CHAPTER 6
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THE DICTIONARY
PART 6-1
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CONCEPTS AND TOPICS
Division 974
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Debt and equity interests
History
Division 974 inserted by No 163 of 2001, s 3 and Sch 1 item 34.
Act
No 136 of 2010
, s 3 and Sch 3 item 135, contains the following provision, effective 7 December 2010:
Extension of debt and equity transitional arrangements for Upper Tier 2 capital instruments
Definitions
(1)
In this item:
CGT amendments
has the same meaning as in item 118 of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001
.
debt and equity test amendments
means the amendments made by Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001
(other than the CGT amendments), as amended from time to time.
Upper Tier 2 capital instruments
(2)
This item applies to an interest:
(a)
that is issued before 1 July 2001; and
(b)
that is an instrument known as an Upper Tier 2 capital instrument; and
(c)
to which an election under paragraph 118(6)(b) of the
New Business Tax System (Debt and Equity) Act 2001
does not apply.
(3)
For the purposes of subitem (2), an interest is taken to be issued on or after 1 July 2001 if:
(a)
the interest is issued on or after that date; or
(b)
the interest is issued before that date, and:
(i)
the terms of the interest are altered on or after that date; or
(ii)
the interest is rolled over on or after that date; or
(iii)
the original term of the interest is extended on or after that date.
In applying subparagraph (b)(i), disregard:
(c)
minor alterations that do not affect rights and obligations in relation to the interest; and
(d)
alterations that permit or require any deferred payments under the interest to accumulate.
Application of debt and equity test amendments
(4)
Despite paragraph 118(6)(a) of the
New Business Tax System (Debt and Equity) Act 2001
, the debt and equity test amendments apply only to transactions that take place in relation to the interest on or after 1 July 2010 if the issuer of the interest does not make an election under paragraph 118(6)(b) of that Act.
(5)
If subitem (4) applies to an interest:
(a)
the interest is disregarded for the purposes of paragraph
164-10(1)(b)
and subsection
164-15(3)
of the
Income Tax Assessment Act 1997
; and
(b)
section
164-15
of the
Income Tax Assessment Act 1997
applies to the interest as if references in paragraph
164-15(3)(b)
and subsection
164-15(4)
to 1 July 2001 were references to 1 July 2010.
(6)
A reference in this item to a
transaction
includes a reference to:
(a)
making a return; and
(b)
paying a dividend or unit trust dividend; and
(c)
making a distribution in relation to a unit trust; and
(d)
paying, crediting or lending an amount; and
(e)
making a non-share distribution; and
(f)
forgiving a debt; and
(g)
redeeming, cancelling or buying back an interest; and
(h)
converting an interest.
Act No 163 of 2001, s 3 and Sch 1 item 118 (as amended by No 162 of 2005, s 3 and Sch 6 items 26 and 27), contained the following application provisions:
(1)
Definitions.
In this item:
CGT amendments
means the amendments made by items 7 to 32 of this Schedule.
debt and equity test amendments
means the amendments made by this Schedule (other than the CGT amendments).
(2)
Application of debt and equity test amendments.
The debt and equity test amendments apply to transactions that take place on or after 1 July 2001. This is so whether the interest in relation to which the transaction takes place was issued before, or is issued on or after, that date. This subitem has effect subject to subitem (6).
History
Subitem 118(2) amended by No 162 of 2005.
(3)
Application of the CGT amendments.
The amendments made by items 7 to 11 of this Schedule apply to:
(a)
equity interests issued or allotted; and
(b)
options granted;
on or after 1 July 2001.
(4)
The amendments made by items 12 to 32 of this Schedule apply to the conversion of a convertible interest, or the exercise of a right, on or after 1 July 2001.
(5)
Section 130-40 of the
Income Tax Assessment Act 1997
applies to all convertible notes acquired before 20 September 1985 as if they were convertible interests.
(6)
Application of debt and equity test amendments to interests issued before 1 July 2001.
If an interest was issued before 1 July 2001, the debt and equity test amendments:
(a)
apply only to transactions that take place in relation to the interest on or after 1 July 2004 if the issuer of the interest does not make an election under paragraph (b); and
(b)
apply to transactions that take place in relation to the interest on or after 1 July 2001 if the issuer elects to have this paragraph apply to the interest.
(7)
For the purposes of subitem (6), an interest is taken to be issued on or after 1 July 2001 if:
(a)
the interest is issued on or after that date; or
(b)
the interest is issued before that date; and:
(i)
the terms of the interest are altered on or after that date; or
(ii)
the interest is rolled over on or after that date; or
(iii)
the original term of the interest is extended on or after that date.
In applying subparagraph (b)(i), disregard minor alterations that do not affect rights and obligations in relation to the interest.
(9)
If paragraph (6)(a) applies to an interest:
(a)
paragraph
164-10(1)(b)
of the
Income Tax Assessment Act 1997
applies to the interest as if the second reference in that paragraph to
"
1 July 2001
"
were instead a reference to
"
1 July 2004
"
; and
(b)
section
164-15
of the
Income Tax Assessment Act 1997
applies to the interest as if the following references were instead references to
"
1 July 2004
"
:
(i)
the first reference in subsection
164-15(3)
to
"
1 July 2001
"
;
(ii)
the reference in subsection
164-15(3)
to
"
that day
"
;
(iii)
the references in paragraph
164-15(3)(b)
and subsection
164-15(4)
to
"
1 July 2001
"
.
