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This is a Bill, not an Act. For current law, see the Acts databases.
TAX LAWS AMENDMENT (TAXATION OF FINANCIAL ARRANGEMENTS) BILL 2008
2008
The Parliament of the
Commonwealth of Australia
HOUSE OF REPRESENTATIVES
Presented and read a first time
Tax Laws Amendment (Taxation of
Financial Arrangements) Bill 2008
No. , 2008
(Treasury)
A Bill for an Act to amend the law relating to
taxation, and for related purposes
i Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
Contents
1
Short title ............................................................................................ 1
2
Commencement .................................................................................. 1
3
Schedule(s) ......................................................................................... 2
Schedule 1--Amendme nts
3
Part 1--Main amendments
3
Income Tax Assessment Act 1997
3
Part 2--Consequential amendments
141
Income Tax Assessment Act 1936
141
Income Tax Assessment Act 1997
145
Income Tax (Transitional Provisions) Act 1997
156
Taxation Administration Act 1953
157
Part 3--Application and transitional provisions
159
Part 4--Amendments relating to Division 775
166
Income Tax Assessment Act 1997
166
New Business Tax System (Taxation of Financial Arrangements) Act
(No. 1) 2003
167
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 1
A Bill for an Act to amend the law relating to
1
taxation, and for related purposes
2
The Parliament of Australia enacts:
3
1 Short title
4
This Act may be cited as the Tax Laws Amendment (Taxation of
5
Financial Arrangements) Act 2008.
6
2 Commence ment
7
(1) Each provision of this Act specified in column 1 of the table
8
commences, or is taken to have commenced, in accordance with
9
column 2 of the table. Any other statement in column 2 has effect
10
according to its terms.
11
12
2 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
Commencement information
Column 1
Column 2
Column 3
Provision(s)
Commencement
Date/Details
1. Sections 1 to 3
and anything in
this Act not
elsewhere covered
by this table
The day on which this Act receives the
Royal Assent.
2. Schedule 1,
Parts 1, 2 and 3
The day on which this Act receives the
Royal Assent.
3. Schedule 1,
Part 4
Immediately after the commencement of the
New Business Tax System (Taxation of
Financial Arrangements) Act (No. 1) 2003.
17 December
2003
Note:
This table relates only to the provisions of this Act as originally
1
passed by both Houses of the Parliament and assented to. It will not be
2
expanded to deal with provisions inserted in this Act after assent.
3
(2) Column 3 of the table contains additional information that is not
4
part of this Act. Information in this column may be added to or
5
edited in any published version of this Act.
6
3 Schedule(s)
7
Each Act that is specified in a Schedule to this Act is amended or
8
repealed as set out in the applicable items in the Schedule
9
concerned, and any other item in a Schedule to this Act has effect
10
according to its terms.
11
12
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 3
1
Schedule 1
--
Amendments
2
Part 1
--
Main amendments
3
Income Tax Assessment Act 1997
4
1 Before Division 240
5
Insert:
6
Division 230--Taxation of financial arrangements
7
Table of Subdivisions
8
Guide to Division 230
9
230-A Core rules
10
230-B The accruals/realisation methods
11
230-C Fair value method
12
230-D Foreign exchange retranslation method
13
230-E Hedging financial arrangements method
14
230-F Reliance on financial reports
15
230-G Balancing adjustment on ceasing to have a financial
16
arrangement
17
230-H Exceptions
18
230-I
Other provisions
19
230-J Additional operation of Division
20
Guide to Division 230
21
230-1 What this Division is about
22
This Division is about the tax treatment of gains and losses from
23
your financial arrangements.
24
You recognise the gains and losses, as appropriate, over the life of
25
a financial arrangement and ignore distinctions between income
26
and capital unless specific rules apply.
27
Schedule 1 A mendments
Part 1 Main amendments
4 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
If it is sufficiently certain that you will make a gain or loss, you use
1
a compounding accruals method to recognise the gain or loss.
2
Otherwise you use a realisation method. Instead of either, you may
3
be able to choose to use a fair value or hedging method or to rely
4
on your financial reports. You may also be able to choose to
5
recognise foreign exchange gains and losses using a retranslation
6
method.
7
230-5 Scope of this Division
8
(1) You have a financial arrangement if you have one or more cash
9
settlable legal or equitable rights and/or obligations to receive or
10
provide a financial benefit.
11
(2) This Division does not apply to all financial arrangements. The
12
main exceptions are if:
13
(a) you are:
14
(i) an individual; or
15
(ii) a superannuation entity, managed investment scheme or
16
an entity substantially similar to a managed investment
17
scheme under foreign law with assets of less than $100
18
million; or
19
(iii) an ADI, securitisation vehicle or other financial sector
20
entity with an aggregated turnover of less than $20
21
million; or
22
(iv) another entity with an aggregated turnover of less than
23
$100 million, financial assets of less than $100 million
24
and assets of less than $300 million;
25
and either:
26
(iv) the arrangement is to end not more than 12 months after
27
you start to have it; or
28
(v) the arrangement is not a qualifying security; or
29
(b) the arrangement is a financial arrangement under
30
section 230-50 (equity interests etc.) and neither a fair value
31
election, a hedging financial arrangement election nor an
32
election to rely on financial reports applies to the
33
arrangement.
34
Note:
Section 230-455 provides for the exceptions referred to in
35
paragraph (a).
36
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 5
Subdivision 230-A--Core rules
1
Table of sections
2
Objects
3
230-10
Objects of this Division
4
Tax treatment of gains and losses from financial arrangements
5
230-15
Gains are assessable and losses deductible
6
230-20
Gain or loss to be taken into account only once under this Act
7
230-25
Associated financial benefits to be taken into account only once under this
8
Act
9
230-30
Treatment of gains and losses related to exempt income and non-assessable
10
non-exempt income
11
230-35
Treatment of gains and losses of private or domestic nature
12
Method to be applied to take account of gain or loss
13
230-40
Methods for taking gain or loss into account
14
Financial arrangement concept
15
230-45
Financial arrangement
16
230-50
Financial arrangement (equity interest or right or obligation in relation to
17
equity interest)
18
230-55
Rights, obligations and arrangements (grouping and disaggregation rules)
19
General rules
20
230-60
When financial benefit provided or received under financial arrangement
21
230-65
Amount of financial benefit relating to more than one financial arrangement
22
etc.
23
230-70
Apportionment when financial benefit received or right ceases
24
230-75
Apportionment when financial benefit provided or obligation ceases
25
230-80
Consistency in working out gains or losses (integrity measure)
26
230-85
Rights and obligations include contingent rights and obligations
27
Objects
28
230-10 Objects of this Division
29
The objects of this Division are:
30
Schedule 1 A mendments
Part 1 Main amendments
6 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
(a) to minimise the extent to which the tax treatment of gains and
1
losses from your
*
financial arrangements distorts, by
2
providing inappropriate impediments and stimulation, your
3
trading, financing and investment decisions and your risk
4
taking and risk management; and
5
(b) to do so by aligning more closely the tax and commercial
6
recognition of gains and losses from your financial
7
arrangements in the following ways:
8
(i) by allocating the gains and losses to income years
9
throughout the life of your financial arrangements on a
10
reasonable basis;
11
(ii) by generally recognising gains and losses on revenue
12
rather than capital account; and
13
(c) to appropriately take account of, and minimise, your
14
compliance costs.
15
Tax treatment of gains and losses from financial arrangements
16
230-15 Gains are assessable and losses deductible
17
Gains
18
(1) Your assessable income includes a gain you make from a
*
financial
19
arrangement.
20
Note:
This Division does not apply to gains that are subject to exceptions
21
under Subdivision 230-H.
22
Losses
23
(2) You can deduct a loss you make from a
*
financial arrangement, but
24
only to the extent that:
25
(a) you make it in gaining or producing your assessable income;
26
or
27
(b) you necessarily make it in carrying on a
*
business for the
28
purpose of gaining or producing your assessable income.
29
Note:
This Division does not apply to losses that are subject to exceptions
30
under Subdivision 230-H.
31
(3) You can also deduct a loss you make from a
*
financial arrangement
32
if:
33
(a) you are an
*
Australian entity; and
34
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 7
(b) you make the loss in deriving income from a foreign source;
1
and
2
(c) the income is
*
non-assessable non-exempt income under
3
section 23AI, 23AJ or 23AK of the Income Tax Assessment
4
Act 1936; and
5
(d) the loss is, in whole or in part, a cost in relation to a
*
debt
6
interest you issue that is covered by paragraph 820-40(1)(a).
7
You can deduct the loss only to the extent to which it is a cost in
8
relation to a
*
debt interest you issue that is covered by paragraph
9
820-40(1)(a).
10
Note:
This Division does not apply to losses that are subject to exceptions
11
under Subdivision 230-H.
12
(4) If the
*
financial arrangement is a
*
debt interest, the loss is not
13
prevented from being deductible for an income year under
14
subsection (2) merely because of either or both of the following:
15
(a) one or more of the
*
financial benefits that are taken into
16
account in working out the amount of the loss are
*
contingent
17
on the economic performance (whether past, current or
18
future) of:
19
(i) you or a part of your activities; or
20
(ii) a
*
connected entity of yours or a part of the activities of
21
a connected entity of yours;
22
(b) one or more of the financial benefits that are taken into
23
account in working out the amount of the loss secure a
24
permanent or enduring benefit for you or a connected entity
25
of yours.
26
(5) Subject to subsection (6), subsection (4) does not apply to the loss
27
to the extent to which the annually compounded internal rate of
28
return on the
*
debt interest exceeds the
*
benchmark rate of return
29
for the debt interest increased by 150 basis points.
