregard effect of Division in determining deductions  

In determining for the purposes of this Division whether a payment gives rise to a deduction, disregard the effect of this Division.

SECTION 832-120   Meaning of foreign income tax deduction  

832-120(1)    

An amount of a loss or outgoing is a foreign income tax deduction in a foreign country in a *foreign tax period to which an entity is entitled, if the entity is entitled to deduct the amount in working out its tax base for the foreign tax period under a law of the foreign country dealing with *foreign income tax (except a tax covered by subsection 832-130(7) ).

832-120(2)    
To avoid doubt, an amount of a loss or outgoing may be a foreign income tax deduction in a foreign country in a *foreign tax period even if the relevant entity ' s tax base is nil, or a negative amount.

Effect of foreign hybrid mismatch rules

832-120(3)    
In determining for the purposes of this section whether an entity is entitled to deduct an amount as mentioned in subsection (1), disregard the effect of the following:

(a) any provisions of *foreign hybrid mismatch rules of a foreign country;

(b) any provisions of another law of a foreign country relating to *foreign income tax (except a tax covered by subsection 832-130(7) ) that has substantially the same effect as foreign hybrid mismatch rules.

SECTION 832-125   Meaning of subject to Australian income tax  

832-125(1)    
An amount of income or profits is subject to Australian income tax in an income year if it is an amount that is included in an entity ' s assessable income for the income year.

832-125(2)    
However, if:

(a) the entity is a trust or partnership; and

(b) the trust or partnership has *net income for the income year;

then the amount is only subject to Australian income tax to the extent it reasonably represents amounts:

(c) included in the assessable income of another entity for the income year (other than an entity that is a partnership or a trust); or

(d) for a trust - on which the trustee is liable to be assessed and to pay *tax.

Effect of CFC regimes

832-125(3)    
An amount of income or profits of an entity is subject to Australian income tax if the amount is included under section 456 or 457 of the Income Tax Assessment Act 1936 in the assessable income of another entity.

832-125(4)    
In determining for the purposes of this Division whether an amount of income or profits is *subject to Australian income tax, disregard the effect of this Division, unless the contrary intention appears.

SECTION 832-130   Meaning of subject to foreign income tax  

832-130(1)    

An amount of income or profits is subject to foreign income tax in a foreign country in a *foreign tax period if *foreign income tax (except a tax covered by subsection (7)) is payable under a law of the foreign country in respect of the amount because the amount is included in the tax base of that law for the foreign tax period.

Note:

Subdivision 832-C (Hybrid financial instrument mismatch) has effect as if certain amounts that are subject to a concessional rate of foreign income tax were not subject to foreign income tax: see section 832-235 .

832-130(2)    
To avoid doubt, an amount of income or profits may be subject to foreign income tax in a foreign country in a *foreign tax period even if the relevant entity ' s tax base is nil, or a negative amount.

Effect of credits etc. for underlying taxes

832-130(3)    

Despite subsection (1), if:

(a) an amount (the pre-credit amount ) of income or profits would, apart from this subsection, be *subject to foreign income tax in a foreign country; and

(b) an entity is entitled under the law of the foreign country to a credit, rebate or other tax concession in respect of the amount for foreign tax (other than a withholding-type tax) payable under a tax law of a different country (including Australia);

then only so much of the pre-credit amount as reasonably represents an amount not effectively sheltered from *foreign income tax (except a tax covered by subsection (7)) by the credit, rebate or tax concession is subject to foreign income tax .

Note:

This subsection is disregarded in working out whether an amount of income or profits is dual inclusion income: see subsection 832-680(3) .

Effect of " dividend received deductions " in foreign countries

832-130(4)    

Despite subsection (1), if:

(a) an amount (the pre-deduction amount ) of income or profits would, apart from this subsection, be *subject to foreign income tax in a foreign country; and

(b) the amount consists of a dividend received by an entity from a company; and

(c) the entity is entitled to a *foreign income tax deduction in respect of all or part of the amount of the dividend;

then only so much of the pre-deduction amount as reasonably represents an amount not effectively sheltered from *foreign income tax (except a tax covered by subsection (7)) by the foreign income tax deduction is subject to foreign income tax .

Effect of CFC regimes

832-130(5)    
An amount of income or profits of an entity is subject to foreign income tax if the amount is included in working out the tax base of another entity under a provision of a law of a foreign country that corresponds to section 456 or 457 of the Income Tax Assessment Act 1936 (including a tax base that is nil, or a negative amount).

Effect of foreign hybrid mismatch rules

832-130(6)    
In determining for the purposes of this section whether a payment is included in a tax base of a law of a foreign country as mentioned in subsection (1), disregard the effect of the following:

(a) any provisions of *foreign hybrid mismatch rules of a foreign country;

(b) any provisions of another law of a foreign country relating to *foreign income tax (except a tax covered by subsection (7)) that has substantially the same effect as foreign hybrid mismatch rules.

Certain foreign taxes disregarded in this Division

832-130(7)    

This subsection covers each of the following:

(a) *credit absorption tax;

(b) *unitary tax;

(c) withholding-type tax;

(d) municipal tax;

(e) in the case of a federal foreign country - a State tax.

Note:

The definitions of credit absorption tax and unitary tax are in section 770-15 .

SECTION 832-135  

832-135   Safe harbour for translation rates  

If:

(a) a payment has any of the following effects:

(i) it gives rise to a deduction;

(ii) it gives rise to a *foreign income tax deduction;

(iii) it is *subject to Australian income tax;

(iv) it is *subject to foreign income tax; and

(b) for the purposes of this Division, the amount of one or more such effects is to be translated under Subdivision 960-C into an entity ' s *applicable functional currency, or into Australian currency;

then it is reasonable for the purposes of item 11A of the table in subsection 960-50(6) (as modified by the regulations) to apply an exchange rate to each translation so as best to achieve a consistent measure of the extent to which the payment had each such effect.

Note:

Item 11A is added to the table in subsection 960-50(6) by the regulations.

Subdivision 832-C - Hybrid financial instrument mismatch  

Guide to Subdivision 832-C

SECTION 832-175   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-180	Deduction not allowable - Australian primary response
832-185	Inclusion in assessable income - Australian secondary response
832-190	Exception where entity not a party to the structured arrangement
832-195	When a hybrid financial instrument mismatch is an offshore hybrid mismatch
832-200	When a payment gives rise to a hybrid financial instrument mismatch
832-205	Meaning of Division 832 control group
832-210	Meaning of structured arrangement
832-215	Hybrid mismatch
832-220	Hybrid requirement - payments under financial instruments
832-225	Hybrid requirement - payments under transfers of certain financial instruments
832-230	Hybrid mismatch - integrity rule for substitute payments
832-235	Extended operation of this Subdivision in relation to concessional foreign taxes
832-240	Adjustment if hybrid financial instrument payment is income in a later year

Operative provisions

SECTION 832-180   Deduction not allowable - Australian primary response  

832-180(1)    
This section applies to an entity if:

(a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

(b) the deduction is the *deduction component of a *hybrid financial instrument mismatch to which the payment gives rise.

832-180(2)    
So much of the deduction as does not exceed the amount of the *hybrid financial instrument mismatch is not allowable as a deduction.

SECTION 832-185   Inclusion in assessable income - Australian secondary response  

832-185(1)    
This section applies to an entity if:

(a) the entity is the recipient of a payment that gives rise to a *hybrid financial instrument mismatch; and

(b) the *deduction component of the mismatch is a *foreign income tax deduction; and

(c) the secondary response is required (see subsection (2)).

832-185(2)    

For the purposes of paragraph (1)(c), the secondary response is required unless, in the country in which the *foreign income tax deduction arose, the mismatch is covered by *foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision.

Inclusion of amount in assessable income

832-185(3)    
An amount equal to the amount of the *hybrid financial instrument mismatch is included in the entity ' s assessable income for the income year mentioned in subsection (4). The assessable income is taken to have been derived from the same source as the payment.

832-185(4)    
The income year is:

(a) if the *foreign tax period in which the *foreign income tax deduction arises falls wholly within an income year of the entity - that income year; or

(b) if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity - the earlier of those income years.

SECTION 832-190  

832-190   Exception where entity not a party to the structured arrangement  

Sections 832-180 and 832-185 do not apply to an entity in respect of a payment if:

(a) the payment is made under a *structured arrangement to which the entity is not a *party; and

(b) subsection 832-200(3) does not apply.

SECTION 832-195   When a hybrid financial instrument mismatch is an offshore hybrid mismatch  

832-195(1)    
A *hybrid financial instrument mismatch is an offshore hybrid mismatch if:

(a) the *deduction component of the mismatch is a *foreign income tax deduction; and

(b) no amount becomes *subject to Australian income tax as a result of the application of section 832-185 in relation to the mismatch; and

(c) the mismatch is not covered by *foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision.

Note:

An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832-H .

832-195(2)    
The amount of the *offshore hybrid mismatch is the amount of the *hybrid financial instrument mismatch.

SECTION 832-200   When a payment gives rise to a hybrid financial instrument mismatch  

832-200(1)    
A payment gives rise to a hybrid financial instrument mismatch if:

(a) the payment gives rise to a *hybrid mismatch under section 832-215 or 832-230 ; and

(b) subsection (3) or (6) applies.

Note:

As a result of ordering rules in later Subdivisions, a payment that gives rise to a hybrid financial instrument mismatch does not also give rise to a hybrid mismatch under a later Subdivision of this Division.

832-200(2)    
The deduction component of the *hybrid financial instrument mismatch is the *deduction component of the *deduction/non-inclusion mismatch.

832-200(3)    
This subsection applies if the following entities are related for the purposes of subsection (4):

(a) the entity that made the payment;

(b) each entity that is a *liable entity in respect of the income or profits of the recipient of the payment.

Note:

For the definition of liable entity, see section 832-325 .

Related persons

832-200(4)    
Two entities are related for the purposes of this subsection if any of the following apply:

(a) the entities are in the same *Division 832 control group;

(b) one of the entities holds a *total participation interest of 25% or more in the other entity;

(c) a third entity holds a total participation interest of 25% or more in each of the entities.

832-200(5)    
For the purposes of subsection (4), treat the *direct participation interest of an entity (the holding entity ) in another entity (the test entity ) as being the sum of the direct participation interests held by the holding entity and its *associates in the test entity.

Structured arrangement

832-200(6)    
This subsection applies if the payment is made under a *structured arrangement.

SECTION 832-205   Meaning of Division 832 control group  

832-205(1)    
Two or more entities are in the same Division 832 control group if any of the following apply:

(a) each of the entities is a member of a group of entities that are consolidated for accounting purposes as a single group;

(b) one of the entities holds a *total participation interest of 50% or more in each of the other entities;

(c) a third entity holds a total participation interest of 50% or more in each of the entities.

832-205(1A)    

If a trust is in a Division 832 control group as a result of the operation of subsection (1), then the trustee of the trust is in the same Division 832 control group .

832-205(2)    
For the purposes of subsection (1), in determining a *direct participation interest of one entity in another entity, disregard paragraph 350(1)(b) of the Income Tax Assessment Act 1936 (rights of shareholders to vote or participate in certain decision-making).

SECTION 832-210   Meaning of structured arrangement  

832-210(1)    
A payment that gives rise to a *hybrid mismatch is made under a structured arrangement if:

(a) the hybrid mismatch is priced into the terms of a *scheme under which the payment is made; or

(b) it is reasonable to conclude that the hybrid mismatch is a design feature of a scheme under which the payment is made.

832-210(2)    
The question whether a *hybrid mismatch is a design feature of a *scheme must be determined by reference to the facts and circumstances that exist in connection with the scheme, including the terms of the scheme.

832-210(3)    
An entity that entered into or carried out the *scheme or any part of the scheme is a party to the *structured arrangement unless:

(a) the entity could not reasonably have been expected to be aware that the scheme gave rise to a *hybrid mismatch; and

(b) no other entity in the same *Division 832 control group as the entity could reasonably have been expected to be aware that the scheme gave rise to a hybrid mismatch; and

(c) the financial position of each entity in the Division 832 control group would reasonably be expected to have been the same if the scheme had not given rise to the hybrid mismatch.

SECTION 832-215   Hybrid mismatch  

832-215(1)    
A payment gives rise to a hybrid mismatch if:

(a) the payment is made under any of the following:

(i) a *debt interest;

(ii) an *equity interest;

(iii) a *derivative financial arrangement;

(iv) an *arrangement covered by subsection (2); and

(b) the payment might reasonably be expected to give rise to a *deduction/non-inclusion mismatch; and

(c) the mismatch that might reasonably be expected to arise, or a part of that mismatch, meets a hybrid requirement in section 832-220 or 832-225 .

Transfers of financial instruments

832-215(2)    
An *arrangement is covered by this subsection if:

(a) the arrangement is any of the following:

(i) a reciprocal purchase agreement (otherwise known as a repurchase agreement);

(ii) a securities lending arrangement;

(iii) a similar arrangement; and

(b) an entity acquires any of the following under the arrangement:

(i) a *debt interest;

(ii) an *equity interest;

(iii) a *derivative financial arrangement.

Amount of the hybrid mismatch

832-215(3)    
The amount of the *hybrid mismatch is:

(a) the amount of the *deduction/non-inclusion mismatch, unless paragraph (b) applies; or

(b) if only a part of the deduction/non-inclusion mismatch meets a hybrid requirement mentioned in paragraph (1)(c) - the amount of that part of the deduction/non-inclusion mismatch.

SECTION 832-220   Hybrid requirement - payments under financial instruments  

832-220(1)    
A *deduction/non-inclusion mismatch, or a part of such a mismatch, meets the hybrid requirement in this section if:

(a) the payment that gives rise to the mismatch is made under any of the following:

(i) a *debt interest;

(ii) an *equity interest;

(iii) a *derivative financial arrangement; and

(b) the mismatch, or the part of the mismatch, is attributable to differences in the treatment of the debt interest, equity interest or derivative financial arrangement,arising from the terms of the interest or arrangement; and

(c) the exception in subsection (2) does not apply.

Example:

Redeemable preferences shares that are treated under this Act as a debt interest, and in a foreign country as an equity interest.

Exception for deferrals not exceeding 3 years

832-220(2)    
This exception applies if:

(a) the difference in treatment mentioned in paragraph (1)(b) primarily relates to a deferral in the recognition of income or profits under the *debt interest, the *equity interest or the *derivative financial arrangement; and

(b) the term of the interest or arrangement is 3 years or less.

SECTION 832-225   Hybrid requirement - payments under transfers of certain financial instruments  

832-225(1)    
A *deduction/non-inclusion mismatch, or a part of such a mismatch, meets the hybrid requirement in this section if:

(a) the payment that gives rise to the mismatch is made under an *arrangement covered by subsection 832-215(2) ; and

(b) the mismatch, or the part of the mismatch, is attributable to differences in the treatment of the arrangement; and

(c) the exception in subsection (2) of this section does not apply.

Exception for deferrals not exceeding 3 years

832-225(2)    
This exception applies if:

(a) the difference in treatment mentioned in paragraph (1)(b) primarily relates to a deferral in the recognition of income or profits under the *arrangement; and

(b) the term of the arrangement is 3 years or less.

SECTION 832-230   Hybrid mismatch - integrity rule for substitute payments  

832-230(1)    
A payment also gives rise to a hybrid mismatch if:

(a) the payment gives rise to a *deduction/non-inclusion mismatch; and

(b) the payment is made under an *arrangement under which any of the following is transferred:

(i) a *debt interest;

(ii) an *equity interest;

(iii) a *derivative financial arrangement; and

(c) the payment, or a part of the payment, (the substitute payment ) could reasonably be regarded as having been converted into a form that is in substitution for a *return (however described) on the interest or arrangement; and

(d) the return is covered by subsection (2).

832-230(2)    
This subsection covers a *return (however described) on a *debt interest, an *equity interest, or a *derivative financial arrangement, that is transferred if any of the following apply:

(a) the return is made to the payer of the substitute payment, and is not *subject to foreign income tax or *subject to Australian income tax;

(b) the return is not made to the payer of the substitute payment, but if it had been it would not have been subject to foreign income tax or subject to Australian income tax;

(c) if the return were instead made to the payee of the substitute payment:

(i) it would be subject to foreign income tax or subject to Australian income tax; or

(ii) it would give rise to a *hybrid mismatch under section 832-215 .

Amount of the hybrid mismatch

832-230(3)    
The amount of the *hybrid mismatch is the amount of the *deduction/non-inclusion mismatch.

SECTION 832-235   Extended operation of this Subdivision in relation to concessional foreign taxes  

832-235(1)    
This section applies in working out, for the purposes of this Subdivision, whether an amount is *subject to foreign income tax.

