Income Tax Assessment Act 1997 Act No. 38 of 1997 as amended This compilation was prepared on 1 October 2009 taking into account amendments up to Act No. 88 of 2009 Volume 6 includes: Table of Contents Sections 230-1 to 410-5 The text of any of those amendments not in force on that date is appended in the Notes section The operation of amendments that have been incorporated may be affected by application provisions that are set out in the Notes section Chapter 3-Specialist liability rules Contents Chapter 3-Specialist liability rules i Part 3-10-Financial transactions 1 Division 230-Taxation of financial arrangements 1 Guide to Division 230 1 230-1 What this Division is about 1 230-5 Scope of this Division 2 Subdivision 230-A-Core rules 3 Objects 4 230-10 Objects of this Division 4 Tax treatment of gains and losses from financial arrangements 4 230-15 Gains are assessable and losses deductible 4 230-20 Gain or loss to be taken into account only once under this Act 6 230-25 Associated financial benefits to be taken into account only once under this Act 7 230-30 Treatment of gains and losses related to exempt income and non-assessable non-exempt income 8 230-35 Treatment of gains and losses of private or domestic nature 9 Method to be applied to take account of gain or loss 10 230-40 Methods for taking gain or loss into account 10 Financial arrangement concept 12 230-45 Financial arrangement 12 230-50 Financial arrangement (equity interest or right or obligation in relation to equity interest) 14 230-55 Rights, obligations and arrangements (grouping and disaggregation rules) 15 General rules 16 230-60 When financial benefit provided or received under financial arrangement 16 230-65 Amount of financial benefit relating to more than one financial arrangement etc. 18 230-70 Apportionment when financial benefit received or right ceases 18 230-75 Apportionment when financial benefit provided or obligation ceases 20 230-80 Consistency in working out gains or losses (integrity measure) 21 230-85 Rights and obligations include contingent rights and obligations 22 Subdivision 230-B-The accruals/realisation methods 22 Guide to Subdivision 230-B 23 230-90 What this Subdivision is about 23 Objects of Subdivision 24 230-95 Objects of this Subdivision 24 When accruals method or realisation method applies 24 230-100 When accruals method or realisation method applies 24 230-105 Sufficiently certain overall gain or loss 26 230-110 Sufficiently certain gain or loss from particular event 27 230-115 Sufficiently certain financial benefits 28 230-120 Financial arrangements with notional principal 30 The accruals method 31 230-125 Overview of the accruals method 31 230-130 Applying accruals method to work out period over which gain or loss is to be spread 32 230-135 How gain or loss is spread 33 230-140 Method of spreading gain or loss-effective interest method 34 230-145 Application of effective interest method where differing income and accounting years 35 230-150 Election for portfolio treatment of fees 37 230-155 Election for portfolio treatment of fees where differing income and accounting years 37 230-160 Portfolio treatment of fees 39 230-165 Portfolio treatment of premiums and discounts for acquiring portfolio 41 230-170 Allocating gain or loss to income years 42 230-175 Running balancing adjustments 43 Realisation method 45 230-180 Realisation method 45 Reassessment and re-estimation 46 230-185 Reassessment 46 230-190 Re-estimation 48 230-195 Balancing adjustment if rate of return maintained on re-estimation 50 230-200 Re-estimation if balancing adjustment on partial disposal 52 Subdivision 230-C-Fair value method 53 230-205 Objects of this Subdivision 54 230-210 Fair value election 54 230-215 Fair value election where differing income and accounting years 55 230-220 Financial arrangements to which fair value election applies 56 230-225 Financial arrangements to which election does not apply 58 230-230 Applying fair value method to gains and losses 59 230-235 Splitting financial arrangements into 2 financial arrangements 60 230-240 When election ceases to apply 60 230-245 Balancing adjustment if election ceases to apply 61 Subdivision 230-D-Foreign exchange retranslation method 62 230-250 Objects of this Subdivision 62 230-255 Foreign exchange retranslation election 62 230-260 Foreign exchange retranslation election where differing income and accounting years 64 230-265 Financial arrangements to which general election applies 65 230-270 Financial arrangements to which general election does not apply 67 230-275 Balancing adjustment for election in relation to qualifying forex accounts 68 230-280 Applying foreign exchange retranslation method to gains and losses 68 230-285 When election