Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 16E - Accruals assessability, etc., in respect of certain security payments  

SECTION 159GQD   IMPLICIT INTEREST RATE FOR VARIABLE RETURN SECURITY  

159GQD(1)   Implicit interest rate to be recalculated each year etc.  

For the purposes of the formula component Implicit interest rate in subsection 159GQB(1) , the rate of interest for a variable return security must be worked out in accordance with subsection (2) separately for each year of income during the taxpayer's maximum term. If there are 2 accrual periods of 6 months in the year of income, the rate is the same for both periods. It is possible for the rate to be negative.

159GQD(2)   Rate.  

The rate applicable in relation to a year of income is the rate of compound interest per period of 6 months in the calculation period (see subsection (3)) at which:

(a) the sum of the present values of all amounts payable under the security during the calculation period;

equals:

(b) the opening balance, mentioned in subsection 159GQB(1) , for the accrual period that begins the calculation period.

159GQD(3)   Calculation period.  

The calculation period means the part of the taxpayer's maximum term that occurs after the beginning of the year of income.

159GQD(4)   Where amount payable is not known.  

For the purposes of paragraph (2)(a), if by the end of the year of income it is not possible to determine whether an amount will be payable, or the size of the amount that will be payable, after the end of the year of income, the determination is to be made by applying subsection (5), (7) or (11), or a combination of those subsections.

159GQD(5)   Assumption of constant level.  

Subject to subsection (7), if an amount payable is worked out to any extent by reference to the amount or level, at a particular time, of a rate, price, index or other thing, it is to be assumed that the rate, price, index or thing will be the same at all times after the end of the year of income as it was at the end of the year of income (or, if it was not available at the end of the year of income, at the time when it was last available in the year of income).

159GQD(6)   Examples.  

For the purposes of subsection (5):

(a) an example of an amount worked out wholly by reference to the amount of a rate at a particular time is an interest payment under a floating rate note. The amount payable is the product of an interest rate indicator (such as the prevailing bank bill rate) and the face or par value of the note; and

(b) an example of an amount worked out wholly by reference to the amount of a price at a particular time is a redemption payment under a commodity linked security where the amount of the payment is the product of the prevailing price of a commodity (such as gold) and the face or par value of the security.

159GQD(7)   Assumption of continuing rate of change.  

If an amount payable is worked out to any extent by reference to the amount of change in an index or other thing that occurs during a period, it is to be assumed that the index or other thing will continue to change at the same rate as it did:

(a) if the index or other thing was available at the end of the year of income - during the year of income; or

(b) in any other case - during the period of 12 months in respect of which the index or other thing was last available in the year of income.

159GQD(8)   Example.  

An example for the purposes of subsection (7) is a payment whose amount is the product of the face or par value of a security and the percentage increase in the All Groups Consumer Price Index number (the CPI ) during the year ending on 30 June 1995. If the year of income for which the implicit interest rate is being worked out is the 1993-94 year of income and the CPI increases by 2% during the year ending on 31 March 1994 (the date of the last available number during the year of income), the CPI is assumed to increase by 2% during the year ending on 30 June 1995.

159GQD(9)   Disguised continuing rate of change case.  

For the purposes of subsection (7), if an amount payable is worked out to any extent by reference to the quotient of:

(a) the amount or level of an index or other thing at a particular time; and

(b) either:

(i) the amount or level of the index or other thing at a different time; or

(ii) another amount that, while not expressed to be the amount or level of the index or other thing at a different time, may reasonably be regarded as representing the amount or level of the index or other thing at a different time;

the amount payable is taken to be worked out to that extent by reference to the amount of change in the index or other thing that occurs during the period between the 2 times.

159GQD(10)   Example.  

An example for the purposes of subsection (9) is a payment under a security issued in December 1994 that is worked out by multiplying a number of dollars by the quotient of:

(a) the All Groups Consumer Price Index number in respect of the quarter ending on 31 December 1997; and

(b) the number 114.

Assume that the number in paragraph (b) is the same as the All Groups Consumer Price Index number in respect of the quarter ending on 31 December 1994. In this case, it would be reasonable to regard the number as representing the amount of the index at 31 December 1994, and therefore to apply subsection (7).

159GQD(11)   General assumption.  

If it is not possible to make the determination mentioned in subsection (4) in respect of the whole or part of any amount by applying subsection (5) or (7), or both, (for example, because no information about a rate, price or index was available during the year of income), the determination in respect of that whole or part is to be made on the basis of what is most likely in the circumstances.