832-235(2)    
An amount of income or profits of an entity is treated as if it were not *subject to foreign income tax if:

(a) apart from this section, the amount would be *subject to foreign income tax; and

(b) the rate of *foreign income tax (except a tax covered by subsection 832-130(7) ) (the lower rate ) on the amount under the law of the relevant foreign country is lower than the rate (the ordinary rate ) that would ordinarily be imposed on interest income derived by an entity of that kind in the foreign country.

Amount of a deduction/non-inclusion mismatch

832-235(3)    
However, for the purposes of working out the amount of a *deduction/non-inclusion mismatch that is affected by this section, the amount of a payment that is treated by this section as not being *subject to foreign income tax is to be discounted by multiplying it by the following fraction:

Lower rate
Ordinary rate

where:

lower rate means the lower rate mentioned in paragraph (2)(b).

ordinary rate means the ordinary rate mentioned in paragraph (2)(b).

SECTION 832-240   Adjustment if hybrid financial instrument payment is income in a later year  

832-240(1)    
There is an adjustment under this section for an entity in an income year (the adjustment year ) if:

(a) an amount was not allowable as a deduction for the entity in an earlier income year under section 832-180 in respect of a payment that gave rise to a *hybrid financial instrument mismatch; and

(b) an amount (the taxed amount ) of the payment is:

(i) *subject to foreign income tax in a foreign country in a *foreign tax period that ends within 12 months after the end of the adjustment year; or

(ii) *subject to Australian income tax in the adjustment year.

832-240(2)    
The taxed amount is an amount the entity can deduct in the adjustment year.

832-240(2A)    

Subsection (2) does not apply if, on the assumption that subsections 832-180(2) and 832-725(6) were disregarded, no amount would have been allowable as a deduction in respect of the payment because of subsection 832-725(3) .

832-240(3)    
The total amountsdeducted under this section in respect of a payment must not exceed the amount that was not allowable as a deduction in respect of the payment as mentioned in paragraph (1)(a).

No adjustment for concessional taxes

832-240(4)    
This section does not apply if the *hybrid mismatch would not have arisen apart from section 832-235 .

Subdivision 832-D - Hybrid payer mismatch  

Guide to Subdivision 832-D

SECTION 832-280   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-285	Deduction not allowable - Australian primary response
832-290	Inclusion in assessable income - Australian secondary response
832-295	Exception where entity not a party to the structured arrangement
832-300	When a hybrid payer mismatch is an offshore hybrid mismatch
832-305	When a payment gives rise to a hybrid payer mismatch
832-310	Hybrid mismatch
832-315	Hybrid requirement - assume payment was made to same recipient but by an ungrouped payer
832-320	Hybrid payer
832-325	Meaning of liable entity
832-330	Neutralising amount
832-335	Adjustment if hybrid payer has dual inclusion income in a later year

Operative provisions

SECTION 832-285   Deduction not allowable - Australian primary response  

832-285(1)    
This section applies to an entity if:

(a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

(b) the deduction is the *deduction component of a *hybrid payer mismatch to which the payment gives rise.

832-285(2)    
So much of the deduction as does not exceed the *neutralising amount for the *hybrid payer mismatch is not allowable as a deduction.

Note:

The neutralising amount is worked out under section 832-330 .

SECTION 832-290   Inclusion in assessable income - Australian secondary response  

832-290(1)    
This section applies to an entity if:

(a) the entity is the recipient of a payment that gives rise to a *hybrid payer mismatch; and

(b) the *deduction component of the mismatch is a *foreign income tax deduction; and

(c) the secondary response is required (see subsection (2)).

When secondary response is required

832-290(2)    

For the purposes of paragraph (1)(c), the secondary response is required unless, in the country in which the *foreign income tax deduction arose, the mismatch is covered by *foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision.

Inclusion of amount in assessable income

832-290(3)    
An amount equal to the *neutralising amount for the *hybrid payer mismatch is included in the entity ' s assessable income for the income year mentioned in subsection (4). The assessable income is taken to have been derived from the same source as the payment.

832-290(4)    
The income year (the inclusion year ) is:

(a) if the *foreign tax period in which the *foreign income tax deduction arises falls wholly within an income year of the entity - that income year; or

(b) if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity - the earlier of those income years.

SECTION 832-295  

832-295   Exception where entity not a party to the structured arrangement  

Sections 832-285 and 832-290 do not apply to an entity in respect of a payment if:

(a) the payment is made under a *structured arrangement to which the entity is not a *party; and

(b) subsection 832-305(3) does not apply.

SECTION 832-300   When a hybrid payer mismatch is an offshore hybrid mismatch  

832-300(1)    
A *hybrid payer mismatch is an offshore hybrid mismatch if:

(a) the *deduction component of the mismatch is a *foreign income tax deduction; and

(b) no amount becomes *subject to Australian income tax as a result of the application of section 832-290 in relation to the mismatch; and

(c) the mismatch is not covered by *foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision.

Note:

An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832-H .

832-300(2)    
The amount of the *offshore hybrid mismatch is the *neutralising amount for the *hybrid payer mismatch.

SECTION 832-305   When a payment gives rise to a hybrid payer mismatch  

832-305(1)    
A payment gives rise to a hybrid payer mismatch if:

(a) the payment gives rise to a *hybrid mismatch under section 832-310 ; and

(b) subsection (3) or (4) applies.

832-305(2)    
The deduction component of the *hybrid payer mismatch is the *deduction component of the *deduction/non-inclusion mismatch mentioned in section 832-310 .

Control group

832-305(3)    
This subsection applies if the following entities are in the same *Division 832 control group:

(a) the *hybrid payer;

(b) each entity that is a *liable entity in respect of the income or profits of the hybrid payer.

Note:

For the meaning of Division 832 control group , see section 832-205 .

Structured arrangement

832-305(4)    
This subsection applies if the payment is made under a *structured arrangement.

Note:

For the meaning of structured arrangement , see section 832-210 .

SECTION 832-310   Hybrid mismatch  

832-310(1)    
A payment gives rise to a hybrid mismatch if:

(a) the payment gives rise to a *deduction/non-inclusion mismatch; and

(b) the payment meets the hybrid requirement in section 832-315 .

Amount of the hybrid mismatch

832-310(2)    
The amount of the *hybrid mismatch is the lesser of:

(a) the amount of the *deduction/non-inclusion mismatch; and

(b) if there is an excess under either subparagraph 832-315(2)(b)(i) or 832-315(3)(b)(i) - the amount of the excess.

Ordering rule

832-310(3)    
However, a payment does not give rise to a hybrid mismatch under this section if it gives rise to a *hybrid financial instrument mismatch.

SECTION 832-315   Hybrid requirement - assume payment was made to same recipient but by an ungrouped payer  

832-315(1)    
The payment meets the hybrid requirement in this section if:

(a) the payment is made by a *hybrid payer; and

(b) subsection (2) or (3) applies.

Payment would have been taxed in Australia

832-315(2)    
This subsection applies if:

(a) the non-including country identified in subsection 832-320(3) is Australia; and

(b) either:

(i) the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or

(ii) on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch.

Payment would have been taxed in a foreign country

832-315(3)    
This subsection applies if:

(a) the non-including country identified in subsection 832-320(3) is a foreign country; and

(b) either:

(i) the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to foreign income tax for a *foreign tax period was instead worked out on the assumption in subsection (4); or

(ii) on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch.

Assumption - payer was an ungrouped entity

832-315(4)    
For the purposes of subsections (2) and (3), assume that the payment had instead been made:

(a) to the same recipient; but

(b) by an entity that was a *liable entity in the non-including country identified in subsection 832-320(3) only in respect of its own income or profits.

Note:

For the meaning of liable entity , see section 832-325 .

SECTION 832-320   Hybrid payer  

832-320(1)    
An entity (the test entity ) is a hybrid payer in relation to a payment it makes if:

(a) subsection (2) applies to the entity in relation to a country and the payment; and

(b) subsection (3) applies to the entity in relation to a different country and the payment.

Note:

The entity, the payments it makes, and its income or profits are generally identified disregarding tax provisions: see section 832-30 .

Deducting country - entity is not grouped with recipient

832-320(2)    
This subsection applies to a test entity in relation to a country (the deducting country ) and a payment the test entity makes if:

(a) the test entity, or another entity, is a *liable entity in the deducting country in respect of income or profits of the test entity (or a part of those income or profits); and

(b) that liable entity is not also a liable entity in the deducting country in respect of income or profits of the recipient of the payment.

Non-including country - entity is grouped with recipient

832-320(3)    
This subsection applies to a test entity in relation to a country (a non-including country ) and a payment the test entity makes if:

(a) the test entity, or another entity, is a *liable entity in the non-including country in respect of income or profits of the test entity (or a part of the income or profits); and

(b) that liable entity is also a liable entity in the non-including country in respect of income or profits of the recipient of the payment.

SECTION 832-325   Meaning of liable entity  

Entity is a taxpayer in respect of its own income or profits

832-325(1)    

An entity is a liable entity , in a country, in respect of its income or profits if:

(a) for Australia:

(i) *tax is imposed on the entity in respect of all or part of its income or profits for an income year; or

(ii) the entity is a *public trading trust (including a trust that makes a choice under section 703-50 (Choice to consolidate a consolidatable group)); or

(iii) the entity is an entity to which Division 295 (about superannuation entities) applies; and

(b) for a foreign country - *foreign income tax (except a tax covered by subsection 832-130(7) ) is imposed under the law of the foreign country:

(i) on the entity in respect of all or part of its income or profits for a *foreign tax period; or

(ii) on the income or profits of the entity in a way that corresponds to the way that foreign income tax is imposed under the law of that country on the income or profits of a company (regardless whether the foreign income tax is actually imposed on that entity, or another entity).

Note 1:

The entity, and its income or profits, are generally identified disregarding tax provisions: see section 832-30 .

Note 2:

An example is an entity that is a company (and is not a subsidiary member of a consolidated group or MEC group). In Australia, a company is the liable entity in respect of its income or profits.

Entity is a taxpayer in respect of another entity ' s income or profits

832-325(2)    
An entity is a liable entity , in a country, in respect of the income or profits of another entity (the test entity ) if:

(a) for Australia - *tax is imposed on the entity in respect of all or part of the income or profits of the test entity for an income year; and

(b) for a foreign country - *foreign income tax (except a tax covered by subsection 832-130(7) ) is imposed under the law of the foreign country on the entity in respect of all or part of the income or profits of the test entity for a *foreign tax period.

Note 1:

The test entity, and its income or profits, are generally identified disregarding tax provisions: see section 832-30 .

Note 2:

An example is a test entity that is a partnership. In Australia, each partner in the partnership is a liable entity in respect of the income or profits of the partnership.

832-325(2A)    

However, an entity is not a liable entity in a country in respect of the income or profits of a test entity under subsection (2) if the test entity is the liable entity in that country in respect of the income or profits as a result of the operation of subparagraph (1)(a)(ii), (a)(iii) or (b)(ii).

832-325(3)    
To avoid doubt, the following outcomes may arise under subsection (2) in a country:

(a) there may be one or more *liable entities in respect of the income or profits of a test entity;

(b) there may be one or more interposed entities between the test entity and an entity that is a liable entity in respect of the income or profits of the test entity.

Entity not required to be actually liable to pay tax or foreign income tax

832-325(4)    
To avoid doubt, an entity may be a *liable entity in respect of its own, or another entity ' s, income or profits in a country even if any of the following situations exist:

(a) there are no actual income or profits;

(b) there are income or profits, but no part of the income or profits is:

(i) for Australia - *subject to Australian income tax; or

(ii) for a foreign country - *subject to foreign income tax in that foreign country;

(c) the entity is not actually liable to pay an amount of *tax or *foreign income tax.

Note:

In determining whether an entity is a liable entity in such a situation, assume that income or profits within the tax base of the country exist.

Effect of CFC regimes

832-325(5)    
An entity is not a liable entity in respect of income or profits of another entity (the test entity ) merely because all or part of the income or profits of the test entity are:

(a) included under section 456 or 457 of the Income Tax Assessment Act 1936 in the assessable income of the other entity; or

(b) included under a corresponding provision of a law of a foreign country in working out the tax base of the other entity (including a tax base of nil, or a negative amount).

SECTION 832-330   Neutralising amount  

832-330(1)    
The neutralising amount for a *hybrid payer mismatch is the amount of the *hybrid mismatch from subsection 832-310(2) , reduced (but not below nil) by the amount of any *dual inclusion income that is available to be applied in working out the neutralising amount.

Australian deduction - inclusions must be in Australia and in the non-including country

832-330(2)    
An amount of *dual inclusion income is available to be applied to reduce the *neutralising amount for a *hybrid payer mismatch to which section 832-285 applies if:

(a) the *hybrid payer is eligible to apply the amount (see subsection 832-680(7) ); and

(b) the amount is *subject to Australian income tax for the purposes of subsection 832-680(1) in the income year mentioned in subsection 832-285(1) ; and

(c) the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the non-including country identified in subsection 832-320(3) .

Note:

Section 832-680 modifies the meanings of subject to Australian income tax and subject to foreign income tax for the purpose of working out dual inclusion income.

Australian non-inclusion - inclusions must be in Australia and in the deducting country

832-330(3)    
An amount of *dual inclusion income is available to be applied to reduce the *neutralising amount for a *hybrid payer mismatch to which section 832-290 applies if:

(a) the *hybrid payer is eligible to apply the amount (see subsection 832-680(7) ); and

(b) the amount is *subject to Australian income tax for the purposes of subsection 832-680(1) in the inclusion year mentioned in subsection 832-290(4) ; and

(c) the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the deducting country mentioned in subsection 832-320(2) .

Offshore hybrid mismatch - inclusions must be in the deducting country and the non-including country

832-330(4)    
An amount of *dual inclusion income is available to be applied to reduce the *neutralising amount for a *hybrid payer mismatch that is an *offshore hybrid mismatch if:

(a) the *hybrid payer is eligible to apply the amount (see subsection 832-680(7) ); and

(b) in the same *foreign tax period as the period in which the *foreign income tax deduction arose, the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the deducting country mentioned in subsection 832-320(2) ; and

(c) the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the non-including country identified in subsection 832-320(3) .

SECTION 832-335   Adjustment if hybrid payer has dual inclusion income in a later year  

832-335(1)    
There is an adjustment under this section for an entity in an income year (the adjustment year ) if:

(a) in an earlier income year, all or part of a deduction of the entity in respect of a payment that gave rise to a *hybrid payer mismatch was not allowable under section 832-285 ; and

(b) an amount of *dual inclusion income is:

(i) available to be applied by the *hybrid payer in the adjustment year; and

(ii) *subject to Australian income tax for the purposes of subsection 832-680(1) in the adjustment year; and

(iii) *subject to foreign income tax for the purposes of subsection 832-680(1) in the non-including country identified in subsection 832-320(3) .

832-335(2)    
So much of the amount of *dual inclusion income that satisfies paragraph (1)(b) as does not exceed the amount that was not allowable as a deduction is an amount the entity can deduct in the adjustment year.

832-335(3)    
For the purposes of a later application of this section, treat the amount that was not allowable as a deduction under section 832-285 as being reduced by the amount deducted under subsection (2) of this section.

Subdivision 832-E - Reverse hybrid mismatch  

Guide to Subdivision 832-E

SECTION 832-375   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-380	Deduction not allowable - Australian primary response
832-385	Exception where entity not a party to the structured arrangement
832-390	When a reverse hybrid mismatch is an offshore hybrid mismatch
832-395	When a payment gives rise to a reverse hybrid mismatch
832-400	Hybrid mismatch
832-405	Hybrid requirement - assume payment was made to an investor
832-410	Reverse hybrid

Operative provisions

SECTION 832-380   Deduction not allowable - Australian primary response  

832-380(1)    
This section applies to an entity if:

(a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

(b) the deduction is the *deduction component of a *reverse hybrid mismatch to which the payment gives rise.

832-380(2)    
So much of the deduction as does not exceed the amount of the *reverse hybrid mismatch is not allowable as a deduction.

SECTION 832-385  

832-385   Exception where entity not a party to the structured arrangement  

Section 832-380 does not apply to an entity in respect of a payment if:

(a) the payment is made under a *structured arrangement to which the entity is not a *party; and

(b) subsection 832-395(3) does not apply.

SECTION 832-390   When a reverse hybrid mismatch is an offshore hybrid mismatch  

832-390(1)    
A *reverse hybrid mismatch is an offshore hybrid mismatch if:

(a) the *deduction component of the mismatch is a *foreign income tax deduction; and

(b) the country in which the foreign income tax deduction arose does not have *foreign hybrid mismatch rules that correspond to this Subdivision.

Note:

An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832-H .

832-390(2)    
The amount of the *offshore hybrid mismatch is the amount of the *reverse hybrid mismatch.

SECTION 832-395   When a payment gives rise to a reverse hybrid mismatch  

832-395(1)    
A payment gives rise to a reverse hybrid mismatch if:

(a) the payment gives rise to a *hybrid mismatch under section 832-400 ; and

(b) subsection (3) or (4) applies.

