Product Ruling

PR 2016/2

Income tax: tax consequences of investing in ANZ Cobalt

• Please note that the PDF version is the authorised version of this ruling.

No guarantee of commercial success

The Commissioner does not sanction or guarantee this product. Further, the Commissioner gives no assurance that the product is commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based.

Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information.

This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling.

Terms of use of this Product Ruling

This Product Ruling has been given on the basis that the entity(s) that applied for the Product Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Product Ruling.

What this Ruling is about

1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated.

2. In this Product Ruling the scheme is referred to as ANZ Cobalt offered by Australia and New Zealand Banking Group Limited (ANZ) and issued under the ANZ Cobalt Product Disclosure Statement (PDS).

3. This Product Ruling does not address:

(a)

the taxation consequences of:

•

Early Termination of the Loan

•

an investor's Default

•

using the Loan to finance the exercise price of Vested Employee Options

•

making an Adviser Option Payment

•

entering into an additional Loan during the Term of an existing Loan where the investor's Protection Level is greater than the Amount Outstanding in respect of that existing Loan

•

buying or selling Options (other than the Purchase Put Option or the Capped Purchase Put Option bought under the Loan)

•

buying a Purchase Put Option over an Index

•

acquiring a Loan in respect of a Parcel (or Parcels) of Securities that an investor already holds

•

income derived from the Securities (except where specifically addressed in the context of the Dividend Give-Up Facility as per paragraphs 15(s)(i) and 54 of this Product Ruling), and

•

an Adjustment Event

(b)

an investor's entitlement to franking credits (except where specifically addressed in the context of the Dividend Give-Up Facility as per paragraphs 15(s)(ii) and 55 of this Product Ruling), and

(c)

whether this scheme constitutes a financial arrangement for the purposes of Division 230 (Taxation of financial arrangements).

Class of entities

4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the investor.

5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities that are accepted to participate in the scheme specified below on or after 1 April 2016 and on or before 30 June 2019. They must have a purpose of remaining in the scheme until it is completed (that is, being a party to the relevant agreements until their term expires), and deriving assessable income (other than capital gains) from the investment that exceeds the deductible expenditure incurred in connection with the investment.

6. The class of entities who can rely on this Product Ruling does not include entities that:

•

are non-residents for Australian taxation purposes

•

intend to terminate their investment in the scheme prior to its completion, or that do not intend to derive assessable income (other than capital gains) from the investment that exceeds the deductible expenditure that they incur in order to invest in the scheme

•

are accepted to participate in the scheme described below before 1 April 2016 or after 30 June 2019

•

acquire a Loan in respect of a Parcel (or Parcels) of Securities that they already hold, or use the Loan to finance the exercise price of Vested Employee Options

•

participate in the scheme through offers made other than through the PDS, or who enter into an undisclosed arrangement with the promoter or a promoter associate, or an independent adviser that is interdependent with scheme obligations and/or scheme benefits (which may include tax benefits) in any way

•

trade in Securities and are treated for taxation purposes as trading in Securities, carrying on a business of investing in the Securities, or holding the Securities as trading stock or as revenue assets

•

trade in Options and are treated for taxation purposes as trading in the Purchase Put Option or Capped Purchase Put Option, carrying on a business of investing in the Purchase Put Option or Capped Purchase Put Option, or holding the Purchase Put Option or Capped Purchase Put Option as trading stock or as a revenue asset, or

•

are subject to Division 230 in respect of this scheme. Division 230 will generally not apply to individuals, unless they have made an election for it to apply to them.

Superannuation Industry (Supervision) Act 1993

7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA.

Qualifications

8. The class of entities defined in this Product Ruling may rely on it provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Ruling.

9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:

•

this Product Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled, and

•

this Product Ruling may be withdrawn or modified.

Date of effect

10. This Product Ruling applies prospectively from 1 April 2016. It therefore applies only to the specified class of entities that enter into the scheme from 1 April 2016 until 30 June 2019 being its period of application. This Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into during the period of application.

11. However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme.

Changes in the law

12. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect.

13. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued.

Note to promoters and advisers

14. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued.

Ruling

15. Subject to paragraph 3 of this Product Ruling and the assumptions in paragraph 20 of this Ruling:

(a)

Where the cost of the Purchase Put Option is factored into the interest rate charged on the Loan (and the investor does not pay a Protection Level Increase Fee in the circumstances discussed at paragraph 19(o) of this Product Ruling):

(i)

the interest incurred under the Loan, reduced by an amount reasonably attributable to the cost of capital protection worked out under step 3 of the method statement in subsection 247-20(3), will be deductible under section 8-1

(ii)

under subsection 247-20(3), the amount reasonably attributable to the cost of capital protection in an income year is the amount by which the interest incurred under the Loan for the income year exceeds:

•

where interest is charged on the Loan from ANZ at a fixed rate for all or part of the term of the Loan and that fixed rate is applicable to the Loan for all or part of the income year, the amount of the Loan multiplied by the sum of the Reserve Bank of Australia's Indicator Lending Rate for Standard Variable Housing Loans and 100 basis points (the 'adjusted loan rate') at the time when the interest charge is first incurred during the term of the Loan, or the relevant part of the term (subsections 247-20(4) and (5)), and

•

where interest is charged on the Loan from ANZ at a variable rate for all or part of the term of the Loan and a variable rate is applicable to the Loan for all or part of the income year, the amount of the Loan multiplied by the average of the adjusted loan rates applicable during those parts of the income year when the Loan is at a variable rate (subsections 247-20(5) and (5A)), and

(iii)

the amount reasonably attributable to the cost of capital protection as worked out under paragraph 15(a)(ii) of this Product Ruling, is treated as the cost of the Purchase Put Option under subsection 247-20(6). This amount is not deductible under section 8-1.