30
(6) If:
31
(a) regulations made for the purposes of subsection 25-85(6)
32
provide that a specified number of basis points is to apply for
33
the purposes of applying subsection 25-85(5) in particular
34
circumstances; and
35
(b) those circumstances exist in relation to the
*
debt interest;
36
Schedule 1 A mendments
Part 1 Main amendments
8 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
subsection (5) applies as if the reference in that subsection to 150
1
basis points were a reference to the number of basis points
2
specified in the regulations.
3
Division does not affect foreign residence rules
4
(7) Nothing in this Division affects the operation of the provis ions of
5
Division 6 that provide for the significance of foreign residence for
6
the assessability of ordinary and statutory income.
7
Note 1:
Gains that you make under this Division may be ordinary or statutory
8
income for the purposes of Division 6.
9
Note 2:
For the effect of a change of residence during an income year, see
10
sections 230-485 and 230-490.
11
230-20 Gain or loss to be taken into account only once under this
12
Act
13
Application of section
14
(1) This section applies to the following:
15
(a) a gain that is included in your assessable income for an
16
income year under this Division;
17
(b) a loss that is allowable as a deduction to you for an income
18
year under this Division;
19
(c) a gain or a loss that is dealt with in accordance with
20
subsection 230-310(4) in relation to an income year.
21
Purpose of this section
22
(2) The purpose of this section is to ensure that your gains and losses,
23
and
*
financial benefits, to which this section applies are taken into
24
account only once under this Act in working out your taxable
25
income.
26
Gain or loss to be taken into account only once
27
(3) A gain or loss to which this section applies is not to be (to any
28
extent):
29
(a) included in your assessable income; or
30
(b) allowable as a deduction to you; or
31
(c) dealt with in accordance with subsection 230-310(4);
32
again under this Division for the same or any other income year.
33
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 9
(4) A gain or loss to which this section applies is not to be (to any
1
extent):
2
(a) included in your assessable income; or
3
(b) allowable as a deduction to you;
4
under any provisions of this Act outside this Division for the same
5
or any other income year.
6
Section does not give rise to exempt income
7
(5) A gain is not to be treated as
*
exempt income merely because it is
8
not included in your assessable income under this section.
9
230-25 Associated financial benefits to be taken into account only
10
once under this Act
11
Application of section
12
(1) This section applies to a
*
financial benefit whose amount or value
13
is taken into account in working out whether you make, or the
14
amount of, a gain or loss to which paragraph 230-20(1)(a), (b) or
15
(c) applies.
16
Associated financial benefit to be taken into account only once
17
(2) A
*
financial benefit to which this section applies is not to be (to
18
any extent):
19
(a) included in your assessable income; or
20
(b) allowable as a deduction to you;
21
under any provision of this Act outside this Division for the same
22
or any other income year.
23
Exception for certain bad debts
24
(3) If:
25
(a) a
*
financial benefit has been included in your assessable
26
income under a provision of this Act outside this Division;
27
and
28
(b) a bad debt deduction would have been allowed under
29
section 25-35 in relation to the financial benefit;
30
Schedule 1 A mendments
Part 1 Main amendments
10 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
subsection (2) does not prevent that bad debt deduction from being
1
allowed under section 25-35 in relation to the financial benefit as if
2
the debt were still outstanding.
3
Section does not give rise to exempt income
4
(4) A
*
financial benefit is not to be treated as
*
exempt income merely
5
because it is not included in your assessable income under this
6
section.
7
230-30 Treatment of gains and losses related to exempt income and
8
non-assessable non-exempt income
9
(1) Despite section 230-15, a gain that you make from a
*
financial
10
arrangement:
11
(a) to the extent that it reflects an amount that would be treated,
12
or would reasonably expected to be treated, as
*
exempt
13
income under a provision of this Act if this Division were
14
disregarded--is exempt income; and
15
(b) to the extent that it reflects an amount that would be treated
16
or would reasonably expected to be treated, as
17
*
non-assessable non-exempt income under a provision of this
18
Act if this Division were disregarded--is not assessable
19
income and is not exempt income.
20
(2) Despite section 230-15, a gain that you make from a
*
financial
21
arrangement:
22
(a) to the extent that, if it had been a loss, you would have made
23
it in gaining or producing
*
exempt income--is exempt
24
income; and
25
(b) to the extent to which, if it had been a loss, you would have
26
made it in gaining or producing
*
non-assessable non-exempt
27
income--is not assessable income and is not exempt income.
28
(3) A loss you make from a
*
financial arrangement is not allowable as
29
a deduction to you under any provision of this Act (other than
30
subsection 230-15(3)) to the extent that you make it in gaining or
31
producing your:
32
(a)
*
exempt income; or
33
(b)
*
non-assessable non-exempt income.
34
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
11
230-35 Treatment of gains and losses of private or domestic nature
1
Borrowings etc. used for private or domestic purpose
2
(1) Subsections (2) and (3) apply if:
3
(a) a
*
borrowing is made by you, or credit is provided to you,
4
under a
*
financial arrangement; and
5
(b) you use some or all of the funds borrowed or the credit
6
provided for a private or domestic purpose.
7
(2) This Division does not apply to a gain you make from the
8
arrangement to the extent that you use the funds raised or the credit
9
provided for a private or domestic purpose.
10
(3) A loss you make from the arrangement is not allowable as a
11
deduction to you under any provision of this Act to the extent that
12
you use the funds raised or the credit provided for a private or
13
domestic purpose.
14
Derivative financial arrangement held for private or domestic
15
purpose
16
(4) Subsections (5) and (6) apply if:
17
(a) you are an individual; and
18
(b) you make a gain or loss from a
*
derivative financial
19
arrangement; and
20
(c) the arrangement is held, wholly or in part, for a private or
21
domestic purpose.
22
(5) This Division does not apply to a gain you make from the
23
arrangement to the extent that the arrangement is held or used for a
24
private or domestic purpose.
25
(6) A loss you make from the arrangement is not allowable as a
26
deduction to you under any provision of this Act to the extent that
27
the arrangement is held or used for a private or domestic purpose.
28
Schedule 1 A mendments
Part 1 Main amendments
12 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
Method to be applied to take account of gain or loss
1
230-40 Methods for taking gain or loss into account
2
Methods available
3
(1) The methods that can be applied to take account of a gain or loss
4
you make from a
*
financial arrangement are:
5
(a) the accruals and realisation methods provided for in
6
Subdivision 230-B; or
7
(b) the fair value method provided for in Subdivision 230-C; or
8
(c) the foreign exchange retranslation method provided for in
9
Subdivision 230-D; or
10
(d) the hedging financial arrangement method provided for in
11
Subdivision 230-E; or
12
(e) the method of relying on your financial reports provided for
13
in Subdivision 230-F; or
14
(f) a balancing adjustment provided for in Subdivision 230-G.
15
Note:
The methods referred to in paragraphs (b) to (e) only apply if you
16
make an election under the relevant Subdivision and you must meet
17
certain requirements before you can make such an election.
18
(2) A gain or loss is not taken into account under any of the methods
19
referred to in paragraphs (1)(a), (b), (c) and (e) to the extent to
20
which it is taken into account under the method referred to in
21
paragraph (1)(f) (balancing adjustment).
22
(3) A gain or loss is not taken into account under the method referred
23
to in paragraph (1)(f) (balancing adjustment) to the extent to which
24
it is taken into account under the method referred to in
25
paragraph (1)(d) (hedging financial arrangement method).
26
Note:
The hedging financial arrangement method may take some account of
27
the gain or loss by reference to the balancing adjustment method (see
28
subsection 230-300(5)).
29
Elections override accruals and realisation methods
30
(4) Subdivision 230-B (accruals and realisation method) does not
31
apply to a gain or loss you make from a
*
financial arrangement:
32
(a) if Subdivision 230-C (fair value method) applies to the
33
arrangement; or
34
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
13
(b) to the extent that Subdivision 230-D (foreign exchange
1
retranslation method) applies to the gain or loss; or
2
(c) to the extent that Subdivision 230-E (hedging financial
3
arrangements method) applies to the arrangement; or
4
(d) if Subdivision 230-F (method of relying on financial reports)
5
applies to the arrangement; or
6
(e) if the arrangement is a financial arrangement under
7
section 230-50 (equity interests etc.).
8
Priorities among election methods
9
(5) Subdivision 230-C (fair value method) does not apply to a gain or
10
loss you make from a
*
financial arrangement:
11
(a) to the extent that Subdivision 230-E (hedging financial
12
arrangements method) applies to the arrangement; or
13
(b) if Subdivision 230-F (method of relying on financial reports)
14
applies to the arrangement.
15
(6) Subdivision 230-D (foreign exchange retranslation method) does
16
not apply to a gain or loss you make from a
*
financial arrangement:
17
(a) if Subdivision 230-C (fair value method) applies to the
18
arrangement; or
19
(b) to the extent that Subdivision 230-E (hedging financial
20
arrangements method) applies to the arrangement; or
21
(c) if Subdivision 230-F (method of relying on financial reports)
22
applies to the arrangement.
23
(7) Subdivision 230-F (method of relying on financial reports) does
24
not apply to a gain or loss you make from a
*
financial arrangement
25
to the extent that Subdivision 230-E (hedging financial
26
arrangements method) applies to the arrangement.