832-395(2)    
The deduction component of the *reverse hybrid mismatch is the *deduction component of the *deduction/non-inclusion mismatch mentioned in section 832-400 .

Control group

832-395(3)    
This subsection applies if the following entities are in the same *Division 832 control group:

(a) the entity that made the payment;

(b) the *reverse hybrid;

(c) each entity that is an investor identified in paragraph 832-410(2)(c) in relation to the reverse hybrid.

Note:

For the meaning of Division 832 control group , see section 832-205 .

Structured arrangement

832-395(4)    
This subsection applies if the payment is made under a *structured arrangement.

Note:

For the meaning of structured arrangement , see section 832-210 .

SECTION 832-400   Hybrid mismatch  

832-400(1)    
A payment gives rise to a hybrid mismatch if:

(a) the payment gives rise to a *deduction/non-inclusion mismatch; and

(b) the payment meets the hybrid requirement in section 832-405 .

Amount of the hybrid mismatch

832-400(2)    
The amount of the *hybrid mismatch is the lesser of:

(a) the amount of the *deduction/non-inclusion mismatch; and

(b) if there is an excess under either subparagraph 832-405(2)(b)(i) or (3)(b)(i) - the amount of the excess.

Ordering rule

832-400(3)    
A payment does not give rise to a hybrid mismatch under this section if it gives rise to a *hybrid financial instrument mismatch or a *hybrid payer mismatch.

SECTION 832-405   Hybrid requirement - assume payment was made to an investor  

832-405(1)    
The payment meets the hybrid requirement in this section if:

(a) the payment is made directly, or indirectly through one or more interposed entities, to a *reverse hybrid; and

(b) subsection (2) or (3) applies.

Payment would have been taxed in Australia

832-405(2)    
This subsection applies if:

(a) the investor country identified in subsection 832-410(3) is Australia; and

(b) either:

(i) the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or

(ii) on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

Payment would have been taxed in a foreign country

832-405(3)    
This subsection applies if:

(a) the investor country identified in subsection 832-410(3) is a foreign country; and

(b) either:

(i) the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to foreign income tax for a *foreign tax period was instead worked out on the assumption in subsection (4); or

(ii) on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

Assumption - payment was made to the investing taxpayer

832-405(4)    
For the purposes of subsections (2) and (3), assume that the payment had instead been made:

(a) by the same entity; but

(b) directly to the investing taxpayer identified in paragraph 832-410(3)(a) or (b).

SECTION 832-410   Reverse hybrid  

832-410(1)    
An entity (the test entity ) is a reverse hybrid in relation to a payment made to it if:

(a) subsection (2) applies to the entity in relation to a country and the payment; and

(b) subsection (3) applies to the entity in relation to a different country and the payment.

Note:

The entity, the payments it makes, and its income or profits are generally identified disregarding tax provisions: see section 832-30 .

Formation country - entity is transparent and payment is not within the tax base

832-410(2)    
This subsection applies to a test entity in relation to a country (the formation country ) and a payment made to the entity if:

(a) the test entity is formed in the formation country; and

(b) for the formation country, the test entity is:

(i) not a *liable entity; and

(ii) for Australia - not a *member of a *consolidated group or *MEC group; and

(c) for the formation country, another entity (an investor ) is a liable entity in respect of income or profits of the test entity.

Note:

For the meaning of liable entity , see section 832-325 .

Investor country - entity is not transparent

832-410(3)    
This subsection applies to a test entity in relation to a country (the investor country ) and a payment made to the entity if, in the investor country:

(a) an investor identified in paragraph (2)(c) is a *liable entity (an investing taxpayer ) in respect of its own income or profits, but not in respect of the test entity ' s income or profits; or

(b) an entity that is a liable entity (also an investing taxpayer ) in respect of the investor ' s income or profits is not also a liable entity in respect of the test entity ' s income or profits.

Subdivision 832-F - Branch hybrid mismatch  

Guide to Subdivision 832-F

SECTION 832-450   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-455	Deduction not allowable
832-460	Exception where entity not a party to the structured arrangement
832-465	When a branch hybrid mismatch is an offshore hybrid mismatch
832-470	Branch hybrid mismatch
832-475	Hybrid mismatch
832-480	Hybrid requirement - payment made directly or indirectly to a branch hybrid
832-485	Branch hybrid

Operative provisions

SECTION 832-455   Deduction not allowable  

832-455(1)    
This section applies to an entity if:

(a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and

(b) the deduction is the *deduction component of a *branch hybrid mismatch to which the payment gives rise.

832-455(2)    
So much of the deduction as does not exceed the amount of the *branch hybrid mismatch is not allowable as a deduction.

832-455(3)    
However, this section does not apply in relation to the *branch hybrid mismatch if subsection 23AH(2) of the Income Tax Assessment Act 1936 does not apply in relation to the payment because of subsection (4A) of that section.

SECTION 832-460  

832-460   Exception where entity not a party to the structured arrangement  

Section 832-455 does not apply to an entity in respect of a payment if:

(a) the payment is made under a *structured arrangement to which the entity is not a *party; and

(b) subsection 832-470(3) does not apply.

SECTION 832-465   When a branch hybrid mismatch is an offshore hybrid mismatch  

832-465(1)    
A *branch hybrid mismatch is an offshore hybrid mismatch if:

(a) the *deduction component of the mismatch is a *foreign income tax deduction; and

(b) the country in which the foreign income tax deduction arose does not have *foreign hybrid mismatch rules that correspond to this Subdivision; and

(c) subsection 23AH(4A) of the Income Tax Assessment Act 1936 does not apply in relation to the branch hybrid mismatch.

Note:

An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832-H .

832-465(2)    
The amount of the *offshore hybrid mismatch is the amount of the *branch hybrid mismatch.

SECTION 832-470   Branch hybrid mismatch  

832-470(1)    
A payment gives rise to a branch hybrid mismatch if:

(a) the payment gives rise to a *hybrid mismatch under section 832-475 ; and

(b) subsection (3) or (4) applies.

832-470(2)    
The deduction component of the *branch hybrid mismatch is the *deduction component of the *deduction/non-inclusion mismatch mentioned in section 832-475 .

Control group

832-470(3)    
This subsection applies if the following entities are in the same *Division 832 control group:

(a) the entity that made the payment;

(b) the *branch hybrid.

Note:

For the meaning of Division 832 control group , see section 832-205 .

Structured arrangement

832-470(4)    
This subsection applies if the payment is made under a *structured arrangement.

Note:

For the meaning of structured arrangement , see section 832-210 .

SECTION 832-475   Hybrid mismatch  

832-475(1)    
A payment gives rise to a hybrid mismatch if:

(a) the payment gives rise to a *deduction/non-inclusion mismatch; and

(b) the mismatch, or a part of the mismatch, meets the hybrid requirement in section 832-480 .

Amount of the hybrid mismatch

832-475(2)    
The amount of the *hybrid mismatch is the lesser of:

(a) the amount of the *deduction/non-inclusion mismatch; and

(b) if there is an excess under either subparagraph 832-480(2)(b)(i) or (3)(b)(i) - the amount of the excess.

Ordering rule

832-475(3)    
A payment does not give rise to a hybrid mismatch under this section if it gives rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

SECTION 832-480   Hybrid requirement - payment made directly or indirectly to a branch hybrid  

832-480(1)    
The payment meets the hybrid requirement in this section if:

(a) the payment is made directly, or indirectly through one or more interposed entities, to a *branch hybrid; and

(b) subsection (2) or (3) applies.

Payment would have been taxed in Australia

832-480(2)    
This subsection applies if:

(a) the residence country identified in subsection 832-485(2) is Australia; and

(b) either:

(i) the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or

(ii) on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch or a *hybrid payer mismatch.

Payment would have been taxed in a foreign country

832-480(3)    
This subsection applies if:

(a) the residence country identified in subsection 832-485(2) is a foreign country; and

(b) either:

(i) the amount of the *deduction/non-inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was *subject to foreign income tax for a *foreign tax period was instead worked out on the assumption in subsection (4); or

(ii) on the assumption in subsection (4), the payment would have given rise to a *hybrid financial instrument mismatch or a *hybrid payer mismatch.

Assumption - residence country treated payment as non-branch income

832-480(4)    
For the purposes of subsections (2) and (3), assume that the payment was instead treated as income derived by the *liable entity but not in carrying on a business at or through a *PE in another country for the purposes of:

(a) if the residence country is Australia - this Act; or

(b) if the residence country is a foreign country - the law of the residence country relating to *foreign income tax (except a tax covered by subsection 832-130(7) ).

SECTION 832-485   Branch hybrid  

832-485(1)    
An entity is a branch hybrid , in relation to a payment made to the entity, if:

(a) subsection (2) applies to the entity in relation to a country and a payment; and

(b) subsection (4) applies to the entity in relation to the payment.

Residence country applies branch profits exemption

832-485(2)    
This subsection applies to an entity in relation to a country (the residence country ) and a payment made to the entity if, for that country:

(a) the entity satisfies the residency test in subsection 832-555(9) and is a *liable entity in respect of its own income or profits; and

(b) the payment is treated as income derived by the liable entity in carrying on a business at or through a *PE in another country; and

(c) as a result of an exemption or other tax concession to which that liable entity is entitled in respect of income derived in carrying on a business at or through the PE, the payment is not:

(i) if the residence country is Australia - *subject to Australian income tax; or

(ii) if the residence country is a foreign country - *subject to foreign income tax in that foreign country.

Note:

For the meaning of liable entity , see section 832-325 .

832-485(3)    
In determining whether subparagraph (2)(c)(i) is satisfied, disregard the effect of subsection 23AH(4A) of the Income Tax Assessment Act 1936 .

Branch country fails to tax payment

832-485(4)    
This subsection applies to an entity in relation to the other country mentioned in paragraph (2)(b) (the branch country ) and a payment made to the entity if:

(a) the payment is treated as not having been derived in carrying on a business at or through a *PE of the entity, or as otherwise not having a sufficient connection to a taxable presence in the branch country, for the purposes of:

(i) if the branch country is Australia - this Act; or

(ii) if the branch country is a foreign country - the law of the branch country relating to *foreign income tax (except a tax covered by subsection 832-130(7) ); and

(b) as a result, the payment is not:

(i) if the branch country is Australia - *subject to Australian income tax; or

(ii) if the branch country is a foreign country - *subject to foreign income tax in that foreign country.

Modified meaning of permanent establishment

832-485(5)    
Subsection (6) applies if:

(a) the residence country has entered into, with the branch country:

(i) if either the residence country or the branch country is Australia - an *international tax agreement; or

(ii) if subparagraph (i) does not apply - a treaty or other agreement relating to the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital; and

(b) the agreement or treaty (as the case requires) contains:

(i) if either the residence country or the branch country is Australia - a *permanent establishment article; or

(ii) if subparagraph (i) does not apply - a provision corresponding to a permanent establishment article.

832-485(6)    
A reference in this section to a *PE in a country is taken to be a reference to a permanent establishment within the meaning of the relevant agreement or treaty in the country.

Subdivision 832-G - Deducting hybrid mismatch  

Guide to Subdivision 832-G

SECTION 832-525   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-530	Deduction not allowable
832-535	Additional requirements for secondary response
832-540	When a deducting hybrid mismatch is an offshore hybrid mismatch
832-545	When an amount gives rise to a deducting hybrid mismatch
832-550	Deducting hybrid
832-555	Identifying a secondary response country
832-560	Neutralising amount
832-565	Adjustment if deducting hybrid has dual inclusion income in a later year

Operative provisions

SECTION 832-530   Deduction not allowable  

832-530(1)    
This section applies to an entity if:

(a) apart from this section, the entity would be entitled to a deduction in an income year; and

(b) the deduction is a *deduction component of a *deducting hybrid mismatch.

832-530(2)    
So much of the deduction as does not exceed the *neutralising amount for the *deducting hybrid mismatch is not allowable as a deduction.

Note:

The neutralising amount is worked out under section 832-560 .

SECTION 832-535   Additional requirements for secondary response  

832-535(1)    
However, if there is a secondary response country in relation to the *deducting hybrid mismatch (see section 832-555 ), and that country is Australia, section 832-530 does not apply in relation to the *deducting hybrid mismatch unless:

(a) the secondary response is required (see subsection (2)); and

(b) subsection (3) or (4) applies.

When secondary response is required

832-535(2)    
For the purposes of paragraph (1)(a), the secondary response is required unless:

(a) a *liable entity in respect of the income or profits of the *deducting hybrid satisfies the residency test in subsection 832-555(9) in the primary response country; and

(b) in the primary response country, the mismatch is covered by *foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision.

Control group

832-535(3)    
This subsection applies if the following entities are in the same *Division 832 control group:

(a) the *deducting hybrid;

(b) if one or more entities other than the deducting hybrid is a *liable entity in respect of the income or profits of the deducting hybrid in a deducting country - each such liable entity.

Note:

For the meaning of Division 832 control group , see section 832-205 .

Structured arrangement

832-535(4)    
This subsection applies if the payment is made under a *structured arrangement.

Note 1:

For the meaning of structured arrangement , see section 832-210 .

Note 2:

If the deduction is a non-payment deduction, see also subsection 832-110(5) .

SECTION 832-540   When a deducting hybrid mismatch is an offshore hybrid mismatch  

832-540(1)    
A *deducting hybrid mismatch is an offshore hybrid mismatch if:

(a) the only *deduction components of the mismatch are *foreign income tax deductions; and

(b) the mismatch is not covered by *foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision, in any country in which a foreign income tax deduction arose.

Note:

An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832-H .

832-540(2)    
The amount of the *offshore hybrid mismatch is the *neutralising amount for the *deducting hybrid mismatch.

SECTION 832-545   When an amount gives rise to a deducting hybrid mismatch  

832-545(1)    
A payment or other amount gives rise to a deducting hybrid mismatch if there is a *deducting hybrid in relation to the payment or other amount.

832-545(2)    
Each *deduction component of the *deduction/deduction mismatch mentioned in paragraph 832-550(a) is a deduction component of the *deducting hybrid mismatch.

832-545(3)    
A *deducting hybrid mismatch is also a hybrid mismatch .

Ordering rule

832-545(4)    
However, a payment does not give rise to a deducting hybrid mismatch if it gives rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch, a *reverse hybrid mismatch or a *branch hybrid mismatch.

SECTION 832-550  

832-550   Deducting hybrid  

An entity is a deducting hybrid in relation to a payment or other amount if:

(a) the payment or other amount gives rise to a *deduction/deduction mismatch; and

(b) the entity is:

(i) for a payment - the entity that makes the payment; or

(ii) for an amount that represents the decline in value of a depreciating asset (see paragraph 832-110(4)(a) ) - the entity that holds the asset; or

(iii) for an amount that represents a share in the net loss of a partnership or other transparent entity (see paragraph 832-110(4)(b) ) - an entity that has an interest in the partnership or other transparent entity; and

(c) the entity:

(i) is a *liable entity in one deducting country (but not both); or

(ii) satisfies the residency test in subsection 832-555(9) in both deducting countries, and is also a liable entity in both deducting countries; or

(iii) is a *member of a *consolidated group or a *MEC group.

SECTION 832-555   Identifying a secondary response country  

832-555(1)    
This section applies if an amount gives rise to a *deducting hybrid mismatch, other than a deducting hybrid mismatch covered by subsection (2).

Dual residents - no secondary response

832-555(2)    
This subsection covers a *deducting hybrid mismatch if:

(a) the only *liable entity in respect of income or profits of the *deducting hybrid is the deducting hybrid; and

(b) the liable entity satisfies the residency test in subsection (9) in both deducting countries.

Note 1:

For the meaning of liable entity , see section 832-325 .

Note 2:

If the deducting hybrid is a dual resident, the mismatch may be neutralised by any country.

Country is a primary response country unless this section provides otherwise

832-555(3)    
A country in which the amount gives rise to a deduction or *foreign income tax deduction (a deducting country ) is a primary response country in relation to the *deducting hybrid mismatch unless the country is identified as the secondary response country under subsection (4), (5), (6), (7) or (8).

Both countries recognise the same liable entity - residence country is secondary response

832-555(4)    
If:

(a) the *deducting hybrid is itself the *liable entity in each deducting country; and

(b) in one deducting country, the deducting hybrid does not satisfy the residency test in subsection (9); and

(c) in the other deducting country, the deducting hybrid does satisfy the residency test;

then the country mentioned in paragraph (b) is the secondary response country.

832-555(5)    
If:

(a) in both deducting countries, the same entity is the *liable entity in respect of the income or profits of the *deducting hybrid; and

(b) in one deducting country, the liable entity does not satisfy the residency test in subsection (9); and

(c) in the other deducting country, the liable entity does satisfy the residency test;

then the country mentioned in paragraph (b) is the secondary response country.