(b)

Where the cost of the Purchase Put Option is factored into the interest rate charged on the Loan and the investor pays the Protection Level Increase Fee in the circumstances discussed at paragraph 19(o) of this Product Ruling:

(i)

under subsection 247-20(3), the amount reasonably attributable to the cost of capital protection in an income year is the amount by which the total of the Protection Level Increase Fee and the interest incurred under the Loan for the income year exceeds:

•

where interest is charged on the Loan from ANZ at a fixed rate for all or part of the term of the Loan and that fixed rate is applicable to the Loan for all or part of the income year, the amount of the Loan multiplied by the adjusted loan rate at the time when the interest charge is first incurred during the term of the Loan, or the relevant part of the term (subsections 247-20(4) and (5)), and

•

where interest is charged on the Loan from ANZ at a variable rate for all or part of the term of the Loan and a variable rate is applicable to the Loan for all or part of the income year, the amount of the Loan multiplied by the average of the adjusted loan rates applicable during those parts of the income year when the Loan is at a variable rate (subsections 247-20(5) and (5A))

(ii)

the amount reasonably attributable to the cost of capital protection as worked out under paragraph 15(b)(i) of this Product Ruling, reduced by the Protection Level Increase Fee, is treated as a further cost of the Purchase Put Option under subsection 247-20(6). For the purposes of this Product Ruling, this further cost of the Purchase Put Option is referred to as the 'additional amount'

(iii)

the additional amount (if any) and the Protection Level Increase Fee are not deductible under section 8-1, and

(iv)

an amount equal to the interest incurred under the Loan, reduced by the additional amount (if any), will be deductible under section 8-1.

(c)

Where the cost of the Purchase Put Option (the Initial Option Fee) is paid as an upfront lump sum:

(i)

under subsection 247-20(3), the amount reasonably attributable to the cost of capital protection in an income year is the amount by which the total of the Initial Option Fee, any Protection Level Increase Fee paid and the interest incurred under the Loan for the income year exceeds:

•

where interest is charged on the Loan from ANZ at a fixed rate for all or part of the term of the Loan and that fixed rate is applicable to the Loan for all or part of the income year, the amount of the Loan multiplied by the adjusted loan rate at the time when the interest charge is first incurred during the term of the Loan, or the relevant part of the term (subsections 247-20(4) and (5)), and

•

where interest is charged on the Loan from ANZ at a variable rate for all or part of the term of the Loan and a variable rate is applicable to the Loan for all or part of the income year, the amount of the Loan multiplied by the average of the adjusted loan rates applicable during those parts of the income year when the Loan is at a variable rate (subsections 247-20(5) and (5A))

(ii)

the amount reasonably attributable to the cost of capital protection as worked out under paragraph 15(c)(i) of this Product Ruling, reduced by the Initial Option Fee and any Protection Level Increase Fee paid, is treated as a further cost of the Purchase Put Option under subsection 247-20(6) (the additional amount)

(iii)

the additional amount (if any), the Initial Option Fee and any Protection Level Increase Fee paid are not deductible under section 8-1, and

(iv)

an amount equal to the interest incurred under the Loan, reduced by the additional amount (if any), will be deductible under section 8-1.

(d)

Division 247 will not apply to the Interest Assistance Loan. An amount equal to the interest incurred under the Interest Assistance Loan will be deductible under section 8-1.

(e)

Section 51AAA of the Income Tax Assessment Act 1936 (ITAA 1936) will not apply to deny deductibility of the interest incurred under the Loan and the Interest Assistance Loan (if applicable) that is allowable as a deduction under section 8-1 of the ITAA 1997.

(f)

Section 82KL of the ITAA 1936 will not apply to deny deductibility of the interest incurred under the Loan and the Interest Assistance Loan (if applicable) that is allowable as a deduction under section 8-1 of the ITAA 1997.

(g)

Section 82KZMF of the ITAA 1936 will not apply to set the amount and timing of deductions for prepaid interest incurred under the Loan that is allowable as a deduction under section 8-1 of the ITAA 1997.

(h)

Section 82KZM of the ITAA 1936 will not apply to deny the investor immediate deductibility of any part of the prepaid interest incurred under the Loan that is allowable as a deduction under section 8-1 of the ITAA 1997, where at least one of the following applies for the year of income:

•

the investor is a small business entity (as defined in section 328-110 of the ITAA 1997) that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure, or

•

the investor is an individual who does not incur the interest in carrying on a business.

(i)

Sections 82KZMA and 82KZMD of the ITAA 1936 will apply to set the amount and timing of deductions for the prepaid interest incurred under the Loan that is allowable as a deduction under section 8-1 of the ITAA 1997 to an investor (other than a small business entity for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure) who is a taxpayer that is not an individual and does not carry on a business.

(j)

For the purposes of the ITAA 1936 and the ITAA 1997 (other than the purposes set out in subsection 235-815(2)) and pursuant to the operation of section 235-820, Securities that are held on trust for the investor by ANZ Equities (Nominee) Pty Ltd (the Nominee), or a sub-custodian of the Nominee, in the circumstances discussed at paragraph 19(h) of this Product Ruling will be treated as being the investor's asset (instead of an asset of the trust), and any act done in relation to the Securities by the Nominee (or its sub-custodian) will be treated as if the act had been done by the investor (instead of the trustee).

(k)

The cost base and reduced cost base that an investor has in the Securities will include the amount of the Loan used to finance the acquisition of the Securities, the investor's Contribution (if any) towards the acquisition of the Securities, and incidental costs of acquisition and disposal of the Securities (sections 110-25 and 110-55).

(l)

If the Closing Price of the Securities at Maturity is below the Protection Level and the investor's Purchase Put Option is exercised, under a Physical Settlement:

(i)

CGT event A1 under section 104-10 will happen in relation to the Securities for the investor

(ii)

the cost of capital protection, including the amount reasonably attributable to the cost of capital protection (as calculated under Division 247) and, where applicable, the Protection Level Increase Fee and the Initial Option Fee will be added to the cost base and reduced cost base of the Securities under subsection 134-1(1), and

(iii)

any capital gain or capital loss made by the investor on exercise of the Purchase Put Option will be disregarded under subsection 134-1(4).

(m)

If the Closing Price of the Securities at Maturity is below the Protection Level and the investor's Purchase Put Option is exercised, under a Cash Settlement:

(i)

CGT event C2 under paragraph 104-25(1)(e) will happen in relation to the Purchase Put Option for the investor, and

(ii)

pursuant to sections 110-25 and 110-55, the cost base and the reduced cost base of the Purchase Put Option will include the amount reasonably attributable to the cost of capital protection (as calculated under Division 247) and, where applicable, the Protection Level Increase Fee and the Initial Option Fee.