27
Financial arrangement concept
28
230-45 Financial arrangement
29
(1) You have a financial arrangement if you have, under an
30
*
arrangement:
31
(a) a
*
cash settlable legal or equitable right to receive a
*
financial
32
benefit; or
33
Schedule 1 A mendments
Part 1 Main amendments
14 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(b) a cash settlable legal or equitable obligation to provide a
1
financial benefit; or
2
(c) a combination of one or more such rights and/or one or more
3
such obligations;
4
unless:
5
(d) you also have under the arrangement one or more legal or
6
equitable rights to receive something and/or one or more
7
legal or equitable obligations to provide something; and
8
(e) for one or more of the rights and/or obligations covered by
9
paragraph (d):
10
(i) the thing that you have the right to receive, or the
11
obligation to provide, is not a financial benefit; or
12
(ii) the right or obligation is not cash settlable; and
13
(f) the one or more rights and/or obligations covered by
14
paragraph (e) are not insignificant in comparison with the
15
right, obligation or combination covered by paragraph (a), (b)
16
or (c).
17
The right, obligation or combination covered by paragraph (a), (b)
18
or (c) constitutes the financial arrangement.
19
Note 1:
Whether your rights and/or obligations under an arrangement
20
constitute a financial arrangement can change over time depending on
21
changes either to the terms of the arrangement or external
22
circumstances (such as particular rights or obligations under the
23
arrangement being satisfied by the parties). For example, a contract
24
may provide for the transfer of a boat in 6 months time and payment
25
of the contract price at the end of 2 years. Until the boat is delivered,
26
there is no financial arrangement because of the operation of
27
paragraphs (d), (e) and (f) above. Once the boat is delivered, there is a
28
financial arrangement because those paragraphs are no longer
29
applicable.
30
Note 2:
The operative provisions of this Division do not apply to all financial
31
arrangements, and only apply partially to some: see the exceptions in
32
Subdivision 230-H.
33
Note 3:
There are some rules in this Division that tell you what happens if an
34
arrangement ceases to be a financial arrangement (see
35
Subdivision 230-G and section 230-505).
36
(2) A right you have to receive, or an obligation you have to provide, a
37
*
financial benefit is cash settlable if, and only if:
38
(a) the benefit is money or a
*
money equivalent; or
39
(b) in the case of a right--you intend to satisfy or settle it by
40
receiving money or a money equivalent or by starting to
41
have, or ceasing to have, another
*
financial arrangement; or
42
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
15
(c) in the case of an obligation--you intend to satisfy or settle it
1
by providing money or a money equivalent or by starting to
2
have, or ceasing to have, another financial arrangement; or
3
(d) you have a practice of satisfying or settling similar rights or
4
obligations as mentioned in paragraph (b) or (c) (whether or
5
not you intend to satisfy or settle the right or obligation in
6
that way); or
7
(e) you deal with the right or obligation, or with similar rights or
8
obligations, in order to generate a profit from short-term
9
fluctuations in price, from a dealer's margin, or from both; or
10
(f) none of paragraphs (a) to (e) applies but you satisfy
11
subsection (3); or
12
(g) you are able to settle the right or obligation as mentioned in
13
paragraph (b) or (c) (whether or not you intend to satisfy or
14
settle the right or obligation in that way) and you do not have,
15
as your sole or dominant purpose for entering into the
16
arrangement under which you are to receive or provide the
17
financial benefit, the purpose of receiving or delivering the
18
financial benefit as part of your expected purchase, sale or
19
usage requirements.
20
A reference in paragraph (b) or (c) to a financial arrangement does
21
not include a reference to something that is a financial arrangement
22
under section 230-50.
23
Note:
Examples of dealing of the kind covered by paragraph (e) are:
24
(a) dealing with the right or obligation, or similar rights or
25
obligations, on a frequent basis, a short-term basis or on a
26
frequent and short-term basis; and
27
(b) acquiring the right or obligation, or similar rights or obligations,
28
and managing the resulting risk by entering into offsetting
29
arrangements that provide a profit margin.
30
(3) You satisfy this subsection if:
31
(a) the
*
financial benefit is readily convertible into money or a
32
*
money equivalent; and
33
(b) there is a market for the financial benefit that has a high
34
degree of liquidity; and
35
(c) either:
36
(i) the amount of the money or money equivalent referred
37
to in paragraph (a) is not subject to a substantial risk of
38
change in value; or
39
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2008
(ii) your purpose, or one of your purposes, for entering into
1
the arrangement under which you are to receive or
2
provide the financial benefit, is to receive or deliver the
3
financial benefit so that it may be converted or
4
liquidated into money or a money equivalent (other than
5
in the ordinary course of business).
6
230-50 Financial arrangement (equity interest or right or obligation
7
in relation to equity inte rest)
8
(1) You also have a financial arrangement if you have an
*
equity
9
interest. The equity interest constitutes the financial arrangement.
10
(2) You also have a financial arrangement if:
11
(a) you have, under an
*
arrangement:
12
(i) a legal or equitable right to receive something that is a
13
financial arrangement under this section; or
14
(ii) a legal or equitable obligation to provide something that
15
is a financial arrangement under this section; or
16
(iii) a combination of one or more such rights and/or
17
obligations; and
18
(b) the right, obligation or combination does not constitute, or
19
form part of, a financial arrangement under subsection
20
230-45(1).
21
The right, obligation or combination referred to in paragraph (a)
22
constitutes the financial arrangement.
23
Note 1:
Paragraph 230-40(4)(e) prevents the accruals method or the realisation
24
method being applied to something that is a financial arrangement
25
under this section.
26
Note 2:
Subsection 230-270(1) prevents the retranslation method being
27
applied to something that is a financial arrangement under this section.
28
Note 3:
Subsection 230-330(1) prevents the hedging method being applied to
29
something that is a financial arrangement under this section.
30
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17
230-55 Rights, obligations and arrange ments (grouping and
1
disaggregation rules)
2
Single right or obligation or multiple rights or obligations?
3
(1) If you have a right to receive 2 or more
*
financial benefits, you are
4
taken, for the purposes of this Division, to have a separate right to
5
receive each of those financial benefits.
6
(2) If you have an obligation to provide 2 or more
*
financial benefits,
7
you are taken, for the purposes of this Division, to have a separate
8
obligation to provide each of those financial benefits.
9
(3) Subsections (1) and (2) apply for the avoidance of doubt.
10
Matters relevant to determining what rights and/or obligations
11
constitute particular arrangements
12
(4) For the purposes of this Division, whether a number of rights
13
and/or obligations are themselves an
*
arrangement or are 2 or more
14
separate arrangements is a question of fact and degree that you
15
determine having regard to the following:
16
(a) the nature of the rights and/or obligations;
17
(b) their terms and conditions (including those relating to any
18
payment or other consideration for them);
19
(c) the circumstances surrounding their creation and their
20
proposed exercise or performance (including what can
21
reasonably be seen as the purposes of one or more of the
22
entities involved);
23
(d) whether they can be dealt with separately or must be dealt
24
with together;
25
(e) normal commercial understandings and practices in relation
26
to them (including whether they are regarded commercially
27
as separate things or as a group or series that forms a whole);
28
(f) the objects of this Division.
29
In applying this subsection, have regard to the matters referred to
30
in paragraphs (a) to (f) both in relation to the rights and/or
31
obligations separately and in relation to the rights and/or
32
obligations in combination with each other.
33
Example 1: Your rights and obligations under a typical convertible note, including
34
the right to convert the note into a share or shares, would constitute
35
one arrangement.
36
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18 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
Example 2: Your rights and obligations under a typical price-linked or
1
index-linked bond would constitute one arrangement.
2
Note 1:
If you raised funds by means of a contract that you would not have
3
entered into without entering into another contract, and neither
4
contract could be assigned to a third party without the other also being
5
assigned, this would tend to indicate that your rights and obligations
6
under the 2 contracts together constitute one arrangement.
7
Note 2:
If the commercial effect of your individual rights and/or obligations in
8
a group or series cannot be understood without reference to the group
9
or series as a whole, this would tend to indicate that all of your rights
10
and/or obligations in the group or series together constitute one
11
arrangement.
12
General rules
13
230-60 When financial benefit provided or received under financial
14
arrange ment
15
Financial benefit provided under financial arrangement
16
(1) You are taken, for the purposes of this Division, to have (or to have
17
had) an obligation to provide a
*
financial benefit under a
*
financial
18
arrangement if:
19
(a) you have (or had) an obligation to provide the financial
20
benefit in relation to the arrangement; and
21
(b) the financial benefit would not otherwise be treated as one
22
that you have (or had) an obligation to provide under the
23
arrangement; and
24
(c) the financial benefit plays an integral role in determining:
25
(i) whether you make a gain or loss from the arrangement;
26
or
27
(ii) the amount of such a gain or loss.
28
Paragraph (a) applies even if the entity to which you provide the
29
financial benefit is not a party to the arrangement.
30
Note:
This means that the financial benefits you provide to acquire the
31
financial arrangement (whether to the issuer, a previous holder or a
32
third party) are taken to be financial benefits you provide under the
33
arrangement. The financial benefits you provide may include, for
34
example, fees paid or the forgoing of rights to receive a financial
35
benefit.
36
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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
19
Financial benefit received under financial arrangement
1
(2) You are taken, for the purposes of this Division, to have (or to have
2
had) a right to receive a
*
financial benefit under a
*
financial
3
arrangement if:
4
(a) you have (or had) a right to receive the financial benefit in
5
relation to the arrangement; and
6
(b) the financial benefit would not otherwise be treated as one
7
that you have (or had) a right to receive under the
8
arrangement; and
9
(c) the financial benefit plays an integral role in determining:
10
(i) whether you make a gain or loss from the arrangement;
11
or
12
(ii) the amount of such a gain or loss.
13
Paragraph (a) applies even if the entity that provides the financial
14
benefit is not a party to the arrangement.