Countries recognise different liable entities - non-parent country is secondary response

832-555(6)    
If:

(a) the *liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and

(b) in one deducting country, the *deducting hybrid is the liable entity;

then the country mentioned in paragraph (b) is the secondary response country.

832-555(7)    
If:

(a) the *liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and

(b) the *deducting hybrid is not the liable entity in either country; and

(c) in one deducting country, the entity that is a liable entity is also a liable entity in respect of the income or profits of the entity that is the liable entity in the other deducting country;

then the country mentioned second in paragraph (c) is the secondary response country.

832-555(8)    
If:

(a) the *liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and

(b) subsections (6) and (7) do not apply; and

(c) in one deducting country, the deducting hybrid and the liable entity both satisfy the residency test in subsection (9);

then the country mentioned in paragraph (c) is the secondary response country.

Residency test

832-555(9)    
An entity satisfies the residency test in this subsection in relation to a country, if:

(a) if the country is Australia - the entity is an *Australian entity; or

(b) if the country is a foreign country:

(i) the entity is a resident of the foreign country for the purposes of the law of the foreign country relating to *foreign income tax (except a tax covered by subsection 832-130(7) ); or

(ii) the tax base of the entity, as it relates to foreign income tax (except a tax covered by subsection 832-130(7) ), includes income from worldwide sources.

SECTION 832-560   Neutralising amount  

832-560(1)    
The neutralising amount for a *deducting hybrid mismatch is worked out by:

(a) starting with the lesser of the amounts of each deduction or *foreign income tax deduction to which the amount gives rise; and

(b) reducing (but not below nil) the result from paragraph (a) by the amount of any *dual inclusion income that is available to be applied in working out the neutralising amount.

Australian deduction - inclusions must be in Australia and in the other deducting country

832-560(2)    
An amount of *dual inclusion income is available to be applied to reduce the *neutralising amount for a *deducting hybrid mismatch to which section 832-530 applies if:

(a) the *deducting hybrid is eligible to apply the amount (see subsection 832-680(7) ); and

(b) the amount is *subject to Australian income tax for the purposes of subsection 832-680(1) in the income year mentioned in subsection 832-530(1) ; and

(c) the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which the *foreign income tax deduction arose.

Note:

Section 832-680 modifies the meanings of subject to Australian income tax and subject to foreign income tax for the purpose of working out dual inclusion income.

Offshore hybrid mismatch - inclusions must be in the deducting countries

832-560(3)    
An amount of *dual inclusion income is available to be applied to reduce the *neutralising amount for a *deducting hybrid mismatch that is an *offshore hybrid mismatch if:

(a) the *deducting hybrid is eligible to apply the amount (see subsection 832-680(7) ); and

(b) the amount is *subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which one of the *foreign income tax deductions arose, and in the same *foreign tax period; and

(c) the amount is also subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which another of the foreign income tax deductions arose.

SECTION 832-565   Adjustment if deducting hybrid has dual inclusion income in a later year  

832-565(1)    
There is an adjustment under this section for an entity in an income year (the adjustment year ) if:

(a) in an earlier income year, all or part of a deduction of the entity in respect of an amount that gave rise to a *deducting hybrid mismatch was not allowable under section 832-530 ; and

(b) an amount of *dual inclusion income is:

(i) available to be applied by the *deducting hybrid in the adjustment year; and

(ii) *subject to Australian income tax for the purposes of subsection 832-680(1) in the adjustment year; and

(iii) *subject to foreign income tax for the purposes of subsection 832-680(1) in the foreign country in which the *foreign income tax deduction arose.

832-565(2)    
So much of the amount of *dual inclusion income that satisfies paragraph (1)(b) as does not exceed the amount that was not allowable as a deduction is an amount the entity can deduct in the adjustment year.

832-565(2A)    

Subsection (2) does not apply if:

(a) the amount that was not allowable as a deduction under section 832-530 relates to a payment; and

(b) on the assumption that subsection 832-530(2) were disregarded, no amount would have been allowable as a deduction in respect of the payment because of subsection 832-725(3) .

832-565(3)    
For the purposes of a later application of this section, treat the amount that was not allowable as a deduction under section 832-530 as being reduced by the amount deducted under subsection (2) of this section.

Subdivision 832-H - Imported hybrid mismatch  

Guide to Subdivision 832-H

SECTION 832-605   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-610	Deduction not allowable
832-615	When a payment gives rise to an imported hybrid mismatch
832-620	Hybrid mismatch
832-625	Meaning of importing payment
832-630	Working out the amount of the imported hybrid mismatch
832-635	Carry forward of residual offshore hybrid mismatches

Operative provisions

SECTION 832-610   Deduction not allowable  

832-610(1)    
This section applies in relation to an *imported hybrid mismatch if, apart from this section, an entity would be entitled to a deduction in an income year in respect of a payment that gives rise to the imported hybrid mismatch.

832-610(2)    
So much of the deduction as does not exceed the amount of the *imported hybrid mismatch is not allowable as a deduction.

Note:

The amount of the imported hybrid mismatch is worked out under section 832-630 .

SECTION 832-615   When a payment gives rise to an imported hybrid mismatch  

832-615(1)    
A payment gives rise to an imported hybrid mismatch if:

(a) the payment gives rise to a *hybrid mismatch under section 832-620 ; and

(b) an item in the table in subsection (2) applies to the importing payment.

Note:

The amount of the imported hybrid mismatch is worked out under section 832-630 .

Priority rules for importing payments

832-615(2)    
If more than one item in the following table covers an *importing payment in relation to an *offshore hybrid mismatch, apply the first item that covers it. However, an item does not apply to an importing payment if:

(a) an item higher in the table applies to one or more other importing payments in relation to the offshore hybrid mismatch; and

(b) the offshore hybrid mismatch is, or will be, fully neutralised by the application of this Subdivision, and equivalent provisions of applicable *foreign hybrid mismatch rules, to those other importing payments.

Priority table for importing payments
Item	Topic	An *importing payment is covered if:
1	Structured arrangement	(a) the *importing payment is made under a *structured arrangement; and (b) the payer of the importing payment, the offshore deducting entity mentioned in paragraph 832-625(1)(c) , and each interposed entity (if applicable) are all *parties to the structured arrangement
2	Direct payment	(a) the *importing payment is made directly to the offshore deducting entity mentioned in paragraph 832-625(1)(c) ; and (b) the payer of the importing payment and the offshore deducting entity are in the same *Division 832 control group
3	Indirect payment	(a) the *importing payment is made indirectly through one or more interposed entities to the offshore deducting entity mentioned in paragraph 832-625(1)(c) ; and (b) the payer of the importing payment, the offshore deducting entity, and each interposed entity are in the same *Division 832 control group

Note 1:

For the meaning of structured arrangement , see section 832-210 .

Note 2:

For the meaning of Division 832 control group , see section 832-205 .

SECTION 832-620   Hybrid mismatch  

832-620(1)    
A payment gives rise to a hybrid mismatch if the payment is an *importing payment in relation to an *offshore hybrid mismatch.

Note:

For the meaning of offshore hybrid mismatch see sections 832-195 , 832-300 , 832-390 , 832-465 , and 832-540 .

Ordering rule

832-620(2)    
A payment does not give rise to a hybrid mismatch under this section if it gives rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch, a *reverse hybrid mismatch, a *branch hybrid mismatch or a *deducting hybrid mismatch.

Note:

However, for an imported hybrid mismatch to arise, a different payment must have given rise to an offshore hybrid mismatch that is of one of these kinds.

SECTION 832-625   Meaning of importing payment  

832-625(1)    
A payment an entity (the payer ) makes is an importing payment in relation to an *offshore hybrid mismatch if:

(a) either:

(i) apart from section 832-610 , the payment, or a part of the payment, gives rise to a deduction in an income year covered by subsection (2); or

(ii) the payment, or a part of the payment, gives rise to a *foreign income tax deduction in a foreign country that has *foreign hybrid mismatch rules, in a *foreign tax period covered by subsection (2); and

(b) the payment is made directly, or indirectly through one or more interposed entities, to another entity; and

(c) the other entity (the offshore deducting entity ) is:

(i) the entity that made the payment that gave rise to the offshore hybrid mismatch; or

(ii) if the offshore hybrid mismatch is a *deducting hybrid mismatch - the *deducting hybrid.

Period within which mismatch may be imported

832-625(2)    
For the purposes of paragraph (1)(a), a *foreign tax period or income year is covered by this subsection if:

(a) it ends at or after the end of the foreign tax period in which a *deduction component of the *offshore hybrid mismatch arose; and

(b) it has at least one day in common with that period.

Indirect importations

832-625(3)    
For the purposes of determining whether a payment is made indirectly through one or more interposed entities to the offshore deducting entity:

(a) it is sufficient if payments exist between each interposed entity, and it is not necessary to demonstrate that each payment in a series of payments funds the next payment, or is made after the previous payment; and

(b) each payment made by an interposed entity must:

(i) give rise to a *foreign income tax deduction in a country that does not have *foreign hybrid mismatch rules; and

(ii) not give rise to a *deduction/non-inclusion mismatch.

Loss surrender and grouping relief

832-625(4)    
Subsection (5) applies if:

(a) a payment is made to an entity (the first entity ); and

(b) another entity (the second entity ) makes a payment (the second payment ) to a third entity; and

(c) the first entity and the second entity are in the same *Division 832 control group; and

(d) under the law of a foreign country relating to *foreign income tax (except a tax covered by subsection 832-130(7) ):

(i) a *foreign income tax deduction arises in respect of the second payment; and

(ii) the foreign income tax deduction may, as a result of a concessional feature of that law, be transferred to, shared with, or otherwise applied by, the first entity.

Note:

For the meaning of Division 832 control group , see section 832-205 .

832-625(5)    
For the purposes of this section, treat:

(a) a payment as having been made by the first entity to the second entity; and

(b) the payment as having given rise to a *foreign income tax deduction (but not a *deduction/non-inclusion mismatch) in the foreign country mentioned in paragraph (4)(d).

SECTION 832-630   Working out the amount of the imported hybrid mismatch  

832-630(1)    
The amount of the *imported hybrid mismatch is the lesser of:

(a) the importing deduction amount worked out under subsection (2) in relation to the deduction; and

(b) the amount worked out using the following formula:

Importing deduction	×	Remaining offshore hybrid mismatch
Total importing deductions of equal priority

where:

importing deduction means the amount of the importing deduction amount worked out under subsection (2) in relation to the deduction.

remaining offshore hybrid mismatch means:

(a) unless paragraph (b) applies - the amount of the *offshore hybrid mismatch; or

(b) if an item higher in the table in subsection 832-615(2) applies to one or more other *importing payments in relation to the offshore hybrid mismatch - the amount of the offshore hybrid mismatch that is not, or will not be, neutralised by the application of this Subdivision, and equivalent provisions of applicable *foreign hybrid mismatch rules, in relation to those other importing payments.

total importing deductions of equal priority means the amount worked out by:

(a) identifying each *importing payment in relation to the *offshore hybrid mismatch to which the same item in the table in subsection 832-615(2) applies; and

(b) working out under subsection (2) the importing deduction amount in relation to the deduction or *foreign income tax deduction to which each such importing payment gives rise; and

(c) summing the results from paragraph (b) for each such importing payment.

832-630(2)    
The amount (the importing deduction amount ) worked out under this subsection in relation to a deduction or *foreign income tax deduction is:

(a) if the *importing payment is made directly to the offshore deducting entity - the amount of the deduction or foreign income tax deduction; or

(b) if the importing payment is made indirectly through one or more interposed entities to the offshore deducting entity - the lesser of:

(i) the amount of the deduction or foreign income tax deduction; and

(ii) the smallest amount of any foreign income tax deduction to which a payment by an interposed entity gave rise.

SECTION 832-635   Carry forward of residual offshore hybrid mismatches  

832-635(1)    
Subsection (2) applies if:

(a) a payment made in a particular *foreign tax period gave rise to an *offshore hybrid mismatch (the original mismatch ); and

(b) the original mismatch is only partly neutralised by the application of this Subdivision and equivalent provisions of applicable *foreign hybrid mismatch rules.

832-635(2)    
This Subdivision applies as if:

(a) the offshore deducting entity had made a payment in the next *foreign tax period; and

(b) the payment gave rise to an *offshore hybrid mismatch (the residual mismatch ); and

(c) the amount of the residual mismatch was the amount of the original mismatch that was not neutralised by the application of this Subdivision and equivalent provisions of applicable *foreign hybrid mismatch rules.

Subdivision 832-I - Dual inclusion income  

Guide to Subdivision 832-I

SECTION 832-675   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-680	Dual inclusion income, and when an entity is eligible to apply it

Operative provisions

SECTION 832-680   Dual inclusion income, and when an entity is eligible to apply it  

832-680(1)    
An amount of income or profits is dual inclusion income if 2 or more of the following outcomes arise for the amount:

(a) it is *subject to Australian income tax in an income year;

(b) it is *subject to foreign income tax in a foreign country in a *foreign tax period;

(c) it is subject to foreign income tax in a foreign country (other than the country mentioned in paragraph (b)) in a foreign tax period.

Note:

In certain circumstances, dual inclusion income can be applied to reduce the neutralising amount for a hybrid payer mismatch (see section 832-330 ) or a deducting hybrid mismatch (see section 832-560 ).

832-680(1A)    

In determining for the purposes of subsection (1) whether an amount of income or profits is *subject to Australian income tax, disregard subsection 832-125(2) (which is about when an amount included in the assessable income of a trust or partnership is subject to Australian income tax), so far as it applies in relation to assessable income from a foreign source.

Effect of Australian foreign income tax offset for underlying taxes

832-680(2)    
For the purposes of subsection (1), if:

(a) an amount of assessable income of a *corporate tax entity (the assessable amount ) would, apart from this subsection and subsection (1A), be *subject to Australian income tax; and

(b) an amount of *foreign income tax (except a tax covered by subsection 832-130(7) ) paid in respect of the assessable amount counts towards a *tax offset for an entity under Division 770 ;

then:

(c) if the amount of the tax offset equals or exceeds the amount of *tax that would, having regard only to the assessable amount and the rate at which tax is imposed on the entity, be payable on the assessable amount - the assessable amount is treated as if it were not subject to Australian income tax; and

(d) if the amount of the tax offset is a proportion of the amount of that tax - then that proportion of the assessable amount is treated as if it were not subject to Australian income tax.

Effect of credits etc. for underlying taxes

832-680(3)    
In determining for the purposes of subsection (1) whether an amount of income or profits is *subject to foreign income tax in a *foreign tax period, disregard subsection 832-130(3) .

Extension for certain on-payments through grouped entities

832-680(4)    
Subsection (5) applies, if:

(a) an entity is a member of a dual inclusion income group in a country (see subsection (6)); and

(b) an amount of income or profits of the entity (the on-payment amount ) is a payment received by the entity from another member of the dual inclusion income group at a time; and

(c) it is reasonable to conclude that the payment was funded by an amount of income or profits of the other member (the funding income or profits ); and

(d) it is reasonable to conclude that the funding income or profits were:

(i) if the country mentioned in paragraph (a) is Australia - *subject to Australian income tax; or

(ii) if the country mentioned in paragraph (a) is a foreign country - *subject to foreign income tax in the foreign country; and

(e) the funding income or profits were not *dual inclusion income under subsection (1) (disregarding subsection (5)) in the country.

832-680(4A)    

In determining whether paragraph (4)(d) is satisfied, have regard to any previous application of subsection (5).

832-680(5)    
For the purposes of subsection (1), the on-payment amount is treated as if it were:

(a) if the country mentioned in paragraph (4)(a) is Australia - *subject to Australian income tax in the income year in which the time mentioned in paragraph (4)(b) occurs; or

(b) if the country mentioned in paragraph (4)(a) is a foreign country - *subject to foreign income tax in the foreign country in the *foreign tax period in which the time mentioned in paragraph (4)(b) occurs.

832-680(6)    

Two or more entities (the member entities ) are members of a group (a dual inclusion income group ) in a country for the purposes of this Division if in that country:

(a) the same entity or entities are *liable entities in respect of the income or profits of each of the member entities; and

(b) no other entity is a liable entity in respect of the income or profits of any of the member entities.

Note:

For example, entities that are members of a consolidated group or MEC group.

When an entity is eligible to apply dual inclusion income

832-680(7)    
An entity is eligible to apply an amount of *dual inclusion income if the amount is income or profits of:

(a) the entity; or

(b) if paragraph (a) does not apply and the entity is a member of a dual inclusion income group in any country - an entity that is a member of the dual inclusion income group.

832-680(8)    
However, an entity is not eligible to apply the amount if it has already been applied by any entity by a previous application of a provision of this Division.