History
Subitem 118(9) substituted by No 162 of 2005.
(10)
An election in relation to an interest is effective for the purposes of paragraph (6)(b) only if:
(a)
the election is lodged with the Commissioner within:
(i)
90 days after the day on which this Act receives the Royal Assent; or
(ii)
such further time as the Commissioner allows; and
(b)
an election under paragraph (6)(b) is made in relation to all other interests that:
(i)
were issued by the issuer before 1 July 2001; and
(ii)
are substantially similar to that interest and in relation to which an election under that subitem can be made; and
(c)
the election contains the following information:
(i)
the name of the issuer;
(ii)
the tax file number of the issuer;
(iii)
the legal form of the interest;
(iv)
ASX code or other stock exchange listing code allotted to the issue (if applicable);
(v)
the date of the issue;
(vi)
the face value of the issue;
(vii)
the number of interests of that kind on issue when the election is made;
(viii)
coupon/dividend rates and terms including contingencies;
(ix)
maturity details;
(x)
redemption details and terms including contingencies;
(xi)
conversion/exercise details.
An election under paragraph (6)(b) cannot be revoked.
(11)
The Commissioner may allow further time under subparagraph (10)(a)(ii) if he or she:
(a)
is satisfied that the issuer would otherwise not have sufficient opportunity to make the election; or
(b)
otherwise considers it reasonable to do so.
(12)
If:
(a)
paragraph (6)(a) applies to an interest; and
(b)
on or after 1 July 2001 and before 1 July 2004:
(i)
the terms of the interest are altered; or
(ii)
the interest is rolled over; or
(iii)
the original term of the interest is extended;
then:
(c)
the debt and equity test amendments apply to the transactions in relation to the interest that take place after the event referred to in paragraph (b) occurs; and
(d)
subitem (9) applies to the interest as if references in that subitem to 1 July 2004 were references to the time when that event occurs.
In applying subparagraph (b)(i), disregard minor alterations that do not affect rights and obligations in relation to the interest.
(13)
A reference in this item to a
transaction
includes a reference to:
(a)
making a return; and
(b)
paying a dividend or unit trust dividend; and
(c)
making a distribution in relation to a unit trust; and
(d)
paying, crediting or lending an amount; and
(e)
making a non-share distribution; and
(f)
forgiving a debt; and
(g)
redeeming, cancelling or buying back an interest; and
(h)
converting an interest.
Subdivision 974-B
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Debt interests
History
Subdivision 974-B inserted by No 163 of 2001. For application provisions, see note under Div 974 heading.
SECTION 974-35
Valuation of financial benefits
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general rules
Value in nominal terms or present value terms
974-35(1)
For the purposes of this Subdivision:
(a)
the value of a *financial benefit received or provided under a *scheme is its value calculated:
(i)
in nominal terms if the performance period (see subsection (3)) must end no later than 10 years after the interest arising from the scheme is issued; or
(ii)
in present value terms (see section
974-50
) if the performance period must or may end more than 10 years after the interest arising from the scheme is issued; and
(b)
the regulations may make provisions relating to the valuation of a financial benefit.
Assume scheme runs its full term
974-35(2)
The value of a *financial benefit received or provided under a *scheme is calculated assuming that the interest arising from the scheme will continue to be held for the rest of its life.
Note 1:
Section 974-40 makes specific provision for cases in which there is a right or option to terminate the interest early.
Note 2:
Section 974-45 makes specific provision for cases involving convertible interests.
Performance period
974-35(3)
The
performance period
is the period within which, under the terms on which the interest is issued, the *effectively non-contingent obligations of the issuer, and any *connected entity of the issuer, to provide a *financial benefit in relation to the interest have to be met.
974-35(4)
An obligation is treated as having to be met within 10 years after the interest is issued if:
(a)
the issuer; or
(b)
the *connected entity of the issuer;
has an *effectively non-contingent obligation to terminate the interest within that 10 year period even if the terms on which the interest is issued formally allow the obligation to continue after the end of that 10 year period.
Benefit dependent on variable factor
974-35(5)
If:
(a)
a *financial benefit received or provided in respect of an interest depends on a factor that may vary over time (such as a variable interest rate); and
(b)
that factor is one commonly used in commercial arrangements; and
(c)
it would be unreasonable to expect any of the parties to the *scheme to know, or to anticipate accurately, the future value of that factor; and
(d)
that factor has a particular value (the
starting value
) when the scheme is entered into;
the value of the financial benefit is calculated assuming that the factor
'
s value will retain the starting value for the whole of the life of the scheme.
Note:
For example, the value of a return based on a floating interest rate is calculated on the basis that the interest rate remains the interest rate that is applicable when the scheme is entered into.
Scheme wholly in foreign currency etc.
974-35(6)
If all the *financial benefits provided and received under a *scheme are denominated in a particular foreign currency or in terms of quantities of a particular commodity or other unit of account, they are not to be converted into Australian currency for the purpose of comparing their relative values for the purposes of this Subdivision.
History
S 974-35 inserted by No 163 of 2001. For application provisions, see note under Div 974 heading.
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