ceases to apply 71 230-290 Balancing adjustment if election ceases to apply 72 Subdivision 230-E-Hedging financial arrangements method 72 230-295 Objects of this Subdivision 73 230-300 Applying hedging financial arrangement method to gains and losses 73 230-305 Table of events and allocation rules 76 230-310 Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item 76 230-315 Hedging financial arrangement election 81 230-320 Hedging financial arrangement election where differing income and accounting years 81 230-325 Hedging financial arrangements to which election applies 82 230-330 Hedging financial arrangements to which election does not apply 83 230-335 Hedging financial arrangement and hedged item 84 230-340 Generally whole arrangement must be financial hedging arrangement 87 230-345 Requirements not satisfied because of honest mistake or inadvertence 88 230-350 Derivative financial arrangement and foreign currency hedge 89 230-355 Recording requirements 89 230-360 Determining basis for allocating gain or loss 91 230-365 Effectiveness of the hedge 92 230-370 When election ceases to apply 93 230-375 Balancing adjustment if election ceases to apply 93 230-380 Where requirements not met 94 230-385 You may be excluded from this Subdivision for deliberate failures to comply with requirements 95 Subdivision 230-F-Reliance on financial reports 97 230-390 Objects of this Subdivision 97 230-395 Election to rely on financial reports 97 230-400 Financial reports election where differing income and accounting years 99 230-405 Commissioner discretion to waive requirements in paragraphs 230-395(2)(c) and (e) 100 230-410 Financial arrangements to which the election applies 101 230-415 Financial arrangements not covered by election 104 230-420 Effect of election to rely on financial reports 104 230-425 When election ceases to apply 106 230-430 Balancing adjustment if election ceases to apply 106 Subdivision 230-G-Balancing adjustment on ceasing to have a financial arrangement 107 230-435 When balancing adjustment made 108 230-440 Exceptions 109 230-445 Balancing adjustment 111 Subdivision 230-H-Exceptions 115 230-450 Short-term arrangements where non-money amount involved 115 230-455 Certain taxpayers where no significant deferral 116 230-460 Various rights and/or obligations 119 230-465 Ceasing to have a financial arrangement in certain circumstances 124 230-470 Forgiveness of commercial debts 125 230-475 Clarifying exceptions 125 230-480 Treatment of gains in form of franked distribution etc. 126 Subdivision 230-I-Other provisions 126 230-485 Effect of change of residence-rules for particular methods 127 230-490 Effect of change of residence-disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement 129 230-495 Effect of change of accounting standards 129 230-500 Comparable foreign accounting and auditing standards 130 230-505 Financial arrangement as consideration for provision or acquisition of a thing 131 230-510 Non-arm's length dealings in relation to financial arrangement 133 230-515 Arm's length dealings in relation to financial arrangement-adjustment to gain or loss in certain situations 134 230-520 Disregard gains or losses covered by value shifting regime 135 230-525 Consolidated financial reports 136 Subdivision 230-J-Additional operation of Division 136 230-530 Additional operation of Division 136 Division 240-Arrangements treated as a sale and loan 138 Guide to Division 240 138 240-1 What this Division is about 138 240-3 How the recharacterisation affects the notional seller 138 240-7 How the recharacterisation affects the notional buyer 139 Subdivision 240-A-Application and scope of Division 140 Operative provisions 140 240-10 Application of this Division 140 240-15 Scope of Division 140 Subdivision 240-B-The notional sale and notional loan 141 Operative provisions 141 240-17 Who is the notional seller and the notional buyer? 141 240-20 Notional sale of property by notional seller and notional acquisition of property by notional buyer 141 240-25 Notional loan by notional seller to notional buyer 142 Subdivision 240-C-Amounts to be included in notional seller's assessable income 143 Guide to Subdivision 240-C 143 240-30 What this Subdivision is about 143 Operative provisions 144 240-35 Amounts to be included in notional seller's assessable income 144 240-40 Arrangement payments not to be included in notional seller's assessable income 144 Subdivision 240-D-Deductions allowable to notional buyer 145 Guide to Subdivision 240-D 145 240-45 What this Subdivision is about 145 Operative provisions 145 240-50 Extent to which deductions are allowable to notional buyer 145 240-55 Arrangement payments not to be deductions 146 Subdivision 240-E-Notional interest and arrangement payments 146 Operative provisions 146 240-60 Notional interest 146 240-65 Arrangement payments 147 240-70 Arrangement payment periods 148 Subdivision 240-F-The end of the arrangement 148 Operative provisions 148 240-75 When is the end of the arrangement? 