15
Note:
The financial benefits you receive may include, for example, the
16
waiving of an obligation you have to provide a financial benefit.
17
230-65 Amount of financial benefit relating to more than one
18
financial arrangement etc.
19
(1) This section applies if:
20
(a) a
*
financial benefit plays the integral role mentioned in
21
paragraph 230-60(1)(c) or (2)(c) in relation to a
*
financial
22
arrangement; and
23
(b) either or both of the following apply:
24
(i) the financial benefit plays that role in relation to one or
25
more other financial arrangements;
26
(ii) the financial benefit is provided or received for one or
27
more other things that are not financial arrangements.
28
(2) For the purposes of this Division, determine the amount of the
29
*
financial benefit that plays that role in relation to a particular
30
*
financial arrangement by apportioning the actual amount of the
31
financial benefit, on a reasonable basis, between:
32
(a) that financial arrangement; and
33
(b) each other financial arrangement (if any) in relation to which
34
the benefit plays that role; and
35
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20 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(c) each other thing (if any) mentioned in
1
subparagraph (1)(b)(ii).
2
230-70 Apportionment whe n financial benefit received or right
3
ceases
4
(1) Apply subsection (2) in working out whether you make, or will
5
make, a gain or loss (and the amount of the gain or loss) at a time
6
when:
7
(a) you receive a particular
*
financial benefit under a
*
financial
8
arrangement; or
9
(b) one of your rights under a financial arrangement
*
ceases.
10
The gain or loss is to be calculated in nominal (and not
*
present
11
value) terms.
12
(2) You must have regard to the extent to which the
*
financial benefits
13
that you have provided, or are to provide, under the
*
financial
14
arrangement are reasonably attributable, at the time mentioned in
15
subsection (1), to the benefit or right referred to in paragraph (1)(a)
16
or (b).
17
(3) Any attribution made under subsection (2) must reflect appropriate
18
and commercially accepted valuation principles that properly take
19
into account:
20
(a) the nature of the rights and obligations under the
*
financial
21
arrangement; and
22
(b) the risks associated with each
*
financial benefit, right and
23
obligation under the arrangement; and
24
(c) the time value of money.
25
(4) Despite subsection (2), no
*
financial benefit that you have
26
provided, or are to provide, under the
*
financial arrangement is to
27
be attributed to the benefit or right referred to in paragraph (1)(a)
28
or (b) if:
29
(a) you are working out the amount of a gain or loss for the
30
purposes of Subdivision 230-B; and
31
(b) the gain or loss is not an overall gain or loss from the
32
arrangement (within the meaning of that Subdivision) at the
33
time when you start to have the arrangement; and
34
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21
(c) the benefit or right referred to in paragraph (1)(a) or (b) is an
1
amount that represents, or is a right to an amount that
2
represents:
3
(i) interest; or
4
(ii) a
*
return paid or provided on a
*
debt interest; or
5
(iii) something that is in the nature of interest; or
6
(iv) something that could reasonably be regarded as being a
7
substitute for interest; or
8
(v) something prescribed by the regulations for the
9
purposes of this paragraph.
10
Note 1:
An example of something in the nature of interest is a discount on a
11
security.
12
Note 2:
An example of something that could reasonably be regarded as being a
13
substitute for interest is a lump sum payment received instead of
14
payments of interest.
15
230-75 Apportionment whe n financial benefit provided or obligation
16
ceases
17
(1) Apply subsection (2) in working out whether you make, or will
18
make, a gain or loss (and the amount of the gain or loss) at a time
19
when:
20
(a) you provide a particular
*
financial benefit under the
21
*
financial arrangement; or
22
(b) one of your obligations under a financial arrangement
23
*
ceases.
24
The gain or loss is to be calculated in nominal (and not
*
present
25
value) terms.
26
(2) You must have regard to the extent to which the
*
financial benefits
27
that you have received, or are to receive, under the
*
financial
28
arrangement are reasonably attributable, at the time mentioned in
29
subsection (1), to the benefit or obligation referred to in
30
paragraph (1)(a) or (b).
31
(3) Any attribution made under subsection (2) must reflect appropriate
32
and commercially accepted valuation principles that properly take
33
into account:
34
(a) the nature of the rights and obligations under the
*
financial
35
arrangement; and
36
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22 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(b) the risks associated with each
*
financial benefit, right and
1
obligation under the arrangement; and
2
(c) the time value of money.
3
(4) Despite subsection (2), no
*
financial benefit that you have
4
received, or are to receive, under the
*
financial arrangement is to
5
be attributed to the benefit or obligation referred to in
6
paragraph (1)(a) or (b) if:
7
(a) you are working out the amount of a gain or loss for the
8
purposes of Subdivision 230-B; and
9
(b) the gain or loss is not an overall gain or loss from the
10
arrangement (within the meaning of that Subdivision) at the
11
time when you start to have the arrangement; and
12
(c) the benefit or obligation referred to in paragraph (1)(a) or (b)
13
is an amount that represents, or is an obligation to provide an
14
amount that represents:
15
(i) interest; or
16
(ii) a
*
return paid or provided on a
*
debt interest; or
17
(iii) something that is in the nature of interest; or
18
(iv) something that could reasonably be regarded as being a
19
substitute for interest; or
20
(v) something prescribed by the regulations for the
21
purposes of this paragraph.
22
Note 1:
An example of something in the nature of interest is a discount on a
23
security.
24
Note 2:
An example of something that could reasonably be regarded as being a
25
substitute for interest is a lump sum payment made instead of
26
payments of interest.
27
230-80 Consistency in working out gains or losses (integrity
28
measure)
29
Object of section
30
(1) The object of this section is to stop you obtaining an inappropriate
31
tax benefit from not working out your gains and losses in a
32
consistent manner.
33
Consistent treatment for particular financial arrangement
34
(2) If:
35
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Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
23
(a) this Division provides that a particular method applies to
1
gains or losses you make from a
*
financial arrangement; and
2
(b) that method allows you to choose the particular manner in
3
which you apply that method;
4
you must use that manner consistently for the arrangement for all
5
income years.
6
Consistent treatment for financial arrangements of essentially the
7
same nature
8
(3) If:
9
(a) this Division provides that a particular method applies to
10
gains or losses you make from 2 or more
*
financial
11
arrangements; and
12
(b) that method allows you to choose the particular manner in
13
which you apply that method;
14
you must use that same manner consistently for all of those
15
financial arrangements that are essentially of the same nature.
16
230-85 Rights and obligations include contingent rights and
17
obligations
18
To avoid doubt:
19
(a) a right is treated as a right for the purposes of this Division
20
even it is subject to a contingency; and
21
(b) an obligation is treated as an obligation for the purposes of
22
this Division even if it is subject to a contingency.
23
Subdivision 230-B--The accruals/realisation methods
24
Table of sections
25
Guide to Subdivision 230-B
26
230-90
What this Subdivision is about
27
Objects of Subdivision
28
230-95
Objects of this Subdivision
29
When accruals method or realisation method applies
30
230-100 When accruals method or realisation method applies
31
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24 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
230-105 Sufficiently certain overall gain or loss
1
230-110 Sufficiently certain gain or loss from particular event
2
230-115 Sufficiently certain financial benefits
3
230-120 Financial arrangements with notional principal
4
The accruals method
5
230-125 Overview of the accruals method
6
230-130 Applying accruals method to work out period over which gain or loss is to
7
be spread
8
230-135 How gain or loss is spread
9
230-140 Method of spreading gain or loss--effective interest method
10
230-145 Application of effective interest method where differing income and
11
accounting years
12
230-150 Election for portfolio treatment of fees
13
230-155 Election for portfolio treatment of fees where differing income and
14
accounting years
15
230-160 Portfolio treatment of fees
16
230-165 Portfolio treatment of premiums and discounts for acquiring portfolio
17
230-170 Allocating gain or loss to income years
18
230-175 Running balancing adjustments
19
Realisation method
20
230-180 Realisation method
21
Reassessment and re-estimation
22
230-185 Reassessment
23
230-190 Re-estimation
24
230-195 Balancing adjustment if rate of return maintained on re-estimation
25
230-200 Re-estimation if balancing adjustment on partial disposal
26
Guide to Subdivision 230-B
27
230-90 What this Subdivision is about
28
This Subdivision applies the accruals method to determine the
29
amount and timing of gains and losses from a financial
30
arrangement if they are sufficiently certain for such accrual to be
31
done.
32
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Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
25
This Subdivision applies the realisation method to determine the
1
amount and timing of gains and losses if they are not sufficiently
2
certain to be dealt with under the accruals method.
3
If the accruals method is applied to a gain or loss on the basis of an
4
estimate of a financial benefit and the benefit when received or
5
provided is more or less than the estimate, a balancing adjustment
6
is made to correct for the underestimate or overestimate.
7
If the accruals method is being applied to gains and losses from the
8
arrangement and there is a material change to the arrangement, or
9
the circumstances in which it operates, a reassessment is made of
10
whether the accruals method or the realisation method should
11
apply to gains and losses from the arrangement.
12
A change in circumstances may also cause a re-estimation of gains
13
and losses that the accruals method is being applied to.
14
Objects of Subdivision
15
230-95 Objects of this Subdivision
16
The objects of this Subdivision are:
17
(a) to properly recognise gains and losses from
*
financial
18
arrangements by allocating them to appropriate periods of
19
time; and
20
(b) to reduce compliance costs by reflecting commercial
21
accounting concepts where appropriate; and
22
(c) to minimise tax deferral.