Interaction with other provisions

832-680(9)    

To avoid doubt, if a provision of this section has the effect that an amount is treated for the purposes of subsection (1) as if it were *subject to Australian income tax, or *subject to foreign income tax, then that effect extends to another provision of this Act that refers to an amount that is (as the case requires):

(a) subject to Australian income tax for the purposes of subsection (1) ofthis section; or

(b) subject to foreign income tax for the purposes of subsection (1) of this section.

Note:

For example, an amount that would not be subject to Australian income tax for the purposes of subsection (1) apart from subsection (1A) satisfies paragraphs 832-330(2)(b) and (3)(b) and subparagraph 832-335(1)(b)(ii) .

Subdivision 832-J - Integrity rule  

SECTION 832-720   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-725	Payments made to interposed foreign entity (integrity measure) - denial of deduction
832-730	Back to back arrangements, etc.
832-735	Determination may specify kinds of scheme and circumstances where no denial of deduction

Operative provisions

SECTION 832-725   Payments made to interposed foreign entity (integrity measure) - denial of deduction  

832-725(1)    
Subsection (3) applies if:

(a) an entity (the paying entity ) makes a payment under a *scheme to a *foreign entity (the interposed foreign entity ), either directly, or indirectly through one or more interposed *Australian trusts or Australian partnerships (within the meaning of Part X of the Income Tax Assessment Act 1936 ); and

(b) the paying entity, the interposed foreign entity and another foreign entity (the ultimate parent entity ) are in the same *Division 832 control group; and

(c) the ultimate parent entity is not controlled by any other entity (other than an entity that is not a member of the Division 832 control group); and

(d) the payment is of:

(i) an amount of interest (within the meaning of subsection 128A(1AB) of the Income Tax Assessment Act 1936 ); or

(ii) an amount under a *derivative financial arrangement; and

(e) an entity is entitled to a deduction in an income year in respect of the payment (disregarding this section); and

(f) the payment is not *subject to Australian income tax; and

(g) either:

(i) the payment is *subject to foreign income tax in one or more foreign countries, and the highest rate (the foreign country rate ) at which the payment is subject to foreign income tax is 10% or less; or

(ii) the payment is not subject to foreign income tax; and

(h) it is reasonable to conclude (having regard to the matters in subsection (2)) that the entity, or one of the entities, 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 deduction to be obtained in respect of the payment; and

(ii) enabling foreign income tax to be imposed on the payment at a rate of 10% or less, or enabling foreign income tax not to be imposed on the payment.

832-725(1A)    

For the purposes of subsection (1), disregard paragraphs 832-130(7)(d) and (e) (exclusion of municipal and State taxes in working out what is *subject to foreign income tax).

832-725(2)    
For the purposes of paragraph (1)(h), have regard to the following matters:

(a) the facts and circumstances that exist in relation to the *scheme;

(b) if the payment is an amount of interest as mentioned in subparagraph (1)(d)(i) - the source of the funds used by the interposed foreign entity to provide the paying entity with the loan or other debt interest in respect of which the payment of interest is made;

(c) whether the interposed foreign entity engages in substantial commercial activities in carrying on a banking, financial or other similar business.

832-725(3)    

The entity mentioned in paragraph (1)(e) is not entitled to the deduction mentioned in that paragraph.

832-725(4)    
Subsection (3) does not apply if it is reasonable to conclude that:

(a) the following requirements are satisfied:

(i) the amount of the payment is taken into account under Part X of the Income Tax Assessment Act 1936 ;

(ii) the sum of the *attribution percentages of each *attributable taxpayer in relation to the interposed foreign entity, for the purposes of sections 456 and 457 of that Act in respect of the income year in which the payment is made, is at least 100%; or

(b) requirements similar to those in paragraph (a), under the law of a foreign country that has substantially the same effect as Part X of that Act in respect of that foreign country, are satisfied in relation to the interposed foreign entity; or

(c) assuming that the payment were treated as being divided into 2 separate payments:

(i) the requirements in paragraph (a) would be satisfied in relation to one of those separate payments; and

(ii) the requirements in paragraph (b) would be satisfied in relation to the other of those separate payments.

832-725(5)    
Subsection (3) does not apply if it is reasonable to conclude that, assuming that the payment had been made directly to the ultimate parent entity:

(a) the payment would:

(i) be *subject to foreign income tax at a rate that is the same as, or less than, the foreign country rate; or

(ii) not be subject to foreign income tax; and

(b) the payment would not give rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch or a *reverse hybrid mismatch.

832-725(6)    

Subsection (3) does not apply if the payment gives rise to a *hybrid financial instrument mismatch, a *hybrid payer mismatch, a *reverse hybrid mismatch, a *branch hybrid mismatch or an *imported hybrid mismatch.

832-725(7)    

Subsection (3) does not apply to the extent that an amount to which the payment relates was not allowable as a deduction under subsection 832-530(2) .

SECTION 832-730   Back to back arrangements, etc.  

832-730(1)    
Subsection (2) applies if:

(a) an entity (the original paying entity ) makes a payment of a kind mentioned in subparagraph 832-725(1)(d)(i) to another entity; and

(b) the other entity, or a further entity, pays an amount of that kind to a foreign entity; and

(c) the payments mentioned in paragraphs (a) and (b) are made under an arrangement involving back-to-back loans or an arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans.

832-730(2)    
For the purposes of this Subdivision, treat the original paying entity as having made the payment mentioned in paragraph (1)(a) to the foreign entity mentioned in paragraph (1)(b).

SECTION 832-735   Determination may specify kinds of scheme and circumstances where no denial of deduction  

832-735(1)    
Subsection 832-725(3) does not apply if:

(a) where a determination made for the purposes of paragraph (2)(a) specifies a kind of *scheme - the scheme mentioned in subsection 832-725(1) is of that kind; or

(b) where a determination made for the purposes of paragraph (2)(b) specifies a kind of circumstances in relation to a scheme - circumstances of that kind exist in relation to the scheme mentioned in subsection 832-725(1).

832-735(2)    
For the purposes of subsection (1), the Minister may, by legislative instrument, make a determination that:

(a) specifies kinds of *schemes; and

(b) specifies kinds of circumstances in relation to schemes.

Subdivision 832-K - Modifications for Division 230 (about taxation offinancial arrangements)  

Guide to Subdivision 832-K

SECTION 832-775   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
832-780	Section 832-20 applies to Division 230 losses
832-785	Adjusting Division 230 loss
832-790	Modifications relating to Division 230 gains and losses

Operative provisions

SECTION 832-780  

832-780   Section 832-20 applies to Division 230 losses  

To avoid doubt, the reference in paragraph 832-20(1)(a) to a loss includes:

(a) a loss from a *Division 230 financial arrangement; and

(b) an amount treated under section 832-790 as a separate loss from a Division 230 financial arrangement.

SECTION 832-785   Adjusting Division 230 loss  

832-785(1)    
This section applies if a provision of this Division (a disallowing provision ) would, apart from this section, apply to make not allowable all or a part of a deduction for:

(a) a loss from a *Division 230 financial arrangement; or

(b) an amount treated under section 832-790 as a separate loss from a Division 230 financial arrangement.

832-785(2)    
The disallowing provision does not apply.

Note:

See instead section 230-522 .

832-785(3)    
However, the following provisions (about adjustments) apply as if the disallowing provision had applied to make the deduction, or the part of the deduction, not allowable:

(a) 832-240(1)(a) ;

(b) 832-335(1)(a) ;

(c) 832-565(1)(a) .

SECTION 832-790   Modifications relating to Division 230 gains and losses  

832-790(1)    
This section applies to the following:

(a) a gain that, apart from this Division, would be included in an entity ' s assessable income for an income year under Division 230 ;

(b) a loss that, apart from this Division, would be allowable as a deduction to an entity for an income year under Division 230 ;

(c) a gain or a loss that, apart from this Division, would be dealt with in accordance with subsection 230-310(4) in relation to an income year.

Separation of currency effects for Division 230 gains and losses

832-790(2)    
For the purposes of this Division, split a gain into 2 separate gains, or a gain and a loss, as follows:

(a) to the extent to which the gain represents a *currency exchange rate effect, treat it as a separate gain or loss;

(b) to the extent that it does not represent that effect, treat it as a separate gain or loss from the *financial arrangement to which this Division applies.

832-790(3)    
For the purposes of this Division, split a loss into 2 separate losses, or a gain and a loss, as follows:

(a) to the extent to which the loss represents a *currency exchange rate effect, treat it as a separate gain or loss;

(b) to the extent that it does not represent that effect, treat it as a separate gain or loss from the *financial arrangement to which this Division applies.

832-790(4)    
For the purposes of this Division, assume an amount treated under paragraph (2)(b) or (3)(b) as a separate loss would, apart from this Division, be allowable as a deduction to the entity for the income year.

This Division applies to a non-currency component that is a gain

832-790(5)    
If there is an amount treated under paragraph (2)(b) or (3)(b) as a separate gain from a *financial arrangement, the gain is treated as consisting of any actual payments made under the financial arrangement and taken into account in working out the amount of the gain or loss the entity made under the arrangement.

832-790(6)    
For the purposes of this Division, assume the gain is an amount that, subject to Division 6 (about effect of foreign residence), is included in the entity ' s assessable income.

Division 840 - Withholding taxes  

Guide to Division 840  

SECTION 840-1   What this Division is about  

Subdivision 840-M - Managed investment trust withholding tax  

SECTION 840-800   What this Subdivision is about  

Operative provisions

SECTION 840-805   Liability for managed investment trust withholding tax  

Liability

840-805(1)    
You are liable to pay income tax at the rate declared by the Parliament on the amount identified in subsection (2) , (3) or (4) as the fund payment part if that subsection applies to you.

Note 1:

The tax, which is called managed investment trust withholding tax, is imposed by the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 and the rate of the tax is set out in that Act.

Note 2:

See Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953 for provisions dealing with withholding from fund payments, and Subdivision 12A-C in that Schedule for provisions dealing with obligations to pay the Commissioner amounts analogous to such withholding in relation to AMITs.

Note 3:

This subsection does not apply to residents of information exchange countries for the first income year starting on or after the first 1 July after the day on which the Tax Laws Amendment (Election Commitments No. 1) Act 2008 receives the Royal Assent. Subdivision 840-M of the Income Tax (Transitional Provisions) Act 1997 applies instead.

Payments from withholding MITs

840-805(2)    
This subsection applies to you if:

(a) you are paid an amount from a trust that is a *withholding MIT in relation to an income year, or an amount is applied or dealt with as you direct by such a trust; and

(b) all or part of that amount (the fund payment part ) is represented by a * fund payment in relation to that year; and

(c) you are, in respect of the fund payment part, a beneficiary (but not a beneficiary in the capacity of a trustee of another trust); and

(d) you are a foreign resident when you are paid the amount or when the amount is applied or dealt with as you direct.

Note 1:

Because a fund payment can be adjusted to account for earlier fund payments and the expected amounts of later fund payments (see subsection 12A-110(5) in Schedule 1 to the Taxation Administration Act 1953 ), the amount of a particular fund payment may not reflect the actual amount you are paid for the purposes of this subsection.

Note 2:

If the withholding MIT is an AMIT, under subsection 12A-205(2) in Schedule 1 to the Taxation Administration Act 1953 , amounts may be treated, for the purposes of this Subdivision, as having been paid to you from the trustee of the AMIT.

Payments from custodians

840-805(3)    
This subsection applies to you if:

(a) you are paid an amount from a * custodian, or an amount is applied or dealt with as you direct by a custodian; and

(b) all or part of that amount (the fund payment part ) is reasonably attributable to a * fund payment in relation to an income year by a trust that is a *withholding MIT in relation to that year; and

(c) you are, in respect of the fund payment part, a beneficiary (but not a beneficiary in the capacity of a trustee of another trust); and

(d) you are a foreign resident when you are paid the amount or when the amount is applied or dealt with as you direct; and

(e) either:

(i) the custodian is not a company; or

(ii) if it is a company, it would be acting in the capacity as your * agent apart from section 840-820 .

Note:

If the withholding MIT is an AMIT, under subsection 12A-205(5) in Schedule 1 to the Taxation Administration Act 1953 , amounts may be treated, for the purposes of this Subdivision, as having been paid to you from the custodian.

Entitlements to amounts from other entities

840-805(4)    
This subsection applies to you if:

(a) you are a beneficiary of a trust (that is not a *withholding MIT or a * custodian) and are presently entitled to a share of the income or capital of the trust; and

(b) all or part of that share (also the fund payment part ) is reasonably attributable to a payment that is a * fund payment in relation to an income year made by a trust that is a withholding MIT in relation to that year; and

(c) you are not, in respect of that share, a beneficiary in the capacity of a trustee of another trust; and

(d) you are a foreign resident at the time (the entitlement time ) when you became presently entitled.

Modification - foreign pension funds

840-805(4A)    

For the purposes of subsections (2), (3) and (4), if:

(a) the beneficiary, in respect of a fund payment part, is a beneficiary in the capacity of a trustee of another trust; and

(b) the beneficiary is a *foreign pension fund;

the foreign pension fund is taken, in respect of that fund payment part, to be a beneficiary in its own right, and not a beneficiary in the capacity of the trustee of another trust.

840-805(4B)    

Foreign pension fund means:

(a) an entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, if:

(i) the entity is a fund established by an *exempt foreign government agency; or

(ii) the entity is established under a *foreign law for an exempt foreign government agency; or

(b) a *foreign superannuation fund that has at least 50 *members.

840-805(4C)    

If:

(a) a *foreign pension fund is liable to pay income tax on a fund payment part (a taxed part ) because of the operation of subsection (4A); and

(b) you are a beneficiary of the foreign pension fund and are presently entitled to a share of the income or capital of the foreign pension fund;

then, in working out for the purposes of paragraph (4)(b) whether all or part of that share is reasonably attributable to a payment that is a *fund payment, disregard the taxed part.

Modification - AMITs

840-805(4D)    

If the *managed investment trust mentioned in paragraph (2)(a), (3)(b) or (4)(b) is an *AMIT for the income year mentioned in that paragraph:

(a) if paragraph (2)(a) applies - disregard the phrase " (but not a beneficiary in the capacity of a trustee of another trust) " in paragraph (2)(c); or

(b) if paragraph (3)(b) applies - disregard the phrase " (but not a beneficiary in the capacity of a trustee of another trust) " in paragraph (3)(c); or

(c) if paragraph (4)(b) applies - disregard paragraph (4)(c).

840-805(4E)    

If:

(a) a trustee of a trust is liable to pay income tax on a fund payment part (a taxed part ) because of the operation of subsection (4D); and

(b) you are a beneficiary of the trust and are presently entitled to a share of the income or capital of the trust;

then, in working out for the purposes of paragraph (4)(b) whether all or part of that share is reasonably attributable to a payment that is a *fund payment, disregard the taxed part.

Entitlement to capital of a trust

840-805(5)    
For the purposes of this section, section 95A of the Income Tax Assessment Act 1936 applies in relation to capital of a trust in the same way as it applies to income of the trust.

Exception - Australian permanent establishments

840-805(6)    
This section does not apply to you if:

(a) you are paid the fund payment part, or it is applied or dealt with as you direct; or

(b) you become presently entitled to it;

in the course of a * business you carry on at or through an * Australian permanent establishment.

Exception - distributions on carried interests

840-805(7)    

Subsections (2) and (3) do not apply to you to the extent that the fund payment part:

(a) is included in your assessable income under subsection 275-200(2) (Gains etc from carried interests) for the income year because you hold or held a *CGT asset that carries an entitlement to a distribution mentioned in subsection 275-200(2) ; or

(b) would be so included if subsection 275-200(3) were disregarded.

840-805(8)    

Subsection (4) does not apply to you to the extent that the fund payment part:

(a) is attributable to an amount included in the net income of the trust mentioned in that subsection because of subsection 275-200(2) (Gains etc from carried interests) for the income year because the trust holds or held a *CGT asset that carries an entitlement to a distribution mentioned in subsection 275-200(2) ; or

(b) would be so included if subsection 275-200(3) were disregarded.

840-805(9)    

Subsections (2), (3) and (4) do not apply to you to the extent that the fund payment part relates to an amount that is *non-assessable non-exempt income of yours because of:

(a) Division 880 ; or

(b) Division 880 of the Income Tax (Transitional Provisions) Act 1997 .

SECTION 840-810   When managed investment trust withholding tax is payable  

840-810(1)    
* Managed investment trust withholding tax is due and payable by you at the end of 21 days after:

(a) if subsection 840-805(2) or (3) applies to you - the end of the month in which the fund payment part is paid, applied or dealt with; or

(b) if subsection 840-805(4) applies to you - the end of the month in which the entitlement time occurs.

840-810(2)    
If any of the * managed investment trust withholding tax that you are liable to pay remains unpaid after the time by which it is due to be paid, you are 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 withholding tax was due to be paid; and

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

(i) the withholding tax;

(ii) general interest charge on any of the withholding tax.