(n)

If the Closing Price of the Securities at Maturity is above or equal to the Protection Level and the investor's Purchase Put Option expires unexercised:

(i)

CGT event C2 under paragraph 104-25(1)(c) will happen in relation to the Purchase Put Option for the investor, resulting in a capital loss equal to the reduced cost base of the Purchase Put Option under subsection 104-25(3)

(ii)

pursuant to section 110-55, the reduced cost base of the Purchase Put Option will include the amount reasonably attributable to the cost of capital protection (as calculated under Division 247) and, where applicable, the Protection Level Increase Fee and the Initial Option Fee, and

(iii)

under a Physical Settlement, CGT event A1 under section 104-10 will happen in relation to the Securities for the investor.

(o)

If the Closing Price of the Securities at Maturity is above the Cap Level and the investor's Capped Purchase Put Option expires unexercised:

(i)

CGT event C2 under paragraph 104-25(1)(c) will happen in relation to the Capped Purchase Put Option for the investor, resulting in a capital loss equal to the reduced cost base of the Capped Purchase Put Option under subsection 104-25(3)

(ii)

pursuant to section 110-55, the reduced cost base of the Capped Purchase Put Option will include the amount reasonably attributable to the cost of capital protection (as calculated under Division 247) and, where applicable the Protection Level Increase Fee, the Initial Option Fee and any Variable Premium Amount, and

(iii)

under a Physical Settlement, CGT event A1 under section 104-10 will happen in relation to the Securities for the investor.

(p)

For CGT purposes, the investor's date of acquisition of Securities is the Commencement Date pursuant to section 109-5.

(q)

Any capital gain realised by an investor on the sale of Securities or exercise of the Purchase Put Option under a Cash Settlement will be treated as a discount capital gain under section 115-5 where the investor is an individual, a complying superannuation entity or a trust and the sale or exercise occurs more than 12 months after the Commencement Date.

(r)

Division 230 will not apply to any gains or losses with respect to ANZ Cobalt where the investor is excepted from the Division pursuant to section 230-455.

(s)

Where the investor elects to use the Dividend Give-up Facility in respect of their Securities:

(i)

any dividends paid on those Securities will be assessable to the investor under subsection 44(1) of the ITAA 1936, and

(ii)

the application of any dividends paid on those Securities by the Nominee (or a sub-custodian of the Nominee) to pay the Dividend Interest Amount will not constitute a related payment for the purposes of former Division 1A of Part IIIAA of the ITAA 1936.

(t)

Subject to the foreign income tax offset limit in section 770-75, the investor will be entitled to a foreign income tax offset under Division 770 in an income year for foreign income tax paid by the investor (or the Nominee) on an amount received by the investor under ANZ Cobalt that is included, in part or whole, in the assessable income of the investor for that income year.

(u)

Forex realisation event 4 under section 775-55 will happen where the investor either makes principal repayments denominated in a foreign currency to ANZ under the Loan, or pays a Variable Premium Amount denominated in a foreign currency to ANZ in respect of a Capped Purchase Put Option.

(v)

The commercial debt forgiveness rules in Division 245 will not apply to reduce the tax attributes of a SMSF Investor in relation to any debt forgiveness that arises because of the limited recourse nature of the Loan for the SMSF Investor.

(w)

The anti-avoidance provisions contained in Part IVA of the ITAA 1936 will not apply to deny deductibility of the interest incurred by the investor in respect of the Loan or the Interest Assistance Loan.

(x)

Paragraphs 15(a), (b), (c), (l), (m), (n) and (q) of this Product Ruling apply to a Capped Purchase Put Option acquired by the investor as they do to the Purchase Put Option.

Scheme

16. The scheme that is the subject of this Ruling is identified and described in the following documents:

•

application for a Product Ruling as constituted by documents and information received on 10 December 2015 and 15 February 2016

•

draft ANZ Cobalt Product Disclosure Statement, including the ANZ Cobalt Terms, received on 15 February 2016, and

•

Deed Poll - Declaration of Trust (Trust Deed) dated 3 April 2013.

Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation.

17. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an investor, or any associate of an investor, will be a party to, which are a part of the scheme. Unless otherwise defined, capitalised terms in this Product Ruling take their meaning as per the draft PDS and the Trust Deed. Any use of the singular also includes the plural unless otherwise specified.

18. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements.

19. Following is a summary of the scheme:

(a)

ANZ Cobalt consists of a loan from ANZ (the Loan), used by the investor to finance up to 100% of the purchase price of a Parcel of Securities on the Commencement Date. Where the Loan finances less than 100% of the purchase price of a Parcel, the investor is required to make a Contribution towards the purchase price of the Parcel for an amount being the difference between the total cost of purchasing the Parcel on the Commencement Date and the amount of the Loan in respect of that Parcel.

(b)

The investor must complete and sign the Application Form. Upon acceptance by ANZ of an investor's Application Form, the investor is bound by the Terms and may request a Quote Sheet from ANZ. The Quote Sheet is prepared on the basis of the investor's specified parameters including the amount of the Loan, the Securities they propose to acquire with the Loan, the proposed Protection Level, the proposed Cap Level (if applicable), the proposed Term of the Loan (maximum 5 years) and whether the Loan is at a fixed or floating rate (reset annually). Where the investor wishes to proceed with the Loan on the terms set out in the Quote Sheet, the investor must provide a Transaction Request under which they irrevocably offer to enter into the Loan on those terms.

(c)

Unless an investor who purchases multiple Parcels of Securities applies for a Basket investment structure (where offered by ANZ), the investor will apply for a separate Loan for each Parcel of Securities. A Basket investment structure consists of only one Loan for the entire Basket. The Purchase Put Option (or Capped Purchase Put Option) in respect of that Loan and the set Protection Level (and Cap Level where applicable) will apply across all the Parcels of Securities that constitute the Basket on an aggregate basis.