23
When accruals method or realisation method applies
24
230-100 When accruals method or realisation method applies
25
When accruals method applies and when realisation method
26
applies
27
(1) This section tells you when to apply the accruals method and when
28
to apply the realisation method if this Subdivision applies to gains
29
and losses from a
*
financial arrangement.
30
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26 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
Accruals method--sufficiently certain overall gain or loss at start
1
time
2
(2) The accruals method provided for in this Subdivision applies to a
3
gain or loss you make from a
*
financial arrangement if:
4
(a) the gain or loss is an overall gain or loss from the
5
arrangement; and
6
(b) the gain or loss is sufficiently certain at the time when you
7
start to have the arrangement.
8
Note:
Subsection 230-105(1) tells you when you have a sufficiently certain
9
overall gain or loss.
10
Accruals method--sufficiently certain particular gain or loss
11
(3) The accruals method provided for in this Subdivision also applies
12
to a gain or loss you make from a
*
financial arrangement if:
13
(a) the gain or loss arises from a
*
financial benefit that you are to
14
receive or are to provide under the arrangement; and
15
(b) the gain or loss:
16
(i) is sufficiently certain at the time when you start to have
17
the arrangement and before you are to receive or
18
provide the benefit; or
19
(ii) becomes sufficiently certain after the time when you
20
start to have the arrangement and before you are to
21
receive or provide the benefit; and
22
(c) the benefit has not already been taken into account in
23
applying:
24
(i) the accruals method provided for in this Subdivision; or
25
(ii) the realisation method provided for in this Subdivision;
26
to another gain or loss from the arrangement.
27
This subsection has effect subject to subsection (4).
28
Note:
Subsection 230-110(1) tells you when you have a sufficiently certain
29
gain or loss at a particular time.
30
(4) Subsection (3) does not apply to a gain or loss that you make from
31
a
*
financial arrangement if:
32
(a) you are:
33
(i) an individual; or
34
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Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
27
(ii) an entity (other than an individual) that satisfies
1
subsection 230-455(2), (3) or (4) for the income year in
2
which you start to have the arrangement; and
3
(b) the arrangement is a
*
qualifying security; and
4
(c) you have not made an election under subsection 230-455(7).
5
Realisation method--gain or loss not sufficiently certain
6
(5) The realisation method provided for in this Subdivision applies to a
7
gain or loss that you make from a
*
financial arrangement if the
8
accruals method provided for in this Subdivision does not apply to
9
that gain or loss.
10
Note:
Section 230-180 tells you how to apply the realisation method to the
11
gain or loss.
12
230-105 Sufficiently certain overall gain or loss
13
(1) You have a sufficiently certain overall gain or loss from a
14
*
financial arrangement at the time when you start to have the
15
arrangement only if it is sufficiently certain at that time that you
16
will make an overall gain or loss from the arrangement of:
17
(a) a particular amount; or
18
(b) at least a particular amount.
19
The amount of the gain or loss is the amount referred to in
20
paragraph (a) or (b).
21
Note:
Sections 230-70 and 230-75 (about apportionment of financial
22
benefits) only apply in working out whether you make, or will make, a
23
gain or loss (and the amount of the gain or loss) when particular
24
events happen. They do not apply in working out, at the time when
25
you start to have a financial arrangement, whether it is sufficiently
26
certain that you will make an overall gain or loss from the
27
arrangement.
28
(2) In applying subsection (1), you must:
29
(a) assume that you will continue to have the
*
financial
30
arrangement for the rest of its life; and
31
(b) have regard to the extent of the risk that a
*
financial benefit
32
that you are not sufficiently certain to provide or receive
33
under the arrangement may reduce the amount of the gain or
34
loss.
35
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Part 1 Main amendments
28 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
230-110 Sufficiently certain gain or loss from particular event
1
(1) You have a sufficiently certain gain or loss from a
*
financial
2
arrangement at a particular time if it is sufficiently certain at that
3
time that you will make a gain or loss from the arrangement of:
4
(a) a particular amount; or
5
(b) at least a particular amount;
6
when one of the following occurs:
7
(c) you receive a particular
*
financial benefit under the
8
arrangement or one of your rights under the arrangement
9
*
ceases;
10
(d) you provide a particular financial benefit under the
11
arrangement or one of your obligations under the
12
arrangement ceases.
13
The amount of the gain or loss is the amount referred to in
14
paragraph (a) or (b).
15
(2) In applying subsection (1) to work out whether you have a
16
sufficiently certain gain or loss at a particular time:
17
(a) have regard to the extent of the risk that a
*
financial benefit
18
that you are not sufficiently certain to provide or receive
19
under the arrangement may reduce the amount of the gain or
20
loss; and
21
(b) disregard any financial benefit that has already been taken
22
into account in working out the amount of a sufficiently
23
certain overall gain or loss from the
*
financial arrangement
24
under subsection 230-105(1) at the time when you started to
25
have the arrangement; and
26
(c) disregard any financial benefit (or that part of any financial
27
benefit) that has already been taken into account in working
28
out the amount of a sufficiently certain gain or loss from the
29
*
financial arrangement under subsection (1).
30
Note:
Sections 230-70 and 230-75 allow you to apportion financial benefits
31
provided and financial benefits received in working out the amount of
32
a gain or loss.
33
230-115 Sufficiently certain financial benefits
34
(1) In deciding for the purposes of this Subdivision whether it is
35
sufficiently certain at a particular time that you will make a gain or
36
loss from a
*
financial arrangement, have regard only to:
37
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
29
(a)
*
financial benefits that you are sufficiently certain to receive;
1
and
2
(b) financial benefits that you are sufficiently certain to provide.
3
Note:
The particular time may be the time at which you start to have the
4
arrangement.
5
(2) A
*
financial benefit that you are to receive or provide is to be
6
treated as one that you are sufficiently certain to receive or to
7
provide only if:
8
(a) it is reasonably expected that you will receive or provide the
9
financial benefit (assuming that you will continue to have the
10
*
financial arrangement for the rest of its life); and
11
(b) at least some of the amount or value of the benefit is, at that
12
time, fixed or determinable with reasonable accuracy.
13
(3) In applying subsection (2) to the
*
financial benefit:
14
(a) you must have regard to:
15
(i) the terms and conditions of the
*
financial arrangement;
16
and
17
(ii) accepted pricing and valuation techniques; and
18
(iii) the economic or commercial substance and effect of the
19
arrangement; and
20
(iv) the contingencies that attach to the other financial
21
benefits that are to be provided or received under the
22
arrangement; and
23
(b) you must treat the financial benefit as if it were not
24
contingent if it is appropriate to do so having regard to the
25
contingencies that attach to the other financial benefits that
26
are to be received or provided under the arrangement.
27
(4) In applying paragraph (2)(b) at a particular time (the reference
28
time) to a
*
financial benefit that depends on a variable that is based
29
on:
30
(a) an interest rate; or
31
(b) a rate that solely or primarily reflects the time value of
32
money; or
33
(c) a rate that solely or primarily reflects a consumer price index;
34
or
35
(d) a rate that solely or primarily reflects an index prescribed by
36
the regulations for the purposes of this paragraph;
37
Schedule 1 A mendments
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30 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
you must assume that that variable will continue to have the value
1
it has at the reference time.
2
(5) Despite subsection (4), in applying paragraph (2)(b) at a particular
3
time to a
*
financial benefit that depends on a rate of change to a
4
variable that is based on:
5
(a) a rate that solely or primarily reflects a consumer price index;
6
or
7
(b) a rate that solely or primarily reflects an index prescribed by
8
the regulations for the purposes of this paragraph;
9
you must assume that the rate of change to that variable will
10
continue to be the rate of change that is current at that time.
11
(6) If subsection (4) or (5) applies to a gain or loss and you are
12
determining the amount of the gain or loss at a particular time, you
13
must also assume that that variable will continue to have the value
14
that it has at that time.
15
(7) Subsections (4) and (5) do not limit paragraph (2)(b).
16
(8) If all of the
*
financial benefits provided and received under the
17
*
financial arrangement are denominated in a particular foreign
18
currency, those financial benefits are not to be translated into your
19
*
applicable functional currency for the purposes of applying
20
subsection (2) to the arrangement.
21
(9) To avoid doubt:
22
(a) a
*
financial benefit that you have already provided at a
23
particular time is taken to be one that it is, at that time, a
24
financial benefit that you are sufficiently certain to provide;
25
and
26
(b) a financial benefit that you have already received at a
27
particular time is taken to be one that it is, at that time, a
28
financial benefit that you are sufficiently certain to receive.
29
230-120 Financial arrangements with notional principal
30
(1) This section applies to a
*
financial arrangement that you have if, in
31
substance or effect, and having regard to the pricing, terms and
32
conditions of the arrangement:
33
(a) the arrangement consists of these things:
34
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
31
(i) a leg, the
*
financial benefits to be provided or received
1
in respect of which are calculated by reference to, or are
2
reasonably related to, a notional principal;
3
(ii) another leg, the financial benefits to be provided or
4
received in respect of which also are calculated by
5
reference to, or are reasonably related to, a notional
6
principal;
7
(iii) if the arrangement includes one or more other things--
8
those things; and
9
(b) when you start to have the arrangement, the value of the
10
notional principal in relation to one leg is equal to the value
11
of the notional principal in relation to the other leg; and
12
(c) all or part of the notional principal in relation to each leg is
13
provided or received at a time, regardless of whether that
14
time is different in relation to each leg.
15
Example: A swap contract.
16
(2) To avoid doubt, the
*
financial benefits mentioned in
17
subparagraphs (1)(a)(i) and (ii), and the notional principal in
18
relation to each leg, need not actually be provided or received.