Note:

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

840-810(3)    
The Commissioner may give you a notice specifying:

(a) the amount of any * managed investment trust withholding tax that the Commissioner has ascertained is payable by you; and

(b) the day on which that tax became due and payable.

840-810(4)    
The ascertainment of an amount of * managed investment trust withholding tax is not an assessment for the purposes of this Act.

840-810(5)    
The production of a notice given under subsection (3) , or of a copy of it certified by or on behalf of the Commissioner, is conclusive evidence that the notice was given and of the particulars in it.

SECTION 840-815  Certain income is non-assessable non-exempt income  

840-815(1)    

An amount on which * managed investment trust withholding tax is payable is not assessable income and is not * exempt income of an entity.

840-815(2)    

Subsection (1) does not apply to an Australian resident to the extent that:

(a) *managed investment trust withholding tax is payable on the amount because of subsection 840-805(4D) ; and

(b) the Australian resident is entitled, directly or indirectly, to the amount.

SECTION 840-820   Agency rules  

840-820(1)    
This section applies to:

(a) a payment (the first payment ) made to a * custodian in the capacity as * agent for another entity; and

(b) another payment made by the custodian to the extent that it is reasonably attributable to the first payment.

840-820(2)    
This Subdivision has effect as if the * custodian were not an * agent in relation to the payments.

Subdivision 840-S - Labour mobility program withholding tax  

Guide to Subdivision 840-S

SECTION 840-900   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Operative provisions
840-905	Liability for labour mobility program withholding tax
840-906	Covered labour mobility programs
840-910	When labour mobility program withholding tax is payable
840-915	Certain income is non-assessable non-exempt income
840-920	Overpayment of labour mobility program withholding tax

Operative provisions

SECTION 840-905  

840-905   Liability for labour mobility program withholding tax  

You are liable to pay income tax at the rate declared by the Parliament on income:

(a)    

that is salary, wages, commission, bonuses or allowances paid to you as an employee of an Approved Employer under a program covered by section 840-906 ; and

(b)    

that you *derive at a time when you are a foreign resident and:

(i) you hold a Temporary Work (International Relations) Visa (subclass 403); or

(ii) you hold a Temporary Activity Visa (subclass 408) having previously held a Temporary Work (International Relations) Visa (subclass 403); or

(iii) you hold a visa of a kind prescribed by the regulations for the purposes of this subparagraph.

Note 1:

The tax, which is called labour mobility program withholding tax, is imposed by the Income Tax (Labour Mobility Program Withholding Tax) Act 2012 and the rate of the tax is set out in that Act.

Note 2:

See Subdivision 12-FC in Schedule 1 to the Taxation Administration Act 1953 for provisions dealing with withholding from the salary, wages etc. You are entitled to a credit under section 18-33 in that Schedule for amounts withheld from your salary, wages etc. under that Subdivision.

SECTION 840-906  

840-906   Covered labour mobility programs  

This section covers the following programs:

(a)    the Seasonal Labour Mobility Program;

(b)    the Pacific Australia Labour Mobility scheme;

(c)    each program prescribed by the regulations for the purposes of this paragraph.

SECTION 840-910   When labour mobility program withholding tax is payable  

840-910(1)    

*Labour mobility program withholding tax is due and payable by you at the end of 21 days after the end of the income year in which you * derived the income to which the tax relates.

840-910(2)    

If any of the *labour mobility program withholding tax that you are liable to pay remains unpaid after the time by which it is due to be paid, you are 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 withholding tax was due to be paid; and

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

(i) the withholding tax;

(ii) general interest charge on any of the withholding tax.

Note:

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

840-910(3)    

The Commissioner may give you a notice specifying:

(a)    the amount of any *labour mobility program withholding tax that the Commissioner has ascertained is payable by you; and

(b)    the day on which that tax became due and payable.

840-910(4)    

The ascertainment of an amount of *labour mobility program withholding tax is not an assessment for the purposes of this Act.

840-910(5)    
The production of a notice given under subsection 3 , or of a copy of it certified by or on behalf of the Commissioner, is, except in proceedings under Part IVC of this Act on a review or appeal relating to the notice, conclusive evidence that the notice was given and of the particulars in it.

840-910(6)    
You may object, in the manner set out in Part IVC of the Taxation Administration Act 1953 , against a notice given to you under subsection 3 of this section, if you are dissatisfied with the notice.

SECTION 840-915  

840-915   Certain income is non-assessable non-exempt income  

An amount on which *labour mobility program withholding tax is payable is not assessable income and is not * exempt income.

SECTION 840-920  

840-920   Overpayment of labour mobility program withholding tax  

If *labour mobility program withholding tax has been overpaid:

(a)    the Commissioner must refund the amount overpaid; and

(b)    the employee is not entitled to a credit under section 18-33 in Schedule 1 to the Taxation Administration Act 1953 in respect of the amount overpaid.

Division 842 - Exempt Australian source income and gains of foreign residents  

Subdivision 842-B - Some items of Australian source income of foreign residents that are exempt from income tax  

SECTION 842-100   What this Subdivision is about  

SECTION 842-105  

842-105   Amounts of Australian source ordinary income and statutory income that are exempt  

The amounts of *ordinary income and *statutory income covered by the table are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both.

Note 1:

Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20 . The note to subsection 6-15(2) describes some of the other consequences of it being exempt income.

Note 2:

Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936 .

Exempt amounts
Item	If you are:	the following amounts are exempt from income tax:	subject to these exceptions and special conditions:
1	a foreign resident	your remuneration paid by an *Australian government agency	the remuneration is paid to you: (a) for expert advice to that agency; or (b) as a member of a Royal Commission
2	a foreign resident who is: (a) the representative of the government of a foreign country, visiting Australia on behalf of that government; or (b) a member of the entourage of such a representative	your *ordinary income, and your *statutory income, in your official capacity as such a representative or member	none
3	a foreign resident visiting Australia: (a) in the capacity of representative of any society or association established for educational, scientific, religious or philanthropic purposes; and (b) for the purpose of attending an international conference, or for the purpose of carrying on investigation or research for the society or association	your *ordinary income, and your *statutory income, in that capacity	none
4	a foreign resident visiting Australia: (a) in the capacity of representative of the media outside Australia; and (b) for the purpose of reporting the proceedings relating to any of the matters referred to in items 2 and 3	your *ordinary income, and your *statutory income, in that capacity	none
5	a member of the naval, military or air forces of the government of a foreign country	pay and allowances you earn in Australia as a member of those forces	the pay and allowances are not paid or provided by the Commonwealth
6	a foreign resident visiting Australia	your *ordinary income, and your *statutory income, that: (a) is from an occupation you carry on while in Australia; and (b) is not exempt from income tax in the country where you are ordinarily resident	in the opinion of the Minister, the visit and occupation are principally directed to assisting in the defence of Australia
7	(a) a foreign resident pursuing in Australia a course of study or training; and (b) in Australia for the sole purpose of pursuing that course	your *ordinary income, and your *statutory income, by way of a scholarship, bursary, or other educational allowance, provided by the Commonwealth	none

Subdivision 842-I - Investment manager regime  

Guide to Subdivision 842-I

SECTION 842-200   What this Subdivision is about  

TABLE OF SECTIONS

TABLE OF SECTIONS

Object of this Subdivision
842-205	Object of this Subdivision
IMR concessions
842-210	IMR concessions apply only to foreign residents etc.
842-215	IMR concessions
842-220	Meaning of IMR entity
842-225	Meaning of IMR financial arrangement
IMR widely held entities
842-230	Meaning of IMR widely held entity
842-235	Rules for determining total participation interests for the purposes of the widely held test
842-240	Extended meaning of IMR widely held entity - temporary circumstances outside entity ' s control
Independent Australian fund managers
842-245	Meaning of independent Australian fund manager
842-250	Reductions in IMR concessions if independent Australian fund manager entitled to substantial share of IMR entity ' s income

Object of this Subdivision

SECTION 842-205  

842-205   Object of this Subdivision  

The object of this Subdivision is to encourage particular kinds of investment made into or through Australia by some foreign residents that have wide membership, or that use Australian fund managers.

IMR concessions

SECTION 842-210   IMR concessions apply only to foreign residents etc.  

842-210(1)    
This Subdivision applies only for the purposes of working out the assessable income of an entity (the foreign entity ) that:

(a) is a foreign resident; and

(b) is not a trust or partnership.

842-210(2)    
Despite subsection (1), this Subdivision applies in relation to a partnership or trust, to the extent necessary to work out an amount included in the assessable income of the foreign entity.

Note 1:

This Subdivision applies, for example, in working out the net income of a partnership or trust, to the extent necessary to work out the assessable income, attributable to that partnership or trust, of a partner or beneficiary who is a foreign resident.

Note 2:

This Subdivision could operate in relation to an entity (if it is a partnership or trust) and/or one or more partnerships or trusts interposed between the entity and the foreign resident.

SECTION 842-215   IMR concessions  

Concessions relating to IMR financial arrangements

842-215(1)    
The following consequences apply to an *IMR entity for an income year in relation to an *IMR financial arrangement if the requirements of subsection (3) or (5) are met in relation to the year:

(a) what would otherwise be the entity ' s assessable income for the year is *non-assessable non-exempt income of the entity, to the extent that it is attributable to a return or gain:

(i) from the arrangement (if the arrangement is a *derivative financial arrangement); or

(ii) from the entity disposing of, ceasing to own or otherwise realising the arrangement;

(b) an amount is not deductible by the entity for the year, to the extent that it is attributable to an outgoing or loss:

(i) from the arrangement (if the arrangement is a derivative financial arrangement); or

(ii) from the entity disposing of, ceasing to own or otherwise realising the arrangement;

(c) disregard a *capital gain or *capital loss that is from a *CGT event that happens in the year in relation to the arrangement.

Further concessions relating to permanent establishments

842-215(2)    
Without limiting subsection (1), the following further consequences apply to an *IMR entity for an income year if the requirements of subsection (5) are met in relation to the year:

(a) income that relates to or arises under the *IMR financial arrangement, and that would otherwise be the entity ' s assessable income for the year, is *non-assessable non-exempt income of the entity, to the extent that the income:

(i) if the entity is resident in a country that has entered into an *international tax agreement with Australia containing a *business profits article - is treated as having a source in Australia because it is attributable to a permanent establishment (within the meaning of the relevant international tax agreement) of the entity in Australia; or

(ii) if subparagraph (i) does not apply - is treated as having a source in Australia because of subsection 815-230(1) ;

(b) an amount is not deductible by the entity for the year, to the extent that it is attributable to gaining income that is non-assessable non-exempt income of the entity because of paragraph (a);

(c) disregard a *capital gain or *capital loss that is from a *CGT event that relates to or arises under the IMR financial arrangement, and that happens in the year in relation to a *CGT asset that:

(i) is covered by item 3 of the table in section 855-15 in relation to the entity; or

(ii) is covered by item 4 of the table in section 855-15 in relation to the entity because it is an option or right to *acquire a CGT asset covered by item 3 of that table in relation to the entity.

Direct investment by IMR widely held entity

842-215(3)    
The requirements of this subsection in relation to the year are that:

(a) during the whole of the year, the *IMR entity is an *IMR widely held entity; and

(b) during the whole of the year, the interest of the entity in the issuer of, or counterparty to, the *IMR financial arrangement does not pass the *non-portfolio interest test (see section 960-195 ); and

(c) none of the returns, gains or losses for the year from the arrangement are attributable to:

(i) if the entity is a resident of a country that has entered into an *international tax agreement with Australia containing a *permanent establishment article - a permanent establishment (within the meaning of the relevant international tax agreement) of the entity in Australia; or

(ii) otherwise - a *permanent establishment of the entity in Australia; and

(d) the IMR entity does not, during the year, carry on in Australia a trading business (within the meaning of section 102M of the Income Tax Assessment Act 1936 ) that relates (directly or indirectly) to the arrangement; and

(e) subsection 842-225(2) does not apply to the IMR financial arrangement.

842-215(4)    
For the purposes of paragraph (3)(a), disregard any part of the year during which the entity did not exist.

Indirect investment through independent Australian fund manager

842-215(5)    
The requirements of this subsection in relation to the year are that:

(a) the *IMR financial arrangement was made, on the *IMR entity ' s behalf, by an entity that is an *independent Australian fund manager for the IMR entity for the income year (see section 842-245 ); and

(b) if the issuer of, or counterparty to:

(i) the IMR financial arrangement referred to in paragraph (a), if it is a *financial arrangement; or

(ii) otherwise - the IMR financial arrangement to which that arrangement relates;

is an Australian resident, or a *resident trust for CGT purposes - during the whole of the year, the interest of the entity in the issuer or counterparty does not pass the *non-portfolio interest test (see section 960-195 ); and

(c) the IMR entity does not, during the year, carry on in Australia a trading business (within the meaning of section 102M of the Income Tax Assessment Act 1936 ) that relates (directly or indirectly) to the arrangement.

Withholding taxes etc.

842-215(6)    
If what would otherwise be the *IMR entity ' s assessable income is *non-assessable non-exempt income of the entity because of subsection (1) or (2), for the purposes of determining an entity ' s liability to pay, in relation to that income:

(a) *withholding tax; or

(b) an amount that must be withheld under Division 12 in Schedule 1 to the Taxation Administration Act 1953 (even if the amount is not withheld);

assume that any *independent Australian fund manager for the IMR entity is not a *permanent establishment of the IMR entity.

842-215(7)    
For the purposes of subparagraphs (2)(a)(i) and (3)(c)(i), an entity is taken to be a resident of a country that has entered into an *international tax agreement with Australia if the entity is such a resident within the meaning of that agreement.

SECTION 842-220  

842-220   Meaning of IMR entity  

An entity is an IMR entity for an income year if the entity:

(a) is not an Australian resident at all times during the income year; and

(b) is not a *resident trust for CGT purposes for the income year.

SECTION 842-225   Meaning of IMR financial arrangement  

842-225(1)    
A *financial arrangement is an IMR financial arrangement unless it is or relates to a *CGT asset that is:

(a) *taxable Australian real property (see section 855-20 ); or

(b) an *indirect Australian real property interest (see section 855-25 ).

842-225(2)    
Without limiting subsection (1), a sub-underwriting arrangement that is not a *financial arrangement is an IMR financial arrangement if it was entered into by an *IMR entity for the purpose of providing for the entity to invest or trade in a financial arrangement that is an IMR financial arrangement under subsection (1).

IMR widely held entities

SECTION 842-230   Meaning of IMR widely held entity  

842-230(1)    
An IMR widely held entity is any of the following:

(aa) a *widely held entity;

(a) an entity that is covered by paragraph 275-20(4)(a) , (b), (c), (d), (e), (g), (h), (i) or (ia);

(b) (Repealed by No 53 of 2016)

(c) an entity of a kind specified in regulations made for the purposes of this paragraph.

842-230(2)    

An entity is a widely held entity if:

(a) either:

(i) no other entity has a *total participation interest in the entity of 20% or more (see section 842-235 ); or

(ii) there are not 5 or fewer other entities the sum of whose total participation interests in the entity is 50% or more (see section 842-235 ); or

(b) the entity has never satisfied the requirements of paragraph (a), but investment in the entity is being actively marketed with the intention that the entity satisfies the requirements of that paragraph; or

(c) the reason for failing to satisfy the requirements of paragraph (a) relates to the entity ' s activities and investments being wound down.

SECTION 842-235   Rules for determining total participation interests for the purposes of the widely held test  

842-235(1)    
For the purposes of subsection 842-230(2) , apply the rules in this section in determining an entity ' s *total participation interest in another entity (the test entity ).

842-235(2)    
If an entity has, through one or more interposed entities, an *indirect participation interest in the test entity, treat each of those interposed entities as having a *total participation interest in the test entity of nil.

842-235(3)    
If the test entity is a trust, do not treat an object of the trust as having a *direct participation interest or *indirect participation interest in the test entity.

842-235(4)    
Treat the following (the affiliated entities ):

(a) an entity;

(b) each of the entity ' s *affiliates;

as together being one entity, that has all of the interests and rights of the affiliated entities.

Note:

Such interests and rights may give rise to a participation interest in the test entity.

842-235(5)    
If an entity (the nominee ) has interests and rights in the capacity of nominee of another entity:

(a) treat the nominee as not having those interests and rights; and

(b) instead, treat the other entity as having those interests and rights (in addition to the other entity ' s interests and rights apart from this subsection).

842-235(6)    
If an entity that has a *direct participation interest or *indirect participation interest in the test entity is an entity covered by:

(a) paragraph 842-230(1)(a) , (b) or (c); or

(b) paragraph 275-20(4)(f) (foreign collective investment vehicles with a wide membership);

treat the entity ' s *total participation interest in the test entity as nil.

842-235(7)    
The application of subsection (6) to an entity that has a *direct participation interest or *indirect participation interest in the test entity does not affect the *total participation interest in the test entity of any other entity that has a direct participation interest or indirect participation interest in the test entity.