(d)

The minimum Loan Limit is $500,000 (or less at ANZ's discretion), subject to a minimum for each Parcel or Basket of Securities of $100,000 (or less at ANZ's discretion). ANZ may at any time specify a Facility Limit, being the maximum total of all Amounts Outstanding under every Loan and Interest Assistance Loan acquired by the investor.

(e)

For all investors (other than SMSF Investors), the Loan and the Interest Assistance Loan will be full recourse. To that end, investors (other than SMSF Investors) grant a Security Interest to ANZ over the Secured Property, including the Securities constituting each Parcel or Basket, as security for the Loan and the Interest Assistance Loan. In the case of a SMSF Investor, the Loan will be limited in recourse both at and before Maturity and ANZ will generally also require the provision of a Guarantee, which will be full recourse such that if there is any Amount Outstanding to ANZ after it has exercised its rights as the secured party in relation to the Parcel and any other Secured Property to which the Loan and the Interest Assistance Loan relates (as part of the Nominee Security Interest granted to ANZ by the Nominee), ANZ will be entitled to recover that amount from the Guarantor.

(f)

The investor selects from a range of Securities that ANZ have approved for inclusion in ANZ Cobalt. No more than 50% of the value of the Securities selected by the investor may consist of units in an ASX-listed cash trust.

(g)

The Securities (other than those Securities acquired by or on behalf of SMSF Investors, International Securities or Securities that are the subject of the Dividend Give-Up Facility) are held by the Sponsoring Participant for the purposes of CHESS. Investors (with the exception of SMSF Investors, and those investors who acquire International Securities or elect to use the Dividend Give-Up Facility) hold the legal and (unless they are trustees) beneficial interest in the Securities.

(h)

The Securities acquired by or on behalf of a SMSF Investor, International Securities acquired by any investor and Securities that are the subject of the Dividend Give-Up Facility are held by the Nominee (or a sub-custodian of the Nominee) as trustee for the investor on the terms of the Trust Deed. SMSF Investors and those investors who acquire International Securities or elect to use the Dividend Give-Up Facility will hold a beneficial interest in the relevant Securities whilst those Securities are held by the Nominee (or a sub-custodian of the Nominee).

(i)

Interest on the Loan is payable in advance on each Interest Payment Date as specified in the relevant Confirmation Letter (unless agreed otherwise with ANZ and subject to an investor's participation in the Dividend Give-Up Facility).

(j)

An investor that is not an SMSF Investor and has not elected to use the Dividend Give-Up Facility may also apply to procure an Interest Assistance Loan from ANZ for the purpose of funding the initial, and any subsequent, interest payment owing by the investor under the Loan. The Term of each Interest Assistance Loan generally correlates with the Term of the Loan interest period to which the Interest Assistance Loan relates. The Interest Assistance Loan is repayable by regular payments (generally monthly in arrears) of principal and interest over its Term, as specified in the Confirmation Letter for the investor's Interest Assistance Loan. The interest for an Interest Assistance Loan is fixed for the Term of the Interest Assistance Loan.

(k)

An investor that enters into a Loan must also acquire a Purchase Put Option in respect of a Parcel or Basket of Securities, under which the investor will have the right to sell the corresponding Parcel or Basket of Securities to ANZ at the Protection Level on the Maturity Date. The cost of the Purchase Put Option (being the Initial Option Fee) may be paid either as an upfront lump sum or as a component of the interest rate payable on the Loan.

(l)

There may be a different interest rate applicable to each Parcel of Securities or Basket. However, where an investor has acquired multiple Parcels of Securities and applied the Basket investment structure, ANZ will apply a single blended interest rate across all the Parcels of Securities held by that investor in the Basket. The interest rate will be determined prior to the Loans being made available and will be reflective of the type and size of the Parcels of Securities chosen, the Protection Level (and Cap Level, if relevant) chosen and the Maturity Date chosen.

(m)

A Purchase Put Option includes a Capped Purchase Put Option. A Capped Purchase Put Option involves both a Protection Level and a Cap Level, the latter being the level at which the investor elects to cap the capital growth in relation to a Parcel or Basket of Securities. As per the Purchase Put Option, the Initial Option Fee in respect of a Capped Purchase Put Option may be paid by the investor as either an upfront lump sum or as a component of the interest rate payable on the Loan. If the Closing Price of the Securities on the Maturity Date is above the Cap Level, the investor will be required to pay to ANZ a Variable Premium Amount equal to the difference.

(n)

The investor can also request, prior to the Commencement Date and subject to ANZ's consent to use the Automatic Lock-In Facility, to automatically increase the Protection Level for their Purchase Put Option to an Increased Protection Level if the aggregate last trade price of the Securities in their Parcel or Basket on any day during the Term equals or exceeds the nominated Trigger Price. This feature may have the effect of increasing the cost of the Purchase Put Option.

(o)

Where, during the Term of a Loan, the Closing Price of a Parcel or Basket (as applicable) increases in value by at least $50,000 since the Commencement Date, an investor can, subject to approval from ANZ and the payment to ANZ of the Protection Level Increase Fee, increase their Protection Level.

(p)

Under the Dividend Give-Up Facility the investor elects to have any cash dividends and other distributions paid on the Securities (other than International Securities) held by the Nominee (or a sub-custodian of the Nominee) on behalf of the investor applied on behalf of the investor towards the payment of the interest on the Loan (the Dividend Interest Amount) to ANZ.

(q)

At the Maturity Date, the Purchase Put Option (or Capped Purchase Put Option) may either automatically exercise (where the Closing Price of the Parcel or Basket, as applicable, is less than the Protection Level for that Parcel or Basket) or exercise by delivery of an Exercise Notice by the investor to ANZ, and the investor may specify whether it elects to have a Physical Settlement or Cash Settlement.

(r)

Where the Purchase Put Option (or Capped Purchase Put Option) is exercised and Physical Settlement is chosen, or the Purchase Put Option (or Capped Purchase Put Option) is automatically exercised without the investor having nominated Physical or Cash Settlement, the Securities constituting each Parcel or Basket will be transferred (sold) to ANZ for an amount equal to the Protection Level. Where the Closing Price of the Parcel or Basket (as applicable) on the Maturity Date is less than the Protection Level for that Parcel or Basket, ANZ will pay to the investor an amount equal to the Protection Level for that Parcel or Basket, less any costs incurred in connection with the transfer.