19
(3) In applying this Subdivision to the
*
financial arrangement:
20
(a) work out the
*
financial benefits from the arrangement as
21
follows:
22
(i) work out the financial benefits from each thing of which
23
the arrangement consists separately from the financial
24
benefits from each other thing of which the arrangement
25
consists;
26
(ii) ensure that results under subparagraph (i) are consistent
27
with the timing and amount of financial benefits to be
28
actually provided or received under the arrangement;
29
and
30
(b) work out your gains and losses from the arrangement as
31
follows:
32
(i) work out the gains and losses from each thing of which
33
the arrangement consists separately from the gains and
34
losses from each other thing of which the arrangement
35
consists;
36
(ii) treat the gains and losses mentioned in subparagraph (i)
37
for all of those things as your gains and losses from the
38
arrangement; and
39
Schedule 1 A mendments
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32 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(c) in working out a gain or loss from a thing for the purposes of
1
subparagraph (b)(i), and, if the accruals method applies to the
2
gain or loss, how it is to be spread and allocated:
3
(i) if the thing is a leg--take into account the amount of the
4
notional principal at a time and in a manner that
5
properly reflects the way in which the financial benefits
6
in respect of that leg are calculated; and
7
(ii) if the thing is not a leg--take into account an amount
8
relevant to the thing at a time and in a manner that
9
properly reflects the way in which the financial benefits
10
in respect of that thing are calculated.
11
The accruals method
12
230-125 Overvie w of the accruals method
13
If the accruals method applies to a gain or loss you make from a
14
*
financial arrangement:
15
(a) you use section 230-130 to work out the period over which
16
the gain or loss is to be spread; and
17
(b) you use section 230-135 to work out how to allocate the gain
18
or loss to particular intervals within the period over which the
19
gain or loss is to be spread; and
20
(c) if an interval to which part of the gain or loss is allocated
21
straddles 2 income years, you use section 230-170 to work
22
out how to allocate that part of the gain or loss allocated
23
between those 2 income years.
24
230-130 Applying accruals method to work out period over which
25
gain or loss is to be spread
26
Period over which overall gain or loss is to be spread
27
(1) If you have a sufficiently certain overall gain or loss from a
28
*
financial arrangement under subsection 230-105(1), the period
29
over which the gain or loss is to be spread is the period that:
30
(a) starts when you start to have the arrangement; and
31
(b) ends when you will cease to have the arrangement.
32
In applying paragraph (b), you must assume that you will continue
33
to have the arrangement for the rest of its life.
34
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
33
(2) However, if you have sufficiently certain gains or losses from the
1
arrangement that:
2
(a) can be spread under subsection (3); and
3
(b) when considered together, represent adequately the overall
4
gain or loss mentioned in subsection (1);
5
you may spread those gains or losses in accordance with
6
subsection (3) instead of spreading the overall gain or loss in
7
accordance with subsection (1).
8
Period over which particular gain or loss is to be spread
9
(3) If you have a sufficiently certain gain or loss from a
*
financial
10
arrangement under subsection 230-110(1), the period over which
11
the gain or loss is to be spread is the period to which the gain or
12
loss relates. Have regard to the pricing, terms and conditions of the
13
arrangement in working out the period to which the gain or loss
14
relates. This subsection has effect subject to subsections (4) and
15
(5).
16
(4) The start of the period over which a gain or loss to which
17
subsection (3) applies is to be spread must:
18
(a) not start earlier than the time when you start to have the
19
*
financial arrangement; and
20
(b) not start earlier than the start of the income year during which
21
it becomes sufficiently certain that you will make the gain or
22
loss.
23
(5) The end of the period over which a gain or loss to which
24
subsection (3) applies is to be spread must:
25
(a) not end later than the time when you will cease to have the
26
*
financial arrangement; and
27
(b) not end later than the end of the income year during which:
28
(i) the
*
financial benefit that gives rise to the gain or loss is
29
to be received or provided; or
30
(ii) the right or obligation whose
*
ceasing gives rise to the
31
gain or loss is to cease.
32
Schedule 1 A mendments
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34 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
230-135 How gain or loss is spread
1
How to spread gain or loss
2
(1) This section tells you how to spread a gain or loss to which the
3
accruals method applies.
4
Compounding accruals or approximation
5
(2) The gain or loss is to be spread using:
6
(a) compounding accruals; or
7
(b) a method whose results approximate those obtained using the
8
method referred to in paragraph (a) (having regard to the
9
length of the period over which the gain or loss is to be
10
spread).
11
(3) The following subsections of this section clarify the way in which
12
the gain or loss is to be spread in accordance with paragraph (2)(a).
13
Intervals to which parts of gain or loss allocated
14
(4) The intervals to which parts of the gain or loss are allocated must:
15
(a) not exceed 12 months; and
16
(b) all be of the same length.
17
Paragraph (b) does not apply to the first and last intervals. These
18
may be shorter than the other intervals.
19
Fixing of amount and rate for interval
20
(5) For each interval:
21
(a) determine a rate of return; and
22
(b) determine an amount to which you apply the rate of return.
23
(6) For the purposes of paragraph (5)(b), in determining the amount to
24
which you apply the rate of return for an interval, have regard to:
25
(a) the amount or value; and
26
(b) the timing;
27
of
*
financial benefits that are to be taken into account in working
28
out the amount of the gain or loss, and were provided or received
29
by you during the interval.
30
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
35
Assumption of continuing to hold arrangement for rest of its life
1
(7) The gain or loss is to be spread assuming that you will continue to
2
have the
*
financial arrangement for the rest of its life.
3
Regard to be had to financial benefits provided or received in
4
interval
5
(8) In allocating the gain or loss to intervals, have regard to the
6
*
financial benefits to be provided or received in each of those
7
intervals.
8
230-140 Method of spreading gain or loss--effective interest method
9
(1) This section clarifies that the method mentioned in subsection (2)
10
of spreading gains and losses is a method covered by paragraph
11
230-135(2)(b) (methods approximating compounding accruals).
12
(2) The method is the effective interest method mentioned in
13
*
accounting standard AASB 139 (or another accounting standard
14
prescribed by the regulations for the purposes of this subsection).
15
(3) However, this section applies to a particular
*
financial arrangement
16
you have only if:
17
(a) in a case where there is a discount or premium under the
18
arrangement--when you start to have the arrangement, the
19
annually compounded rate of return applicable to the
20
discount or premium does not exceed 1%; and
21
(b) when you start to have the arrangement, neither the
22
maximum life of the arrangement (as determined under the
23
terms and conditions of the arrangement) nor the expected
24
life of the arrangement exceeds:
25
(i) unless subparagraph (ii) applies--30 years; or
26
(ii) if the regulations prescribe a different period for the
27
purposes of this subparagraph--that period; and
28
(c) each
*
financial benefit that you have an obligation to provide
29
or a right to receive under the arrangement, and that gives
30
rise to a gain or loss from the arrangement (other than a gain
31
or loss that is attributable to any discount or premium):
32
(i) relates to a period not exceeding 12 months; and
33
(ii) will be provided or received in the period to which it
34
relates; and
35
Schedule 1 A mendments
Part 1 Main amendments
36 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
Note:
Different financial benefits may relate to different periods.
1
(d) you prepare a financial report for the year in which you start
2
to have the arrangement; and
3
(e) that financial report is:
4
(i) prepared in accordance with paragraph 230-210(2)(a);
5
and
6
(ii) audited in accordance with paragraph 230-210(2)(b);
7
and
8
(f) all gains and losses from the arrangement to which the
9
accrual method applies are spread in a way that is consistent
10
with that financial report.
11
(4) For the purposes of paragraph (3)(a), assume that you will continue
12
to have the arrangement for the rest of its expected life.
13
230-145 Application of effective inte rest method where differing
14
income and accounting years
15
(1) This section applies if:
16
(a) you prepare a financial report for a year (the first year); and
17
(b) you prepare a financial report for the subsequent year (the
18
second year); and
19
(c) your income year starts in the first year and ends in the
20
second year; and
21
(d) both the financial report for the first year and the financial
22
report for the second year are:
23
(i) prepared in accordance with paragraph 230-210(2)(a);
24
and
25
(ii) audited in accordance with paragraph 230-210(2)(b);
26
and
27
(e) the auditor's reports are unqualified for both the financial
28
report for the first year and the financial report for the second
29
year.
30
(2) For the purposes of paragraph 230-140(3)(d), treat yourself as
31
having prepared a financial report for the income year in which
32
you start to have the arrangement.
33
(3) Work out the gain or loss you make from the arrangement for the
34
income year as follows:
35
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
37
(a) firstly, work out the gain or loss you make from the
1
arrangement for the first year in accordance with paragraph
2
230-140(3)(f) (treating the first year as an income year);
3
(b) next, work out how much of the gain or loss mentioned in
4
paragraph (a) is attributable to the income year in accordance
5
with subsection (4);
6
(c) next, work out the gain or loss you make from the
7
arrangement for the second year in accordance with
8
paragraph 230-140(3)(f) (treating the second year as an
9
income year);
10
(d) next, work out how much of the gain or loss mentioned in
11
paragraph (c) is attributable to the income year in accordance
12
with subsection (4);
13
(e) next:
14
(i) if the amounts worked out under paragraphs (b) and (d)
15
are both gains--add them together to work out the gain
16
from the arrangement for the income year; or
17
(ii) if the amounts worked out under paragraphs (b) and (d)
18
are both losses--add them together to work out the loss
19
from the arrangement for the income year; or
20
(iii) if one of the amounts worked out under paragraphs (b)
21
and (d) is a loss and the other is a gain--subtract the
22
loss from the gain. If the result is positive, this is the
23
gain from the arrangement for the income year. If the
24
result is negative, this is the loss from the arrangement
25
for the income year.