148 240-78 Termination amounts 149 240-80 What happens if the arrangement is extended or renewed 149 240-85 What happens if an amount is paid by or on behalf of the notional buyer to acquire the property 150 240-90 What happens if the notional buyer ceases to have the right to use the property 151 Subdivision 240-G-Adjustments if total amount assessed to notional seller differs from amount of finance charge 152 Guide to Subdivision 240-G 152 240-100 What this Subdivision is about 152 Operative provisions 152 240-105 Adjustments for notional seller 152 240-110 Adjustments for notional buyer 153 Subdivision H-Application of Division 16E to certain arrangements 154 240-112 Division 16E applies to certain arrangements 154 Subdivision 240-I-Provisions applying to hire purchase agreements 155 Operative provisions 155 240-115 Another person, or no person taken to own property in certain cases 155 Division 243-Limited recourse debt 157 Guide to Division 243 157 243-10 What this Division is about 157 Subdivision 243-A-Circumstances in which Division operates 157 Operative provisions 158 243-15 When does this Division apply? 158 243-20 What is limited recourse debt? 159 243-25 When is a debt arrangement terminated? 161 243-30 What is the financed property and the debt property? 162 Subdivision 243-B-Working out the excessive deductions 162 Operative provisions 162 243-35 Working out the excessive deductions 162 Subdivision 243-C-Amounts included in assessable income and deductions 165 Operative provisions 165 243-40 Amount included in debtor's assessable income 165 243-45 Deduction for later payments in respect of debt 165 243-50 Deduction for payments for replacement debt 166 243-55 Effect of Division on later capital allowance deductions 168 243-57 Effect of Division on later capital allowance balancing adjustments 168 243-58 Adjustment where debt only partially used for expenditure 169 Subdivision 243-D-Special provisions 170 Operative provisions 170 243-60 Application of Division to partnerships 170 243-65 Application where partner reduces liability 170 243-70 Application of Division to companies ceasing to be 100% subsidiary 172 243-75 Application of Division where debt forgiveness rules also apply 172 Division 247-Capital protected borrowings 173 Guide to Division 247 173 247-1 What this Division is about 173 Operative provisions 173 247-5 Object of Division 173 247-10 What capital protected borrowing and capital protection are 173 247-15 Application of this Division 174 247-20 Treating capital protection as a put option 175 247-25 Number of put options 176 247-30 Exercise or expiry of option 177 Division 250-Assets put to tax preferred use 178 Guide to Division 250 178 250-1 What this Division is about 178 Subdivision 250-A-Objects 179 250-5 Main objects 179 Subdivision 250-B-When this Division applies to you and an asset 179 Overall test 180 250-10 When this Division applies to you and an asset 180 250-15 General test 180 250-20 First exclusion-small business entities 181 250-25 Second exclusion-financial benefits under minimum value limit 181 250-30 Third exclusion-certain short term or low value arrangements 182 250-35 Exceptions to section 250-30 183 250-40 Fourth exclusion-sum of present values of financial benefits less than amount otherwise assessable 185 250-45 Fifth exclusion-Commissioner determination 186 Tax preferred use of asset 187 250-50 End user of an asset 187 250-55 Tax preferred end user 187 250-60 Tax preferred use of an asset 188 250-65 Arrangement period for tax preferred use 189 250-70 New tax preferred use at end of arrangement period if tax preferred use continues 190 250-75 What constitutes a separate asset for the purposes of this Division 191 250-80 Treatment of particular arrangements in the same way as leases 192 Financial benefits in relation to tax preferred use 192 250-85 Financial benefits in relation to tax preferred use of an asset 192 250-90 Financial benefit provided directly or indirectly 195 250-95 Expected financial benefits in relation to an asset put to tax preferred use 195 250-100 Present value of financial benefit that has already been provided 195 Discount rate to be used in working out present values 196 250-105 Discount rate to be used in working out present values 196 Predominant economic interest 196 250-110 Predominant economic interest 196 250-115 Limited recourse debt test 197 250-120 Right to acquire asset test 198 250-125 Effectively non-cancellable, long term arrangement