(s)

Where the Purchase Put Option (or Capped Purchase Put Option) is exercised and Cash Settlement is chosen, the investor will keep the Securities constituting each Parcel or Basket and will be required to pay to ANZ the Amount Outstanding. On the Settlement Date ANZ will be required to pay to the investor the amount by which the Protection Level for the relevant Parcel or Basket (as applicable) exceeds the Closing Price of that Parcel or Basket on the Maturity Date (if at all).

(t)

At the Maturity Date, the Purchase Put Option (or Capped Purchase Put Option) may instead expire unexercised and automatically lapse. In this instance the investor may request (where the Closing Price of the relevant Parcel or Basket, as applicable, is equal to or greater than the Protection Level the investor is deemed to have requested) that ANZ facilitate a sale of the relevant Parcel or Basket on the investor's behalf. Upon acceptance of that request by ANZ, it will acquire or arrange for the sale of the investor's Parcel or Basket (as applicable) on the Maturity Date and pay the proceeds of the sale (net of transaction costs) in reduction of the Amount Outstanding by the investor in respect of the Loan and Purchase Put Option (including the Variable Premium Amount for a Capped Purchase Put Option), before paying any excess to the investor. In the absence of such a settlement, the investor may keep the Securities constituting each Parcel or Basket and pay the Amount Outstanding to ANZ (including the Variable Premium Amount for a Capped Purchase Put Option).

(u)

For Capped Purchase Put Options, if the Closing Price of the Parcel or Basket (as applicable) on the Maturity Date is greater than the Cap Level for that Parcel or Basket

(i)

if the investor requests that ANZ facilitate a sale of that Parcel or Basket (and ANZ accepts this request), the investor's Parcel or Basket will be sold on the investor's behalf and the proceeds from that sale will be applied to pay ANZ the Variable Premium Amount and any Amount Outstanding in respect of the Loan to which the Capped Purchase Put Option relates, and

(ii)

if the investor does not request a sale of that Parcel or Basket, the applicable Variable Premium Amount is automatically due and payable by the investor to ANZ in addition to any other Amount Outstanding.

Assumptions

20. This Ruling is made on the basis of the following necessary assumptions:

(a)

all investors are Australian residents for taxation purposes

(b)

all SMSF Investors are regulated superannuation funds (as per section 19 of the SISA)

(c)

the Securities consist solely of ordinary shares in an ASX-listed company, units in an ASX-listed unit trust, units in an ASX-listed cash trust, ASX-listed CDIs or International Securities

(d)

at all times during the scheme, where the Securities consist of units in a trust, the trust satisfies the requirements of subparagraph 82KZME(5)(b)(iii) of the ITAA 1936

(e)

at all times during the scheme, where the underlying securities in the CDIs are shares in a company, the shares satisfy the requirements of subparagraph 82KZME(5)(b)(ii) of the ITAA 1936

(f)

at all times during the scheme, where the underlying securities in the CDIs are units in a trust, the trust satisfies the requirements of subparagraph 82KZME(5)(b)(iii) of the ITAA 1936

(g)

any International Securities selected by the investors are listed for quotation in the official list of an 'approved stock exchange', as defined in section 995-1

(h)

the Securities are not ESS interests to which Subdivisions 83A-B or 83A-C (about employee share schemes) applies

(i)

the investors will hold their interests in the Securities on capital account, are not traders in the Securities and are not treated for taxation purposes as trading in the Securities, carrying on a business of investing in the Securities, or holding the Securities as trading stock or as revenue assets

(j)

the investors will hold the Purchase Put Option or Capped Purchase Put Option on capital account, are not treated for taxation purposes as trading in the Purchase Put Option or Capped Purchase Put Option, carrying on a business of investing in the Purchase Put Option or Capped Purchase Put Option, or holding the Purchase Put Option or Capped Purchase Put Option as trading stock or a revenue asset

(k)

Loans made to the SMSF Investors are covered by the exception in subsection 67A(1) of the SISA

(l)

in respect of any interest to be paid in advance under the Loan, these may be prepaid only in relation to a loan interest payment period of 12 months or less, and which ends on or before the last day of the income year following the expenditure year

(m)

the dominant purpose of an investor in entering into the scheme is to derive an amount of assessable income from the Securities that exceeds the total expenses incurred

(n)

the investors have not made an election under subsection 230-455(7) to have Division 230 apply

(o)

the investors have not made a choice in accordance with section 775-80 not to have sections 775-70 and 775-75 apply to them

(p)

the investors or any other entity will not become entitled to either a refund of any foreign income tax paid by the investor (or the Nominee), or 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)

(q)

the Securities acquired by or on behalf of SMSF Investors and the International Securities acquired by any investor will be held by the Nominee (or their sub-custodian) at all times over the Term of the Loan

(r)

Securities that are the subject of the Dividend Give-Up Facility will be transferred to the Nominee (or their sub-custodian) over any ex-dividend date which falls during the relevant Dividend Collection Period

(s)

the scheme will be executed in the manner described in the Scheme section of this Ruling and the scheme documentation referred to in paragraph 16 of this Ruling, and

(t)

all dealings by the investors, ANZ and the Nominee under the scheme will be at arm's length.

Commissioner of Taxation
30 March 2016

Appendix 1 - Explanation

Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest

21. The interest paid on a borrowing used to acquire income producing assets such as Securities is generally treated as deductible under section 8-1 where it is expected that dividends, trust distributions or other assessable income would be derived from the investment (see Taxation Ruling TR 95/33). However, the ability to claim interest deductions may be subject to Division 247.

22. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities.

23. Division 247 applies to the Loan where the investor uses the Loan to acquire Securities or a beneficial interest in the Securities and the investor is protected against the fall in the market value of those Securities.

24. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3).