842-235(8)    
In determining a *direct participation interest of one entity in another entity, disregard paragraph 350(1)(b) of the Income Tax Assessment Act 1936 (rights of shareholders to vote or participate in certain decision-making).

842-235(9)    

If the test entity is an *IMR entity and another entity is an independent fund manager for the test entity, in determining the *total participation interest of the other entity, or any entity *connected with the other entity, in the test entity, disregard any direct or indirect entitlements (including contingent entitlements) of the other entity, or connected entity, to remuneration from the test entity:

(a) to the extent that the remuneration is subject to income tax in relation to the income year for which the consequences (if any) under subsection 842-215(1) or (2) are being determined in relation to the test entity; and

(b) to the extent that the remuneration is subject to taxation in relation to that income year under a *foreign law.

Example:

Assume that 4 entities have interests in an IMR entity, as follows:

(a) a life insurance company has a 55% interest;

(b) an endowment fund has a 5% interest;

(c) company A has a 25% interest. It has 2 shareholders (who are not affiliated): shareholder Y holds 60% of the shares and shareholder Z holds 40%;

(d) company B has a 15% interest. It has several shareholders.

The IMR entity is an IMR widely held entity because:

(e) under subsection 842-235(6) , the life insurance company has a total participation interest of nil, as it is covered by paragraph 275-20(4)(a) ; and

(f) the endowment fund has a total participation interest below the 20% threshold in subparagraph 842-230(2)(a)(i) ; and

(g) under subsection 842-235(2) , company A ' s 25% interest is divided between shareholder Y (15%) and shareholder Z (10%), and company A is treated as having a total participation interest in the IMR entity of nil; and

(h) company B ' s 15% interest is below the 20% threshold, so none of its shareholders can have a total participation interest above that threshold. (In these circumstances, it is not necessary to determine the total participation interests for each of those shareholders.)

(Treating the life insurance company ' s 55% interest as a total participation interest of nil ensures that no summing of the other total participation interest can exceed the 50% threshold in subparagraph 842-230(2)(a)(ii) .)

SECTION 842-240  

842-240   Extended meaning of IMR widely held entity - temporary circumstances outside entity ' s control  

Without limiting section 842-230 , an entity is an IMR widely held entity if:

(a) apart from a particular circumstance, the entity would be an *IMR widely held entity because of section 842-230 ; and

(b) the circumstance is temporary; and

(c) the circumstance arose outside the entity ' s control; and

(d) it is fair and reasonable to treat the entity as an IMR widely held entity, having regard to the following matters:

(i) the matters in paragraphs (b) and (c);

(ii) the nature of the circumstance;

(iii) the actions (if any) taken by the entity to address or remove the circumstance, and the speed with which such actions are taken;

(iv) any other relevant matter.

Independent Australian fund managers

SECTION 842-245   Meaning of independent Australian fund manager  

842-245(1)    
An entity (the managing entity ) is an independent Australian fund manager for an *IMR entity for an income year if:

(a) the managing entity is an Australian resident; and

(b) the managing entity carries out investment management activities for the IMR entity in the ordinary course of *business; and

(c) the managing entity ' s remuneration for carrying out those activities is what the remuneration would be between parties dealing at *arm ' s length; and

(d) one or more of the following applies:

(i) the IMR entity is an *IMR widely held entity;

(ii) 70% or less of the managing entity ' s income, for the income year, is income received from the IMR entity or entities *connected with the IMR entity;

(iii) if the managing entity has been carrying out investment management activities for 18 months or less - it takes all reasonable steps to ensure that the proportion of its income received from the IMR entity or entities connected with the IMR entity, for the income year in which that 18 month period ends, will be reduced to 70% or less.

842-245(2)    
In applying paragraph (1)(c), have regard to the documents covered by section 815-135 .

SECTION 842-250   Reductions in IMR concessions if independent Australian fund manager entitled to substantial share of IMR entity ' s income  

842-250(1)    
The application of section 842-215 to an *IMR entity for an income year is modified, as provided by subsection (4) of this section, if:

(a) an entity is an *independent Australian fund manager for the IMR entity; and

(b) that entity, or another entity *connected with the entity, has a direct or indirect right to receive part of the profits of the IMR entity for the year; and

(c) the sum of the amounts that the entity, and any other entity connected with the entity, receive for the year in connection with the entity being that independent Australian fund manager exceeds 20% of the amount (the unadjusted concessional amount ) worked out under subsection (3); and

(d) the requirements of subsection 842-215(3) in relation to the year are not met.

842-250(2)    
However, this section does not apply if:

(a) the circumstances giving rise to the requirements of paragraph (1)(c) being met arose outside the control of:

(i) the *IMR entity; or

(ii) the *independent Australian fund manager or any entity *connected with the independent Australian fund manager; and

(b) the independent Australian fund manager, or an entity connected with the independent Australian fund manager, is taking steps to address those circumstances.

842-250(3)    
Work out the unadjusted concessional amount as follows:

Amount not assessable or exempt

−

Amounts not deductible

+

Disregarded capital gains

−

Disregarded capital losses

where:

amount not assessable or exempt
is the sum of:

(a) the amount (the 842-215(1)(a) amount ) of the *IMR entity ' s income for the income year that is, or would (apart from this section) be, *non-assessable non-exempt income of the IMR entity because of paragraph 842-215(1)(a) ; and

(b) the amount (the 842-215(2)(a) amount ) of the IMR entity ' s income for the income year that is, or would (apart from this section) be, non-assessable non-exempt income of the IMR entity because of paragraph 842-215(2)(a) , and not because of paragraph 842-215(1)(a) .

amounts not deductible
is the amount obtained by adding together:

(a) the sum of the amounts that are not deductible by the *IMR entity for the income year because of paragraph 842-215(1)(b) ; and

(b) the sum of the amounts that are not deductible by the IMR entity for the income year because of paragraph 842-215(2)(b) , and not because of paragraph 842-215(1)(b) ; and

(c) the sum of the amounts that would otherwise be deductible by the IMR entity for the income year under section 8-1 if the income in relation to which they were incurred were not income that is *non-assessable non-exempt income of the IMR entity because of paragraph 842-215(1)(a) ; and

(d) the sum of the amounts that would otherwise be deductible by the IMR entity for the income year under section 8-1 if the income in relation to which they were incurred were not income that is non-assessable non-exempt income of the IMR entity because of paragraph 842-215(2)(a) , and not because of paragraph 842-215(1)(a) .

disregarded capital gains
is the amount obtained by adding together:

(a) the sum (the 842-215(1)(c) amount ) of the amounts of the *capital gains that:

(i) are from *CGT events that happen in the income year; and

(ii) are, or would (apart from this section) be, disregarded in relation to the *IMR entity, because of paragraph 842-215(1)(c) ; and

(b) the sum (the 842-215(2)(c) amount ) of the amounts of the capital gains that:

(i) are from CGT events that happen in the income year; and

(ii) are, or would (apart from this section) be, disregarded in relation to the IMR entity because of paragraph 842-215(2)(c) , and not because of paragraph 842-215(1)(c) .

disregarded capital losses
is the amount obtained by adding together:

(a) the sum of the amounts of the *capital losses that:

(i) are from *CGT events that happen in the income year; and

(ii) are disregarded in relation to the *IMR entity because of paragraph 842-215(1)(c) ; and

(b) the sum of the amounts of the capital losses that:

(i) are from CGT events that happen in the income year; and

(ii) are disregarded in relation to the IMR entity because of paragraph 842-215(2)(c) , and not because of paragraph 842-215(1)(c) .

842-250(4)    
Apply the sum referred to in paragraph (1)(c) to reduce (including reduce to zero) the following amounts:

(a) the 842-215(1)(a) amount;

(b) the 842-215(2)(a) amount;

(c) the 842-215(1)(c) amount;

(d) the 842-215(2)(c) amount.

Do not apply the sum to reduce an amount referred to in a paragraph (other than paragraph (a)) unless the sum has been applied to reduce to zero the amount referred to in each paragraph preceding that paragraph.

842-250(5)    
If the 842-215(1)(c) amount or the 842-215(2)(c) amount relates to more than one *capital gain, a reduction of the amount under subsection (4) is taken to reduce each of the capital gains by the following amount:

	The amount of the reduction under subsection (4)	×	The amount of the *capital gain
			The amount being reduced under subsection (4)

842-250(6)    
Without limiting the circumstances in which the requirements of paragraph (1)(c) are not met, those requirements are taken not to be met in relation to the *IMR entity for an income year if they are not met in relation to the IMR entity for a period (a qualifying period ) of up to 5 consecutive income years including the income year (but not including any future income years).

842-250(7)    
In ascertaining for the purposes of subsection (6) whether the requirements of paragraph (1)(c) are not met in relation to the *IMR entity for a qualifying period, assume that the qualifying period is the income year referred to in subsection (1).

842-250(8)    
For the purposes of paragraphs (1)(b) and (c) (including paragraph (1)(c) as affected by subsections (6) and (7)), disregard any direct or indirect entitlements (including contingent entitlements) of the *independent Australian fund manager, or any entity *connected with the independent Australian fund manager, to remuneration from the *IMR entity:

(a) to the extent that the remuneration is subject to income tax in relation to the income year referred to in subsection (1); and

(b) to the extent that the remuneration is subject to taxation in relation to that income year under a *foreign law.

Division 855 - Capital gains and foreign residents  

Guide to Division 855  

SECTION 855-1   What this Division is about  

Subdivision 855-A - Disregarding a capital gain or loss by foreign residents  

SECTION 855-5   Objects of this Subdivision  

855-5(1)    
The objects of this Subdivision are to improve:

(a) Australia's status as an attractive place for business and investment; and

(b) the integrity of Australia's capital gains tax base.

855-5(2)    
This is achieved by:

(a) aligning Australia's tax laws with international practice; and

(b) ensuring interests in an entity remain subject to Australia's capital gains tax laws if the entity's underlying value is principally derived from Australian real property.

SECTION 855-10   Disregarding a capital gain or loss from CGT events  

855-10(1)    
Disregard a *capital gain or *capital loss from a *CGT event if:

(a) you are a foreign resident, or the trustee of a *foreign trust for CGT purposes, just before the CGT event happens; and

(b) the CGT event happens in relation to a *CGT asset that is not *taxable Australian property.

Note:

A capital gain or capital loss from a CGT asset you have used at any time in carrying on a business through a permanent establishment in Australia may be reduced under section 855-35 .

855-10(2)    
The *CGT asset in relation to which a *CGT event happens includes the following:

(a) for CGT event D1 (about creating contractual or other rights) - the CGT asset that is the subject of the creation of the contractual or other rights;

Example:

You grant an easement over land in Australia. The land is the subject of the creation of the rights in the easement. Therefore, the CGT event happens in relation to the land.

(b) for CGT event D2 (about granting an option) - the CGT asset that is the subject of the option;

(c) for CGT event F1 (about granting a lease) - the CGT asset that is the subject of the lease;

(d) for CGT event J1 (about a company ceasing to be a member of wholly-owned group after roll-over) - the roll-over asset.

SECTION 855-15  

855-15   When an asset is taxable Australian property  

There are 5 categories of *CGT assets that are taxable Australian property . They are set out in this table.

CGT assets that are taxable Australian property
Item	Description
1	*Taxable Australian real property (see section 855-20)
2	A *CGT asset that:
	(a)	is an *indirect Australian real property interest (see section 855-25); and
	(b)	is not covered by item 5 of this table
3	A *CGT asset that:
	(a)	you have used at any time in carrying on a *business through:
		(i)	if you are a resident in a country that has entered into an *international tax agreement with Australia containing a *permanent establishment article - a permanent establishment (within the meaning of the relevant international tax agreement) in Australia; or
		(ii)	otherwise - a *permanent establishment in Australia; and
	(b)	is not covered by item 1, 2 or 5 of this table
4	An option or right to *acquire a *CGT asset covered by item 1, 2 or 3 of this table
5	A *CGT asset that is covered by subsection 104-165(3) (choosing to disregard a gain or loss on ceasing to be an Australian resident)

Note 1:

An asset is also taxable Australian property if it was acquired by a company after 28 January 1988 and before 26 May 1988 from a foreign resident as a result of a disposal for which there was a roll-over under section 160ZZN or 160ZZO of the Income Tax Assessment Act 1936 : see section 136-25 of the Income Tax (Transitional Provisions) Act 1997 .

Note 2:

Payments may need to be made to the Commissioner for acquisitions of some kinds of taxable Australian property if foreign residents are involved (see Subdivision 14-D in Schedule 1 to the Taxation Administration Act 1953 ).

SECTION 855-16  

855-16   Meaning of permanent establishment article  

A permanent establishment article is:

(a) Article 5 of the United Kingdom convention (within the meaning of the International Tax Agreements Act 1953 ); or

(b) a corresponding provision of another *international tax agreement.

SECTION 855-20  

855-20   Taxable Australian real property  

A *CGT asset is taxable Australian real property if it is:

(a) real property situated in Australia (including a lease of land, if the land is situated in Australia); or

(b) a *mining, quarrying or prospecting right (to the extent that the right is not real property), if the *minerals, *petroleum or quarry materials are situated in Australia.

SECTION 855-25   Indirect Australian real property interests  

855-25(1)    
A *membership interest held by an entity (the holding entity ) in another entity (the test entity ) at a time is an indirect Australian real property interest at that time if:

(a) the interest passes the *non-portfolio interest test (see section 960-195 ):

(i) at that time; or

(ii) throughout a 12 month period that began no earlier than 24 months before that time and ended no later than that time; and

(b) the interest passes the principal asset test in section 855-30 at that time.

855-25(2)    
For the purposes of subsection (1), in working out whether the interest passes the *non-portfolio interest test and the principal asset test in section 855-30 :

(a) apply section 350 of the Income Tax Assessment Act 1936 as if the words " , or is entitled to acquire, " (wherever occurring) were omitted; and

(b) apply section 351 of that Act as if:

(i) the words " , or that the beneficiary is entitled to acquire " (wherever occurring) were omitted; and

(ii) the words " , or that the entity is entitled to acquire " in paragraph 351(2)(d) were omitted.

855-25(3)    
The first element of the *cost base and *reduced cost base of a *CGT asset on 10 May 2005 is the *market value of the asset on that day if, on that day:

(a) the CGT asset was a *membership interest you held in another entity; and

(b) you were a foreign resident, or the trustee of a trust that was not a *resident trust for CGT purposes; and

(c) the CGT asset was a *post-CGT asset; and

(d) the CGT asset did not have the necessary connection with Australia (within the meaning of this Act as in force on that day) disregarding the operation of paragraph (b) of item 5 and paragraph (b) of item 6 of the table in section 136-25 (as in force on that day).

855-25(4)    
Also, Parts 3-1 and 3-3 apply to the asset as if you had *acquired it on that day.

SECTION 855-30   Principal asset test  

855-30(1)    
The purpose of this section is to define when an entity ' s underlying value is principally derived from Australian real property (see paragraph 855-5(2)(b) ).

855-30(2)    
A *membership interest held by an entity (the holding entity ) in another entity (the test entity ) passes the principal asset test if the sum of the *market values of the test entity ' s assets that are *taxable Australian real property exceeds the sum of the *market values of its assets that are not taxable Australian real property.

Note:

The market value of any of the latter kind of assets that are duplicated within the test entity ' s corporate group could be disregarded (see section 855-32 ).

855-30(3)    
For the purposes of subsection (2), treat an asset of an entity (the first entity ) that is a *membership interest in another entity (the other entity ) as if it were instead the following 2 assets:

(a) an asset that is *taxable Australian real property (the TARP asset );

(b) an asset that is not taxable Australian real property (the non-TARP asset ).

855-30(4)    

For the purposes of subsection (2), treat the *market value of the TARP asset and the non-TARP asset according to the following table.

Market value of the TARP asset and the non-TARP asset
Item	If:	the market value of the TARP asset is:	the market value of the non-TARP asset is:
1	the sum of the *total participation interests held by the holding entity and its *associates in the other entity is less than 10%	zero	the *market value of the *membership interest mentioned in subsection (3)
2	item 1 does not apply	the product of:	the product of:
		(a)	the sum of the *market values of all the assets of the other entity that are *taxable Australian real property; and	(a)	the sum of the market values of all the assets of the other entity that are not taxable Australian real property; and
		(b)	the first entity ' s *direct participation interest in the other entity	(b)	the first entity ' s direct participation interest in the other entity

Note 1:

For the purposes of item 2 of the table, it is necessary to work out the market value of any TARP assets and non-TARP assets in relation to any membership interests held by the other entity before working out the value of the TARP asset and non-TARP asset held by the first entity.

Note 2:

The market value of an asset of the other entity that is not taxable Australian real property, and is duplicated within the other entity ' s corporate group, could be disregarded (see section 855-32 ).