26
(4) For the purposes of paragraphs (3)(b) and (d), work out how much
27
of the gain or loss is attributable to the income year by:
28
(a) using a methodology that is reasonable; and
29
(b) using the same methodology for the first and second years.
30
(5) For the purposes of paragraph (4)(a), treat a methodology that
31
attributes the gain or loss on a pro-rata basis as not being
32
reasonable.
33
230-150 Election for portfolio treatment of fees
34
(1) You may make an election for an income year under this section if:
35
(a) you prepare a financial report for the income year in
36
accordance with:
37
Schedule 1 A mendments
Part 1 Main amendments
38 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(i) the
*
accounting standards; or
1
(ii) if those standards do not apply to the preparation of the
2
financial report--comparable accounting standards
3
made under a
*
foreign law that apply to the preparation
4
of the financial report under a foreign law; and
5
(b) the financial report is audited in accordance with:
6
(i) the
*
auditing standards; or
7
(ii) if the auditing standards do not apply to the auditing of
8
the financial report--comparable auditing standards
9
made under a foreign law.
10
(2) An election under this section is irrevocable.
11
230-155 Election for portfolio treatment of fees where differing
12
income and accounting years
13
(1) This section applies if:
14
(a) you prepare a financial report for a year (the first year); and
15
(b) you prepare a financial report for the subsequent year (the
16
second year); and
17
(c) your income year starts in the first year and ends in the
18
second year; and
19
(d) both the financial report for the first year and the financial
20
report for the second year are:
21
(i) prepared in accordance with paragraph 230-150(1)(a);
22
and
23
(ii) audited in accordance with paragraph 230-150(1)(b);
24
and
25
(e) the auditor's reports are unqualified for both the financial
26
report for the first year and the financial report for the second
27
year.
28
(2) Treat yourself as eligible to make an election for the income year
29
under subsection 230-150(1).
30
(3) Work out the gain or loss you make from the arrangement for the
31
income year as follows:
32
(a) firstly, work out the gain or loss you make from the
33
arrangement for the first year in accordance with subsections
34
230-160(3) and (4) or 230-165(3) and (4) (treating the first
35
year as an income year);
36
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
39
(b) next, work out how much of the gain or loss mentioned in
1
paragraph (a) is attributable to the income year in accordance
2
with subsection (4);
3
(c) next, work out the gain or loss you make from the
4
arrangement for the second year in accordance with
5
subsections 230-160(3) and (4) or 230-165(3) and (4)
6
(treating the second year as an income year);
7
(d) next, work out how much of the gain or loss mentioned in
8
paragraph (c) is attributable to the income year in accordance
9
with subsection (4);
10
(e) next:
11
(i) if the amounts worked out under paragraphs (b) and (d)
12
are both gains--add them together to work out the gain
13
from the arrangement for the income year; or
14
(ii) if the amounts worked out under paragraphs (b) and (d)
15
are both losses--add them together to work out the loss
16
from the arrangement for the income year; or
17
(iii) if one of the amounts worked out under paragraphs (b)
18
and (d) is a loss and the other is a gain--subtract the
19
loss from the gain. If the result is positive, this is the
20
gain from the arrangement for the income year. If the
21
result is negative, this is the loss from the arrangement
22
for the income year.
23
(4) For the purposes of paragraphs (3)(b) and (d), work out how much
24
of the gain or loss is attributable to the income year by:
25
(a) using a methodology that is reasonable; and
26
(b) using the same methodology for the first and second years.
27
(5) For the purposes of paragraph (4)(a), treat a methodology that
28
attributes the gain or loss on a pro-rata basis as not being
29
reasonable.
30
230-160 Portfolio treatment of fees
31
(1) This section applies in relation to a
*
financial arrangement if:
32
(a) you have made an election under section 230-150 in an
33
income year; and
34
(b) you start to have the financial arrangement in that income
35
year or a later income year; and
36
Schedule 1 A mendments
Part 1 Main amendments
40 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(c) the financial arrangement is part of a portfolio of similar
1
financial arrangements; and
2
(d) a gain or loss to which subsection 230-130(3) applies arises
3
in part from fees in respect of the
*
financial arrangement; and
4
(e) the fees play an integral role in determining the amount of the
5
gain or loss; and
6
(f) the net amount of the fees is not expected to be significant
7
relative to an overall gain or loss from the arrangement.
8
(2) For the purposes of this Division, split the gain or loss mentioned
9
in paragraph (1)(d) as follows:
10
(a) to the extent that it arises from the fees, treat it as a gain or
11
loss from the
*
financial arrangement (the fees gain or loss) to
12
which subsection 230-130(3) applies;
13
(b) to the extent that it does not arise from the fees, treat it as a
14
separate gain or loss from the financial arrangement to which
15
subsection 230-130(3) applies.
16
Note:
The separate gain or loss mentioned in paragraph (b) may itself be
17
split under subsection 230-165(2) (premium/discount gain or loss).
18
Determination of period for fees gain or loss
19
(3) The period over which the fees gain or loss is to be spread is the
20
period that you determine to be the expected life of the portfolio,
21
if:
22
(a) the basis on which you determine the period accords with the
23
spreading of the fees gain or loss for the purposes of the
24
profit or loss statement of the financial report mentioned in
25
paragraph 230-150(1)(a); and
26
(b) the basis on which you determine the period is set and
27
recorded before any fees in respect of the
*
financial
28
arrangement fall due; and
29
(c) the period can be justified objectively; and
30
(d) the period is reasonable in the circumstances.
31
Spreading the fees gain or loss
32
(4) The method by which the fees gain or loss is to be spread is the
33
method that you determine, if:
34
(a) the basis on which you determine the method accords with
35
the spreading of the fees gain or loss for the purposes of the
36
Amend ments Schedule 1
Main amendments Part 1
Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
41
profit or loss statement of the financial report mentioned in
1
paragraph 230-150(1)(a); and
2
(b) the method is determined before any fees in respect of the
3
*
financial arrangement fall due; and
4
(c) the method can be justified objectively; and
5
(d) the method is reasonable in the circumstances.
6
(5) To avoid doubt, subsections (3) and (4) apply despite
7
sections 230-130 and 230-135.
8
230-165 Portfolio treatment of premiums and discounts for
9
acquiring portfolio
10
(1) This section applies in relation to a
*
financial arrangement if:
11
(a) you have made an election under section 230-150 in an
12
income year; and
13
(b) you start to have the financial arrangement in that income
14
year or a later income year; and
15
(c) the financial arrangement is part of a portfolio of similar
16
financial arrangements; and
17
(d) a gain or loss to which subsection 230-130(3) applies arises
18
in part from a premium or discount in starting to have the
19
portfolio; and
20
(e) the gain or loss is not expected to be significant relative to
21
the amount of the gain or loss on the portfolio.
22
(2) For the purposes of this Division, split the gain or loss mentioned
23
in paragraph (1)(d) as follows:
24
(a) to the extent that it arises from the premium or discount, treat
25
it as a gain or loss from the
*
financial arrangement (the
26
premium/discount gain or loss) to which subsection
27
230-130(3) applies;
28
(b) to the extent that it does not arise from the premium or
29
discount, treat it as a separate gain or loss from the financial
30
arrangement to which subsection 230-130(3) applies.
31
Note:
The separate gain or loss mentioned in paragraph (b) may itself be
32
split under subsection 230-160(2) (portfolio fees gain or loss).
33
Schedule 1 A mendments
Part 1 Main amendments
42 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
Determination of period for premium/discount gain or loss
1
(3) The period over which the premium/discount gain or loss is to be
2
spread is the period that you determine to be the expected life of
3
the portfolio, if:
4
(a) the basis on which you determine the period accords with the
5
spreading of the premium/discount gain or loss for the
6
purposes of the profit or loss statement of the financial report
7
mentioned in paragraph 230-150(1)(a); and
8
(b) the basis on which you determine the period is set and
9
recorded before you start to have the
*
financial arrangement;
10
and
11
(c) the period can be justified objectively; and
12
(d) the period is reasonable in the circumstances.
13
Spreading the premium/discount gain or loss
14
(4) The method by which the premium/discount gain or loss is to be
15
spread is the method that you determine, if:
16
(a) the basis on which you determine the method accords with
17
the spreading of the premium/discount gain or loss for the
18
purposes of the profit or loss statement of the financial report
19
mentioned in paragraph 230-150(1)(a); and
20
(b) the method is determined before you start to have the
21
*
financial arrangement; and
22
(c) the method can be justified objectively; and
23
(d) the method is reasonable in the circumstances.
24
(5) To avoid doubt, subsections (3) and (4) apply despite
25
sections 230-130 and 230-135.
26
230-170 Allocating gain or loss to income years
27
(1) You are taken, for the purposes of section 230-15, to make, for an
28
income year, a gain or loss equal to a part of a gain or loss if:
29
(a) that part of the gain or loss is allocated to an interval under
30
section 230-135; and
31
(b) that interval falls wholly within that income year.
32
(2) If:
33
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43
(a) a part of a gain or loss is allocated to an interval under
1
section 230-135; and
2
(b) that interval straddles 2 income years;
3
you are taken, for purposes of section 230-15, to make a gain or
4
loss equal to so much of that part of the gain or loss as is allocated
5
between those income years on a reasonable basis.
