Tax Laws Amendment (2010 Measures No. 5) Act 2011 (61 of 2011)

Schedule 2   Capital protected borrowings

Income Tax (Transitional Provisions) Act 1997

12   At the end of Division 247

Add:

Subdivision 247-B - Other transitional provisions

Table of sections

247-75 Post-July 2007 capital protected borrowings

247-80 Capital protected borrowings in existence on 1 July 2013

247-85 Extensions and other changes

247-75 Post-July 2007 capital protected borrowings

(1) For a capital protected borrowing entered into or extended:

(a) on or after 1 July 2007; but

(b) at or before 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008 (the 2008 Budget time );

work out the amount that is reasonably attributable to the capital protection using the following method statement.

Method statement

Step 1. Work out the total amount incurred by the borrower under or in respect of the capital protected borrowing for the income year, ignoring amounts that are not in substance for capital protection or interest.

Step 2. Work out the total interest that would have been incurred for the income year on a borrowing or provision of credit of the same amount as under the capital protected borrowing at the rate applicable under either or both of subsections (2) and (3).

Step 3. If the step 1 amount exceeds the step 2 amount, the excess is reasonably attributable to the capital protection for the income year.

Example: Amounts that would be ignored under step 1 include amounts that are in substance the repayment of a loan or credit, the payment of an application fee or brokerage commission and the payment of stamp duty or other tax.

(2) If:

(a) the capital protected borrowing is at a fixed rate for all or part of the term of the capital protected borrowing; and

(b) that fixed rate is applicable to the capital protected borrowing for all or part of the income year;

use the Reserve Bank of Australia’s Indicator Lending Rate for Personal Unsecured Loans - Variable Rate (the personal unsecured loan rate ) at the first time an amount covered by step 1 of the method statement in subsection (1) was incurred, in any income year, during the term of the capital protected borrowing or that part of the term.

(3) If:

(a) the capital protected borrowing is at a variable rate for all or part of the term of the capital protected borrowing; and

(b) a variable rate is applicable to the capital protected borrowing for all or part of the income year;

use the average of the personal unsecured loan rates applicable during those parts of the income year when the capital protected borrowing is at a variable rate.

247-80 Capital protected borrowings in existence on 1 July 2013

(1) This section applies to a capital protected borrowing (including one covered by Subdivision 247-A or section 247-75):

(a) entered into at or before the 2008 Budget time; and

(b) in existence on 1 July 2013; and

(c) to which section 247-85 does not apply.

(2) Work out the amount that is reasonably attributable to the capital protection using the method statement in subsection 247-75(1) and, for step 2 in that method statement, using the rate applicable under either or both of subsections (3) and (5) on or after 1 July 2013.

(3) If:

(a) the capital protected borrowing is at a fixed rate for all or part of the term of the capital protected borrowing; and

(b) that fixed rate is applicable to the capital protected borrowing for all or part of the income year that is on or after 1 July 2013;

use the rate worked out under subsection (4) at the first time an amount covered by step 1 of that method statement was incurred, in any income year, while the capital protected borrowing is at that fixed rate.

(4) The rate (the adjusted loan rate ), at a particular time, is the sum of:

(a) the Reserve Bank of Australia’s Indicator Lending Rate for Standard Variable Housing Loans at that time; and

(b) 100 basis points.

(5) If:

(a) the capital protected borrowing is at a variable rate for all or part of the term of the capital protected borrowing; and

(b) a variable rate is applicable to the capital protected borrowing for all or part of the income year that is on or after 1 July 2013;

use the average of the adjusted loan rates applicable during those parts of the income year when the capital protected borrowing is at a variable rate.

247-85 Extensions and other changes

(1) This section applies to a capital protected borrowing entered into at or before the 2008 Budget time (including one covered by Subdivision 247-A or section 247-75) where, after that time, one or both of these events occurred:

(a) the term of the capital protected borrowing is extended;

(b) some other change is made to the terms and conditions of the capital protected borrowing.

(2) Work out the amount that is reasonably attributable to the capital protection using the method statement in subsection 247-75(1) and, for step 2 in that method statement, using the rate applicable under either or both of subsections (3) and (4) from the earlier of these times:

(a) the time the extension or change took effect;

(b) the start of 1 July 2013;

(the switch-over time ).

(3) If:

(a) the capital protected borrowing is at a fixed rate for all or part of the term of the capital protected borrowing; and

(b) that fixed rate is applicable to the capital protected borrowing for all or part of the income year that is at or after the switch-over time;

use the adjusted loan rate (as described in subsection 247-80(4)) applicable at the first time an amount covered by step 1 of that method statement was incurred, in any income year, while the capital protected borrowing is at that fixed rate.

(4) If:

(a) the capital protected borrowing is at a variable rate for all or part of the term of the capital protected borrowing; and

(b) a variable rate is applicable to the capital protected borrowing for all or part of the income year that is at or after the switch-over time;

use the average of the adjusted loan rates (as described in subsection 247-80(4)) applicable during those parts of the income year when the capital protected borrowing is at a variable rate.