855-30(4A)    

For the purposes of working out the *total participation interests held by the holding entity and its *associates under item 1 of the table in subsection (4), take into account:

(a) a particular *direct participation interest; or

(b) a particular *indirect participation interest;

held in the other entity only once if it would otherwise be counted more than once because the entity holding it is an associate of the holding entity.

855-30(5)    
For the purposes of this section, disregard the *market value of any asset acquired by the test entity, or by any other entity, if the *acquisition was done for a purpose (other than an incidental purpose) that included ensuring that a *membership interest in any entity would not pass the principal asset test in this section.

SECTION 855-32   Disregard market value of duplicated non-TARP assets  

855-32(1)    
The purpose of this section is to prevent double counting of the *market value of the assets of a corporate group that:

(a) are not *taxable Australian real property; and

(b) are created under *arrangements under which corresponding liabilities are created in other members of the group.

855-32(2)    
For the purposes of subsections 855-30(2) and (4) , subsection (4) of this section applies to an asset that is not *taxable Australian real property if:

(a) the parties to an *arrangement included the 2 entities referred to in subsection (3); and

(b) an effect of the arrangement was to create, before the *CGT event happened:

(i) the asset as an asset of one of those 2 parties; and

(ii) a corresponding liability of the other (the other party ).

855-32(3)    
The 2 entities are either:

(a) the first entity and the other entity (see subsection 855-30(3) ), if table item 2 in subsection 855-30(4) applies to those entities; or

(b) both:

(i) that first entity or that other entity; and

(ii) an entity that is a first entity or other entity for the purposes of a related application of subsection 855-30(3) and table item 2 in subsection 855-30(4) .

855-32(4)    
Disregard:

(a) if the other party is the test entity (see subsection 855-30(2) ) - the asset ' s *market value; or

(b) otherwise - the percentage of the asset ' s market value equal to the percentage that is the test entity ' s *total participation interest in the other party.

Example:

The test entity loans money to its wholly-owned subsidiary. The market value of the loan asset created as an asset of the test entity is disregarded for the purposes of subsection 855-30(2) .

SECTION 855-35   Reducing a capital gain or loss from a business asset - Australian permanent establishments  

855-35(1)    

This section applies to a *CGT asset that is *taxable Australian property under item 3 of the table in section 855-15 because you have used it at any time in carrying on a *business through a permanent establishment (as mentioned in that item) in Australia.

855-35(2)    
The *capital gain or *capital loss you make from a *CGT event in relation to the asset is reduced if you used it in this way for only part of the period from when you *acquired it to when the CGT event happened.

855-35(3)    
The gain or loss is reduced by this fraction:

Number of days the asset was not used in the way described in subsection (1) Number of days in that period

SECTION 855-40   Capital gains and losses of foreign residents through fixed trusts  

855-40(1)    
The purpose of this section is to provide comparable taxation treatment as between direct ownership, and indirect ownership through a *fixed trust, by foreign residents of *CGT assets that are not *taxable Australian property.

855-40(2)    
A *capital gain you make in respect of your interest in a *fixed trust is disregarded if:

(a) you are a foreign resident when you make the gain; and

(b) the gain is attributable to a *CGT event happening to a *CGT asset of a trust (the CGT event trust ) that is:

(i) the *fixed trust; or

(ii) another fixed trust in which that trust has an interest (directly, or indirectly through a *chain of trusts, each trust in which is a fixed trust); and

(c) either:

(i) the asset is not *taxable Australian property for the CGT event trust at the time of the CGT event; or

(ii) the asset is an interest in a fixed trust and the conditions in subsections (5), (6), (7) and (8) are satisfied.

Note:

Section 115-215 treats a portion of a trust's capital gain as a capital gain made by a beneficiary, and applies the CGT discount to that portion as if the gain were made directly by the beneficiary.

855-40(3)    

You are not liable to pay tax as a trustee of a *fixed trust in respect of an amount to the extent that the amount gives rise to a *capital gain that is disregarded for a beneficiary under subsection (2).

855-40(4)    

To avoid doubt, subsection (3) does not affect the operation of subsection 98A(1) or (3) of the Income Tax Assessment Act 1936 (about taxing beneficiaries who are foreign residents at the end of an income year).

Conditions

855-40(5)    
The conditions in subsections (6), (7) and (8) must be satisfied if the relevant *CGT event happens to an interest in a *fixed trust (the first trust ) and the interest is *taxable Australian property at the time of the CGT event.

855-40(6)    
At least 90% (by *market value) of the *CGT assets of:

(a) the first trust; or

(b) a *fixed trust in which the first trust has an interest (directly, or indirectly through a *chain of trusts, each trust in which is a fixed trust);

must not be *taxable Australian property at the time of the relevant *CGT event.

855-40(7)    
If the condition in subsection (6) is not satisfied for the first trust (but is satisfied for a trust covered by paragraph (6)(b)), the condition in subsection (8) must be satisfied for the first trust, and for each other trust in the *chain of trusts between the first trust and the trust that satisfied the condition in subsection (6).

855-40(8)    
The condition is that, assuming any interest in a *fixed trust in that *chain not to be *taxable Australian property, at least 90% (by *market value) of the *CGT assets of the trust must not be taxable Australian property.

855-40(9)    
(Repealed by No 79 of 2007 )

Subdivision 855-B - Becoming an Australian resident  

SECTION 855-45   Individual or company becomes an Australian resident  

855-45(1)    
If you become an Australian resident, there are rules relevant to each *CGT asset that you owned just before you became an Australian resident, except an asset:

(a) that is *taxable Australian property; or

(b) that you *acquired before 20 September 1985.

Note:

This section has effect subject to section 768-950 (individuals who become Australian residents and are temporary residents immediately after they become Australian residents).

855-45(2)    
The first element of the *cost base and *reduced cost base of the asset (at the time you become an Australian resident) is its *market value at that time.

855-45(3)    
Also, Parts 3-1 and 3-3 apply to the asset as if you had *acquired it at the time you became an Australian resident.

855-45(4)    

This section does not apply to an *ESS interest if:

(a) Subdivision 83A-C (about employee share schemes) applies to the interest, and the *ESS deferred taxing point for the interest has not yet occurred; or

(b) the provisions referred to in paragraphs 83A-33(1)(a) to (c) (about start ups) apply to the ESS interest.

SECTION 855-50   Trust becomes a resident trust  

855-50(1)    
If a trust becomes a *resident trust for CGT purposes, there are rules relevant to each *CGT asset that the trustee owned just before the trust became a resident trust for CGT purposes, except one:

(a) that is *taxable Australian property; or

(b) that the trustee *acquired before 20 September 1985.

855-50(2)    
The first element of the *cost base and *reduced cost base of the asset (at the time the trust becomes a *resident trust for CGT purposes) is its *market value at that time.

855-50(3)    
Also, Parts 3-1 and 3-3 apply to the asset as if the trustee had *acquired it at the time the trust became a *resident trust for CGT purposes.

Exception

855-50(4)    
This section does not apply to a trust if, just before it became a *resident trust for CGT purposes, it was a *CFT because of paragraph 342(a) of the Income Tax Assessment Act 1936 .

Note:

This section is disregarded in calculating the attributable income of a trust: see section 102AAZB of the Income Tax Assessment Act 1936 .

SECTION 855-55   CFC becomes an Australian resident  

855-55(1)    
This section applies to a *CFC that stops at a time (the residence change time ) being a resident of a *listed country or an *unlisted country and becomes an Australian resident.

855-55(2)    
Section 855-45 does not apply to the *CFC.

855-55(3)    
The modifications of Parts 3-1 and 3-3 of this Act in sections 411 to 414 of the Income Tax Assessment Act 1936 have the effect they would have, in relation to each *commencing day asset owned by the *CFC at the residence change time, if those modifications were used to work out the taxable income of the CFC rather than its *attributable income.

855-55(4)    

However, if a *capital gain on a *commencing day asset of the *CFC (for a period before the residence change time) was subject to foreign tax in a *listed country, the modifications of Parts 3-1 and 3-3 of this Act in sections 411 to 414 of the Income Tax Assessment Act 1936 have the effect they would have in relation to the asset if:

(a) those modifications were used to work out the taxable income of the CFC rather than its *attributable income; and

(b) the *commencing day of the CFC were the residence change time.

Note:

This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936 .

Division 880 - Sovereign entities and activities  

Subdivision 880-A - Basic concepts  

SECTION 880-10   What this Subdivision is about  

Operative provisions

SECTION 880-15  

880-15   Meaning of sovereign entity  

A sovereign entity is any of the following:

(a) a body politic of a foreign country, or a part of a foreign country;

(b) a *foreign government agency;

(c) an entity:

(i) in which an entity covered by paragraph (a) or (b) holds a *total participation interest of 100%; and

(ii) that is not an Australian resident; and

(iii) that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 .

SECTION 880-20   Meaning of sovereign entity group  

880-20(1)    
Each of the following is part of a sovereign entity group :

(a) a body politic of a foreign country (other than a body politic of a part of that foreign country);

(b) a *foreign government agency in relation to that foreign country (other than a foreign government agency in relation to a part of that foreign country);

(c) an entity:

(i) in which an entity covered by paragraph (a) or (b) holds a *total participation interest of 100%; and

(ii) that is not an Australian resident; and

(iii) that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 .

880-20(2)    
Each of the following is part of a sovereign entity group :

(a) a body politic of a part of a foreign country;

(b) a *foreign government agency in relation to that part of that foreign country;

(c) an entity:

(i) in which an entity covered by paragraph (a) or (b) holds a *total participation interest of 100%; and

(ii) that is not an Australian resident; and

(iii) that is not a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 .

880-20(3)    
Each entity that is part of a *sovereign entity group is a member of the group.

Subdivision 880-B - Basic tax treatment of sovereign entities  

SECTION 880-50   What this Subdivision is about  

Operative provisions

SECTION 880-55  

880-55   Sovereign entity liable to pay tax  

A *sovereign entity is liable to pay *tax.

Note:

The actual amount of tax payable may be nil.

SECTION 880-60   Bodies politic of foreign countries and foreign government agencies treated as foreign residents  

880-60(1)    
For the purposes of this Act, treat a body politic of a foreign country, or a part of a foreign country:

(a) as being a person that is not a resident of Australia; and

(b) as being a resident of the foreign country.

880-60(2)    
For the purposes of this Act, treat a *foreign government agency in relation to a foreign country (including a foreign government agency in relation to a part of a foreign country):

(a) as being a person that is not a resident of Australia; and

(b) as being a resident of the foreign country.

Subdivision 880-C - Sovereign immunity  

SECTION 880-100   What this Subdivision is about  

Operative provisions

SECTION 880-105   Sovereign entity ' s income from membership interest etc. in trust or company - non-assessable non-exempt income  

880-105(1)    
An amount of *ordinary income or *statutory income of a *sovereign entity is not assessable income and is not *exempt income if:

(a) the sovereign entity is covered by section 880-125 ; and

(b) the amount is a return on any of the following kinds of interest that the sovereign entity holds in another entity (the test entity ):

(i) a *membership interest;

(ii) a *debt interest;

(iii) a *non-share equity interest; and

(c) the test entity is:

(i) a company that is an Australian resident at the time (the income time ) when the amount becomes ordinary or statutory income of the sovereign entity; or

(ii) a *managed investment trust in relation to the income year in which the income time occurs; and

(d) the *sovereign entity group of which the sovereign entity is a member satisfies the portfolio interest test in subsection (4) in relation to the test entity:

(i) at the income time; and

(ii) throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and

(e) the sovereign entity group of which the sovereign entity is a member does not have influence of a kind described in subsection (6) in relation to the test entity at the income time.

880-105(2)    
For the purposes of paragraph (1)(b), treat an interest that a *sovereign entity holds in another entity as a partner in a *partnership as not being an interest that the sovereign entity holds in the other entity.

880-105(3)    
If the amount is a *fund payment, subsection (1) does not apply to the extent that the amount is attributable to:

(a) *non-concessional MIT income (see section 12-435 in Schedule 1 to the Taxation Administration Act 1953 ); or

(b) an amount that would be non-concessional MIT income if the following provisions were disregarded:

(i) subsection 12-437(5) in that Schedule;

(ii) sections 12-440 , 12-447 , 12-449 and 12-451 in that Schedule.

Portfolio interest test

880-105(4)    
A *sovereign entity group satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the sum of the *total participation interests that each *member of the group holds in the test entity:

(a) is less than 10%; and

(b) would be less than 10% if, in working out the *direct participation interest that any entity holds in a company:

(i) an *equity holder were treated as a shareholder; and

(ii) the total amount contributed to the company in respect of *non-share equity interests were included in the total paid-up share capital of the company.

880-105(5)    
For the purposes of subsection (4), in working out the sum of the *total participation interests held by each *member of the group in the test entity, take into account:

(a) a particular *direct participation interest; or

(b) a particular *indirect participation interest;

held in the entity only once if it would otherwise be counted more than once.

Influence test

880-105(6)    
A *sovereign entity group has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

(a) a *member of the group:

(i) is directly or indirectly able to determine; or

(ii) in acting in concert with others, is directly or indirectly able to determine;

the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity ' s operations;

(b) at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member acting in concert with others).

880-105(7)    
However, a *sovereign entity group does not have influence of a kind described in subsection (6) if, disregarding any breach of terms of a *debt interest by any entity, the sovereign entity group would not have influence of that kind.

880-105(8)    
For the purposes of subsection (6), in working out whether an entity is a *member of a *sovereign entity group, treat the references in paragraphs 880-20(1)(c) and (2)(c) to 100% as instead being references to more than 50%.

SECTION 880-110  

880-110   Sovereign entity ' s deduction from membership interest etc. - loss not deductible  

A *sovereign entity cannot deduct an amount if:

(a) the sovereign entity is covered by section 880-125 ; and

(b) the amount is a loss in respect of any of the following kinds of interest that the sovereign entity holds in another entity:

(i) a *membership interest;

(ii) a *debt interest;

(iii) a *non-share equity interest; and

(c) the requirements in paragraphs 880-105(1)(c) , (d) and (e) would be satisfied, on the assumptions that:

(i) the amount were *ordinary income or *statutory income; and

(ii) the amount became ordinary income or statutory income of the sovereign entity at the time it arose; and

(iii) references in those paragraphs to the test entity were references to the other entity mentioned in paragraph (b) of this section.

SECTION 880-115  

880-115   Sovereign entity ' s capital gain from membership interest etc. - gain disregarded  

Disregard a *capital gain of a *sovereign entity from a *CGT event that happens in relation to a *CGT asset if:

(a) the sovereign entity is covered by section 880-125 ; and

(b) the CGT asset is a *membership interest, *non-share equity interest or *debt interest in another entity; and

(c) the requirements in paragraphs 880-105(1)(c) , (d) and (e) would be satisfied, on the assumptions that:

(i) the capital gain were an amount of *ordinary income or *statutory income; and

(ii) the amount mentioned in subparagraph (i) became ordinary income or statutory income of the sovereign entity immediately before the time the CGT event happened; and

(iii) references in those paragraphs to the test entity were references to the other entity mentioned in paragraph (b) of this section.

SECTION 880-120  

880-120   Sovereign entity ' s capital loss from membership interest etc. in trust or company - loss disregarded  

Disregard a *capital loss of a *sovereign entity from a *CGT event that happens at a time if, on the assumption that the loss were a *capital gain that happened at that time, the capital gain would be disregarded because of section 880-115 .

SECTION 880-125  

880-125   Covered sovereign entities  

A *sovereign entity is covered by this section if it satisfies all of the following requirements:

(a)the entity is funded solely by public monies;

(b) all returns on the entity ' s investments are public monies;

(c) the entity is not a partnership;

(d) the entity is not any of the following:

(i) a *public non-financial entity;

(ii) a *public financial entity (other than a public financial entity that only carries on central banking activities).

SECTION 880-130   Meaning of public non-financial entity and public financial entity  

880-130(1)    
An entity is a public non-financial entity if its principal activity is either or both of the following:

(a) producing or trading non-financial goods;

(b) providing services that are not financial services.

880-130(2)    
An entity is a public financial entity if any of the following requirements are satisfied:

(a) it trades in financial assets and liabilities;

(b) it operates commercially in the financial markets;

(c) its principal activities include providing any of the following financial services:

(i) financial intermediary services, including deposit-taking and insurance services;

(ii) financial auxiliary services, including brokerage, foreign exchange and investment management services;

(iii) capital financial institution services, including financial services in relation to assets or liabilities that are not available on open financial markets.

Subdivision 880-D - Consular activities  

SECTION 880-200   What this Subdivision is about  

Operative provisions

SECTION 880-205  

880-205   Income from consular functions - non-assessable non-exempt income  

An amount of *ordinary income or *statutory income of an entity is not assessable income and is not *exempt income if the income arises from the entity ' s consular functions.