6
(3) If:
7
(a) a
*
head company of a
*
consolidated group or
*
MEC group
8
has a
*
financial arrangement; and
9
(b) a subsidiary member of the group ceases to be a member of
10
the group at a particular time (the leaving time); and
11
(c) immediately after the leaving time, the head company no
12
longer has the arrangement because the subsidiary member
13
ceased to be a member of the group;
14
an income year of the group is taken, for the purposes of applying
15
this section to the group and the arrangement, to end at the leaving
16
time.
17
230-175 Running balancing adjustments
18
Overestimate of financial benefit to be received
19
(1) You are taken for the purposes of this Division to make a loss from
20
a
*
financial arrangement if:
21
(a) a provision of this Subdivision has applied on the basis that
22
you were sufficiently certain, at a particular time, to receive a
23
*
financial benefit of, or of at least, a particular amount under
24
the arrangement; and
25
(b) when you receive the benefit (or the time comes for you to
26
receive the benefit), the amount you receive (or are to
27
receive) is nil or is less than the amount estimated.
28
The amount of the loss is equal to the difference between the
29
amount estimated and the amount you receive (or are to receive).
30
You are taken to have made the loss for the income year in which
31
you receive the benefit (or in which the time comes for you to
32
receive the benefit).
33
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44 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
Underestimate of financial benefit to be received
1
(2) You are taken for the purposes of this Division to make a gain
2
from a
*
financial arrangement if:
3
(a) a provision of this Subdivision has applied on the basis that
4
you were sufficiently certain at a particular time to receive a
5
*
financial benefit of, or of at least, a particular amount under
6
the arrangement; and
7
(b) when you receive the benefit, or the time comes for you to
8
receive the benefit, the amount you receive, or are to receive,
9
is more than the amount estimated.
10
The amount of the gain is equal to the difference between the
11
amount estimated and the amount you receive or are to receive.
12
You are taken to have made that gain in the income year in which
13
you receive the benefit or in which the time comes for you to
14
receive the benefit.
15
Overestimate of financial benefit to be provided
16
(3) You are taken for the purposes of this Division to make a gain
17
from a
*
financial arrangement if:
18
(a) a provision of this Subdivision has applied on the basis that
19
you were sufficiently certain at a particular time to provide a
20
*
financial benefit of, or of at least, a particular amount under
21
the arrangement; and
22
(b) when you provide the benefit, or the time comes for you to
23
provide the benefit, the amount you provide, or are to
24
provide, is nil or is less than the amount estimated.
25
The amount of the gain is equal to the difference between the
26
amount estimated and the amount you provide or are to provide.
27
You are taken to have made that gain in the income year in which
28
you provide the benefit or in which the time comes for you to
29
provide the benefit.
30
Underestimate of financial benefit to be provided
31
(4) You are taken for the purposes of this Division to make a loss from
32
a
*
financial arrangement if:
33
(a) a provision of this Subdivision has applied on the basis that
34
you were sufficiently certain at a particular time to provide a
35
*
financial benefit of, or of at least, a particular amount under
36
the arrangement; and
37
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45
(b) when you provide the benefit, or the time comes for you to
1
provide the benefit, the amount you are to provide is more
2
than the estimated amount referred to in paragraph (a).
3
The amount of the loss is equal to the difference between the
4
amount estimated and the amount you are to provide. You are
5
taken to have made that loss in the income year in which you
6
provide the benefit or in which the time comes for you to provide
7
the benefit.
8
Realisation method
9
230-180 Realisation method
10
(1) If a gain or loss is to be taken into account using the realisation
11
method, you are taken, for the purposes of section 230-15, to make
12
the gain or loss for the income year in which the gain or loss
13
occurs.
14
Note:
Sections 230-70 and 230-75 allow you to apportion financial benefits
15
provided and financial benefits received in working out the amount of
16
the gain or loss.
17
(2) For the purposes of subsection (1), a gain or loss from a
*
financial
18
arrangement is taken to occur at the time at which the last of the
19
*
financial benefits taken into account in determining the amount of
20
the gain or loss:
21
(a) is provided; or
22
(b) if the financial benefit is not provided at the time when it is
23
due to be provided under the arrangement and it is reasonable
24
to expect that the financial benefit will be provided--is due
25
to be provided.
26
This subsection has effect subject to subsection (3).
27
(3) For the purposes of subsection (1), you make a loss from a
28
*
financial arrangement from writing off, as a bad debt, a right to a
29
*
financial benefit (or a part of a financial benefit) if:
30
(a) the financial benefit was taken into account in working out
31
the amount of a gain from the arrangement and the gain has
32
been included in your assessable income under this Division;
33
or
34
(b) the right is one in respect of money that you lent in the
35
ordinary course of your
*
business of lending money; or
36
Schedule 1 A mendments
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46 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(c) the right is one that you bought in the ordinary course of your
1
business of lending money.
2
(4) The loss referred to in subsection (3) occurs when you write off the
3
right to the
*
financial benefit (or the part of the financial benefit) as
4
a bad debt.
5
(5) The amount of the loss referred to in subsection (3) is:
6
(a) if paragraph (3)(a) applies--so much of the gain referred to
7
in that paragraph as is reasonably attributable to the
8
*
financial benefit (or the part of the financial benefit); or
9
(b) if paragraph (3)(b) applies--the amount of the financial
10
benefit (or the part of the financial benefit); or
11
(c) if paragraph (3)(c) applies--the amount of the financial
12
benefit (or the part of the financial benefit) but only up to the
13
value of the financial benefit you provided to acquire the
14
right to the financial benefit (or the part of the financial
15
benefit).
16
(6) For the purposes of this Act, a deduction for the loss referred to in
17
subsection (3) is to be treated as a deduction of a bad debt.
18
Note:
Various provisions in this Act and the Income Tax Assessment Act
19
1936 restrict the availability of deductions for bad debts and make
20
provision in relation to the recoupment of amounts in relation to bad
21
debts that have been written off. These provisions are set out in
22
subsection 25-35(5).
23
Reassessment and re-estimation
24
230-185 Reassessment
25
(1) You must make a fresh assessment of which gains and losses from
26
a
*
financial arrangement the accruals method should apply to, and
27
which gains and losses from that arrangement the realisation
28
method should apply to, if:
29
(a) the accruals method, or the realisation method, provided for
30
in this Subdivision applies to gains and losses from the
31
arrangement; and
32
(b) there is a material change to:
33
(i) the terms and conditions of the arrangement; or
34
(ii) circumstances that affect the arrangement.
35
Amend ments Schedule 1
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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008
47
(2) Without limiting subsection (1), the following changes are material
1
changes to the terms and conditions of, or circumstances that
2
affect, the
*
financial arrangement:
3
(a) a change to the terms or conditions of the arrangement in a
4
way that alters the essential nature of the arrangement (for
5
example, by altering it from a
*
debt interest to an
*
equity
6
interest or from an equity interest to a debt interest);
7
(b) a change to the terms or conditions of the arrangement in a
8
way that materially affects the contingencies on which
9
significant obligations and rights under the arrangement are
10
dependent (for example, by introducing such a contingency
11
or removing such a contingency);
12
(c) a change in circumstances that makes something that:
13
(i) materially affects significant obligations and rights
14
under the arrangement; and
15
(ii) was previously dependent on a contingency;
16
no longer dependent on a contingency (because, for example,
17
only one of a number of previously possible contingencies is
18
realised);
19
(d) a change to:
20
(i) the terms on which credit is to be provided to an entity
21
that is not a party to the arrangement; or
22
(ii) the credit rating of an entity that is not a party to the
23
arrangement;
24
if a significant obligation or right under the arrangement is
25
dependent on that credit being provided or that rating being
26
maintained;
27
(e) if the arrangement is, or includes, a financial asset or
28
financial liability and you prepare your financial reports in
29
accordance with:
30
(i) the
*
accounting standards; or
31
(ii) if those standards do not apply to the preparation of the
32
financial report--comparable accounting standards
33
made under a
*
foreign law that apply to the preparation
34
of the financial report under a foreign law;
35
a change to the terms or conditions of, or circumstances that
36
affect, the arrangement that are sufficient for the financial
37
asset or financial liability to be treated as impaired for the
38
purposes of those standards.
39
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48 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,
2008
(3) You do not need to make a reassessment under this section merely
1
because of a change in the fair value of the
*
financial arrangement.
2
230-190 Re-estimation
3
When re-estimation necessary
4
(1) You re-estimate a gain or loss from a
*
financial arrangement under
5
subsection (5) if:
6
(a) the accruals method applies to the gain or loss; and
7
(b) circumstances arise that materially affect:
8
(i) the amount or value; or
9
(ii) the timing;
10
of
*
financial benefits that were taken into account in working
11
out the amount of the gain or loss; and
12
(c) the circumstances do not give rise to a re-estimation under
13
section 230-200; and
14
(d) in a case where the gain or loss is spread using the method
15
referred to in paragraph 230-135(2)(b) in accordance with
16
section 230-140 (effective interest method)--the maximum
17
life of the arrangement (as determined under the terms and
18
conditions of the arrangement) is more than 12 months.
19
(2) If subsection (1) applies, you must re-estimate the gain or loss:
20
(a) unless paragraph (b) applies--as soon as reasonably
21
practicable after you become aware of the circumstances
22
referred to in paragraph (1)(b); or
23
(b) if paragraph (1)(d) is satisfied and the terms and conditions
24
of the
*
financial arrangement provide for reset dates to occur
25
no more than 12 months apart--at the relevant reset date.
26
(3) Without limiting subsection (1), the following are circumstances of
27
the kind referred to in paragraph (1)(b):
28
(a) a material change in market conditions that are relevant to the
29
amount or value of the
*
financial benefits to be received or
30
provided under the
*
financial arrangement;
31