25. Where the cost of the Purchase Put Option is factored into the interest rate charged on the Loan and there is no separate charge payable by an investor for the Purchase Put Option:

(a)

the cost of capital protection is the amount worked out under the method statement in subsection 247-20(3), as set out in paragraph 15(a)(ii) of this Product Ruling

(b)

under step 1 of the method statement, the total amount incurred by the investor under or in respect of the Loan for the income year is the interest incurred on the Loan for the income year

(c)

where the total amount incurred by the investor worked out under step 1 of the method statement is less than the total interest that would have been incurred by the investor worked out under step 2 of the method statement, there is no amount reasonably attributable to the cost of capital protection. In these circumstances, the interest on the Loan will be fully deductible under section 8-1

(d)

where the total amount incurred by the investor worked out under step 1 of the method statement is greater than the total interest that would have been incurred by the investor worked out under step 2 of the method statement, the balance is reasonably attributable to the cost of capital protection and is treated as if it were incurred for the Purchase Put Option (subsection 247-20(6)) and

(e)

the investor's Purchase Put Option is a capital asset. Therefore, the amount reasonably attributable to the cost of capital protection is capital in nature and not deductible under section 8-1.

26. Where either the cost of the Purchase Put Option is factored into the interest rate charged on the Loan and the investor pays a Protection Level Increase Fee in the circumstances discussed at paragraph 19(o) of this Product Ruling; or the investor elects to pay the Initial Option Fee for the Purchase Put Option as an upfront lump sum:

(a)

the cost of capital protection is the amount worked out under the method statement in subsection 247-20(3), as set out in paragraph 15(b)(i) or 15(c)(i) of this Product Ruling, as applicable

(b)

under step 1 of the method statement, the total amount incurred by the investor under or in respect of the Loan for the income year includes the interest incurred on the Loan and any amounts that are in substance for capital protection (such as the Initial Option Fee and/or the Protection Level Increase Fee) for the income year

(c)

where the total amount incurred by the investor worked out under step 1 of the method statement is less than the total interest that would have been incurred by the investor worked out under step 2 of the method statement, there is no amount reasonably attributable to the cost of capital protection. In these circumstances, the interest on the Loan will be fully deductible under section 8-1

(d)

where the total amount incurred by the investor worked out under step 1 of the method statement is greater than the total interest that would have been incurred by the investor worked out under step 2 of the method statement, the balance is reasonably attributable to the cost of capital protection. In calculating the additional amount (as per paragraph 15(b)(ii) or 15(c)(ii) of this Product Ruling, as applicable), the amount reasonably attributable to the cost of capital protection will be reduced by the actual payment for a Purchase Put Option (the Initial Option Fee and any Protection Level Increase Fee paid) in accordance with subsection 247-20(6). The additional amount, to the extent that it is greater than zero, constitutes a further cost of capital protection in addition to the Initial Option Fee for the Purchase Put Option or any Protection Level Increase Fee paid, and

(e)

the investor's Purchase Put Option is a capital asset. Therefore, the Initial Option Fee, any Protection Level Increase Fee paid and the additional amount (if any) is capital in nature and not deductible under section 8-1.

27. Where an investor has acquired multiple Parcels of Securities (and applied the Basket investment structure) and ANZ has applied a single blended interest rate across all the Parcels of Securities held by the investor in the Basket, the investment will be treated as one arrangement for the purposes of Division 247.

28. There is no element of capital protection connected with the Interest Assistance Loan. No part of the interest incurred by the investor on the Interest Assistance Loan for the income year will therefore be attributable to the cost of capital protection and the interest on the Interest Assistance Loan will be fully deductible under section 8-1.

Section 51AAA

29. By acquiring the Securities, it is contemplated that an investor will derive assessable income by way of the receipt of dividend income or trust distributions and capital gains. As interest incurred on the Loan and Interest Assistance Loan would have been deductible under section 8-1 of the ITAA 1997 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor who enters into ANZ Cobalt.

Section 82KL

30. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. Section 82KL will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997.

Subdivision H of Division 3 of Part III

31. Subdivision H of Division 3 of Part III (Subdivision H) of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in the carrying on of a business, whether the investor is a small business entity, whether the investor is an individual and whether the investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature.

Subdivision 328-C - small business entities

32. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if:

(a)

the investor carried on a business in the previous income year and the aggregated turnover for that year was less than $2 million

(b)

the aggregated turnover for the current year is likely to be less than $2 million and, where the investor carried on a business in each of the two previous income years, the aggregated turnover for each of those income years was less than $2 million, or

(c)

the aggregated turnover for the current year, worked out as at the end of the year, is less than $2 million.

The eligible service period for the purposes of Subdivision H

33. The interest charged on the Loan that is deductible under section 8-1 of the ITAA 1997 is in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates, and not to the period of the loan.

Sections 82KZME and 82KZMF - prepaid expenditure and 'tax shelter' style arrangements

34. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year.

35. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with the participation in ANZ Cobalt, including the financing, Securities acquisition and Securities disposal arrangements.

36. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude interest payable under the Loan from the operation of section 82KZMF of the ITAA 1936 where:

(a)

the prepaid interest expenditure under the Loan is incurred in respect of money borrowed to acquire Securities that are as described in subparagraphs 82KZME(5)(b)(ii) and (iii) of the ITAA 1936

(b)

the investor can reasonably be expected to obtain dividends or trust distributions from the investment

(c)

the investor will not obtain any other kind of assessable income from the investment except for capital gains, and

(d)

all aspects of ANZ Cobalt are conducted at arm's length.

37. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 38 to 43 of this Product Ruling.

Section 82KZM - prepaid expenditure incurred by certain small business entities and individuals incurring non-business expenditure

38. Section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction for prepaid expenditure incurred by a taxpayer that is either:

(a)

a small business entity for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure, or

(b)

an individual and the expenditure is not incurred in carrying on a business.

39. Section 82KZM of the ITAA 1936 applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred, the expenditure is not excluded expenditure, and the expenditure would otherwise be immediately deductible under section 8-1 of the ITAA 1997.

40. As the eligible service period in relation to the deductible interest payment under the Loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to investors who are a small business entity for the year of income that have not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure, or to investors who are individuals where the expenditure is not incurred in carrying on a business. Investors who satisfy these tests will be able to claim an immediate deduction for the interest allowable under section 8-1 of the ITAA 1997 incurred under the Loan.

Sections 82KZMA and 82KZMD - prepaid non-business expenditure incurred by non-individual and non-small business entities

41. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure for an investor (other than a small business entity for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business.

42. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year.

43. For these investors, the amount of prepaid interest incurred under the Loan which is allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period.

Division 235 - look-through treatment for instalment trusts

44. The object of Division 235 is to ensure that, for most income tax purposes, the consequences of ownership of a certain type of asset (referred to as an 'instalment trust asset') flow to the investor that has a beneficial interest in that asset as the beneficiary of an 'instalment trust', instead of to the trustee of the instalment trust. Essentially, this means treating the investor (and not the trust) as the owner of the asset and treating any act done by the trustee in relation to the asset as if the act had been done by the investor (instead of by the trustee): subsections 235-820(1) and 235-820(2).

45. Each Separate Trust created under the terms of the Trust Deed for the purposes of holding the International Securities of an investor or any Securities that are the subject of the Dividend Give-Up Facility on trust by the Nominee (or a sub-custodian of the Nominee) as trustee for an investor (other than a SMSF Investor) will be an instalment trust pursuant to paragraph 235-825(1)(a) on the basis that they will be covered by section 235-830 (about instalment trust arrangements), and satisfy the requirements in section 235-835 (about the type of asset being held on trust).

46. Each Separate Trust created under the terms of the Trust Deed for the purposes of holding the Securities of a SMSF Investor on trust by the Nominee (or a sub-custodian of the Nominee) as trustee for the SMSF Investor will be an instalment trust pursuant to paragraph 235-825(1)(b) on the basis that they will be covered by section 235-840 (about limited recourse borrowings by regulated superannuation funds).

Parts 3-1 and 3-3 - application of CGT provisions to the Purchase Put Option, Capped Purchase Put Option and Securities

47. If an investor's Purchase Put Option or Capped Purchase Put Option is exercised and the investor elects a Physical Settlement, the investor will dispose of the Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under item 2 of the table in subsection 134-1(1), the investor's cost base and reduced cost base in the Securities for these purposes will include the cost of capital protection as worked out under Division 247 plus the Protection Level Increase Fee and the Initial Option Fee (where applicable). Any capital gain or capital loss on exercise of the Purchase Put Option or Capped Purchase Put Option will be disregarded (subsection 134-1(4)).

48. If an investor's Purchase Put Option or Capped Purchase Put Option is exercised and the investor elects a Cash Settlement, CGT event C2 will arise for the investor in respect of the exercise of the relevant Option (section 104-25). The cost base and reduced cost base of the Purchase Put Option or Capped Purchase Put Option will include the cost of capital protection as worked out under Division 247 plus the Protection Level Increase Fee and the Initial Option Fee (where applicable) - sections 110-25 and 110-55. No CGT event will occur in relation to the Securities.

49. Where the investor's Purchase Put Option or Capped Purchase Put Option expires unexercised, CGT event C2 will arise for the investor in relation to the relevant Option at that time (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of the Purchase Put Option or Capped Purchase Put Option, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in that Option. Under section 110-55, the reduced cost base of the Purchase Put Option or the Capped Purchase Put Option will include the cost of capital protection as worked out under Division 247 plus the Protection Level Increase Fee and the Initial Option Fee (where applicable); and in the case of the Capped Purchase Put Option only, any Variable Premium Amount paid by the investor.

50. If an investor's Purchase Put Option or Capped Purchase Put Option expires unexercised and the investor elects a Physical Settlement, the investor will sell the Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10).

51. Under section 110-25 and 110-55 respectively, the investor's cost base and reduced cost base in the Securities will include the amount of the Loan used to finance the acquisition of the Securities, their Contribution (if any) and incidental costs incurred by the investor in acquiring and disposing of the Securities (this includes stamp duty and costs of transfer). As per paragraph 47 of this Product Ruling, where the investor's Purchase Put Option is exercised and the investor elects a Physical Settlement, the investor's cost base and reduced cost base in the Securities also include the cost base or reduced cost base of the Purchase Put Option.

52. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an investor on the sale of the Securities or exercise of the Purchase Put Option under a Cash Settlement will be treated as a discount capital gain where the investor is an individual, a complying superannuation entity or a trust and has held the Securities or Purchase Put Option for more than 12 months (excluding the days of acquisition and disposal).

Division 230 - taxation of financial arrangements

53. Division 230 of the ITAA 1997 sets out the tax treatment of gains or losses from a 'financial arrangement'. Where an arrangement is not a qualifying security for the purposes of Division 16E of the ITAA 1936 and an election under section 230-455 to have Division 230 of the ITAA 1997 apply to financial arrangements has not been made, then pursuant to section 230-455 of the ITAA 1997, Division 230 of the ITAA 1997 does not apply in relation to gains or losses from a financial arrangement held by:

(a)

an individual, or

(b)

a superannuation entity, a managed investment scheme or an entity substantially similar to a managed investment scheme under foreign law with assets of less than $100 million, or

(c)

an ADI, a securitisation vehicle or other financial sector entity with an aggregated turnover of less than $20 million, or

(d)

another entity with an aggregated turnover of less than $100 million, financial assets of less than $100 million and assets of less than $300 million.

Dividend Give-Up Facility

54. Pursuant to the operation of section 235-820 (as per paragraphs 15(j) and 44 to 46 of this Product Ruling), an investor who elects to use the Dividend Give-Up Facility in respect of their Securities will be assessable under subsection 44(1) of the ITAA 1936 on any dividends received by the Nominee on those Securities.

55. The payment by the Nominee (or their sub-custodian) of any dividends received by the Nominee (or their sub-custodian) under the Dividend Give-Up Facility in respect of the Dividend Interest Amount owing by the investor to ANZ does not have the effect of 'passing the benefit' of those dividends to ANZ, and therefore will not constitute a related payment for the purposes of former section 160APHN under Division 1A of Part IIIAA of the ITAA 1936.

Division 770 - foreign income tax offsets

56. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year.

57. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source):

(a)

the foreign taxes paid by the investor will be regarded as foreign income tax for the purposes of section 770-15

(b)

where those foreign taxes are paid by the Nominee (or a sub-custodian of the Nominee), the foreign income tax will be deemed, under section 770-130, to have been paid by the investor, and

(c)

subject to the foreign income tax offset limit in section 770-75 the investor will be entitled to a non-refundable foreign income tax offset in an income year for the foreign income tax the investor paid, or is deemed to have paid, on amounts that are included in the investor's assessable income that year.

Division 775 - foreign currency gains and losses

58. Division 775 operates to include in assessable income or allow as a deduction, a forex realisation gain or loss which results from a forex realisation event (FRE) happening.

59. Among other means, FRE 4 happens when an entity ceases to have an obligation, or a part of an obligation, to pay a foreign currency, and the obligation, or the part of the obligation, was incurred in return for the acquisition of a CGT asset (subsection 775-55(1)).

60. Pursuant to the operation of section 235-820 (as per paragraphs 15(j) and 44 to 46 of this Product Ruling), FRE 4 under section 775-55 will happen where the investor:

(a)

makes principal repayments to ANZ under the Loan which are denominated in a foreign currency and made in return for the acquisition of International Securities, or

(b)

pays a Variable Premium Amount to ANZ in respect of a Capped Purchase Put Option which is denominated in a foreign currency and made in return for the acquisition of the Capped Purchase Put Option.

The time of each of these realisation events is where the investor ceases to have the obligation, or the part of the obligation, to pay the foreign currency (subsection 775-55(2)).

61. Any forex realisation gain or loss made by the investor in this regard would be determined in accordance with section 775-55. Pursuant to item 2 of the table in subsection 775-70(1), where the investor's Loan or Capped Purchase Put Option has a Term of 12 months or less:

(a)

any forex realisation gain realised by the investor as a result of repaying the principal on the Loan or paying the Variable Premium Amount under a Capped Purchase Put Option will not be included in their assessable income under section 775-15, and

(b)

both the cost base and reduced cost base of the International Securities or Capped Purchase Put Option, as applicable, will be reduced by an amount equal to the forex realisation gain.

62. Pursuant to item 2 of the table in subsection 775-75(1), where the investor's Loan or Capped Purchase Put Option has a Term of 12 months or less:

(a)

any forex realisation loss realised by the investor as a result of repaying the principal on the Loan or paying the Variable Premium Amount under a Capped Purchase Put Option will not be deductible under section 775-30, and

(b)

both the cost base and reduced cost base of the International Securities or Capped Purchase Put Option, as applicable, will be increased by an amount equal to the forex realisation loss.

Division 245 - commercial debt forgiveness

63. If an SMSF Investor fails to repay the Loan, ANZ will be entitled to call on the Guarantee for this shortfall and will seek to recover the amount from the Guarantor. In this regard, any payment by the Guarantor to ANZ will meet the liability of the SMSF Investor to ANZ. Accordingly, there should be no forgiveness of a debt by ANZ for the purposes of Division 245 in these circumstances (section 245-35).

Part IVA - anti-avoidance

64. Provided that the scheme ruled on is entered into and carried out as described in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply.

Appendix 2 - Detailed contents list

65. The following is a detailed contents list for this Ruling:

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Not previously issued as a draft

References

ATO references:
NO 1-7QYIZ2M

Related Rulings/Determinations:

TR 95/33

Legislative References:
ITAA 1936
ITAA 1936 44(1)
ITAA 1936 51AAA
ITAA 1936 82KL
ITAA 1936 Pt III Div 3 Subdiv H
ITAA 1936 82KZL(1)
ITAA 1936 82KZL(2)(a)
ITAA 1936 82KZM
ITAA 1936 82KZMA
ITAA 1936 82KZMD
ITAA 1936 82KZME
ITAA 1936 82KZME(4)
ITAA 1936 82KZME(5)
ITAA 1936 82KZME(5)(b)(ii)
ITAA 1936 82KZME(5)(b)(iii)
ITAA 1936 82KZMF
ITAA 1936 97
ITAA 1936 Div 16E
ITAA 1936 Pt IIIAA Div 1A
ITAA 1936 160APHN
ITAA 1936 Pt IVA
ITAA 1997
ITAA 1997 8-1
ITAA 1997 Subdiv 83A-B
ITAA 1997 Subdiv 83A-C
ITAA 1997 Pt 3-1
ITAA 1997 104-10
ITAA 1997 104-25
ITAA 1997 104-25(1)(c)
ITAA 1997 104-25(1)(e)
ITAA 1997 104-25(3)
ITAA 1997 109-5
ITAA 1997 110-25
ITAA 1997 110-55
ITAA 1997 Div 115
ITAA 1997 115-5
ITAA 1997 Pt 3-3
ITAA 1997 134-1(1)
ITAA 1997 134-1(4)
ITAA 1997 Div 230
ITAA 1997 230-455
ITAA 1997 230-455(7)
ITAA 1997 Div 235
ITAA 1997 235-815(2)
ITAA 1997 235-820
ITAA 1997 235-820(1)
ITAA 1997 235-820(2)
ITAA 1997 235-825(1)(a)
ITAA 1997 235-825(1)(b)
ITAA 1997 235-830
ITAA 1997 235-835
ITAA 1997 235-840
ITAA 1997 Div 245
ITAA 1997 245-35
ITAA 1997 Div 247
ITAA 1997 247-20
ITAA 1997 247-20(3)
ITAA 1997 247-20(4)
ITAA 1997 247-20(5)
ITAA 1997 247-20(5A)
ITAA 1997 247-20(6)
ITAA 1997 Subdiv 328-C
ITAA 1997 328-110
ITAA 1997 Div 770
ITAA 1997 770-15
ITAA 1997 770-75
ITAA 1997 770-130
ITAA 1997 Div 775
ITAA 1997 775-15
ITAA 1997 775-30
ITAA 1997 775-55
ITAA 1997 775-55(1)
ITAA 1997 775-55(2)
ITAA 1997 775-70
ITAA 1997 775-70(1)
ITAA 1997 775-75
ITAA 1997 775-75(1)
ITAA 1997 775-80
ITAA 1997 995-1
SISA 1993
SISA 1993 19
SISA 1993 67A(1)
TAA 1953