test 199 250-130 Meaning of effectively non-cancellable arrangement 200 250-135 Level of expected financial benefits test 200 250-140 When to retest predominant economic interest under section 250-135 201 Subdivision 250-C-Denial of, or reduction in, capital allowance deductions 203 250-145 Denial of capital allowance deductions 203 250-150 Apportionment rule 203 Subdivision 250-D-Deemed loan treatment of financial benefits provided for tax preferred use 205 250-155 Arrangement treated as loan 205 250-160 Financial benefits that are subject to deemed loan treatment 208 250-180 End value of asset 210 250-185 Financial benefits subject to deemed loan treatment not assessed 211 Subdivision 250-E-Taxation of deemed loan 212 Guide to Subdivision 250-E 213 250-190 What this Subdivision is about 213 Application and objects of Subdivision 213 250-195 Application of Subdivision 213 250-200 Objects of this Subdivision 214 Tax treatment of gains and losses from financial arrangements 214 250-205 Gains are assessable and losses deductible 214 250-210 Gain or loss to be taken into account only once under this Act 214 Method to be applied to take account of gain or loss 215 250-215 Methods for taking gain or loss into account 215 General rules 216 250-220 Consistency in working out gains or losses (integrity measure) 216 250-225 Rights and obligations include contingent rights and obligations 216 The accruals method 217 250-230 Application of accruals method 217 250-235 Overview of the accruals method 217 250-240 Applying accruals method to work out period over which gain or loss is to be spread 217 250-245 How gain or loss is spread 218 250-250 Allocating gain or loss to income years 218 250-255 When to re-estimate 219 250-260 Re-estimation if balancing adjustment on partial disposal 221 Balancing adjustment 223 250-265 When balancing adjustment made 223 250-270 Exception for subsidiary member leaving consolidated group 224 250-275 Balancing adjustment 224 Other provisions 227 250-280 Financial arrangement received or provided as consideration 227 Subdivision 250-F-Treatment of asset when Division ceases to apply to the asset 229 250-285 Treatment of asset after Division ceases to apply to the asset 230 250-290 Balancing adjustment under Subdivision 40-D in some circumstances 232 Subdivision 250-G-Objections against determinations and decisions by the Commissioner 233 250-295 Objections against determinations and decisions by the Commissioner 233 Division 253-Financial claims scheme for account-holders with insolvent ADIs 234 Subdivision 253-A-Tax treatment of entitlements under financial claims scheme 234 Guide to Subdivision 253-A 234 253-1 What this Subdivision is about 234 Operative provisions 235 253-5 Payment of entitlement under financial claims scheme treated as payment from ADI 235 253-10 Disposal of rights against ADI to APRA and meeting of financial claims scheme entitlement have no CGT effects 235 253-15 Cost base of financial claims scheme entitlement and any remaining part of account that gave rise to entitlement 236 Part 3-30-Superannuation 237 Division 280-Guide to the superannuation provisions 237 280-1 Effect of this Division 237 280-5 Overview 238 Contributions phase 238 280-10 Contributions phase-deductibility 238 280-15 Contributions phase-limits on superannuation tax concessions 239 Investment phase 239 280-20 Investment phase 239 Benefits phase 240 280-25 Benefits phase-different types of superannuation benefit 240 280-30 Benefits phase-taxation varies with age of recipient and type of benefit 240 280-35 Benefits phase-roll-overs 241 The regulatory scheme outside this Act 241 280-40 Other relevant legislative schemes 241 Division 285-General concepts relating to superannuation 242 285-5 Transfers of property 242 Division 290-Contributions to superannuation funds 243 Guide to Division 290 243 290-1 What this Division is about 243 Subdivision 290-A-General rules 243 290-5 Non-application to roll-over superannuation benefits etc. 243 290-10 No deductions other than under this Division 244 Subdivision 290-B-Deduction of employer contributions and other employment-connected contributions 244 Deducting employer contributions 245 290-60 Employer contributions deductible 245 290-65 Application to employees etc. 245 Conditions for deducting an employer contribution 246 290-70 Employment activity conditions 246 290-75 Complying fund conditions 246 290-80 Age related conditions 247 Other employment-connected deductions 248 290-85 Contributions for former employees etc. 248 290-90 Controlling interest deductions 249 290-95 Amounts offset against superannuation guarantee charge 251 Returned contributions 251 290-100 Returned contributions assessable 251 Subdivision 290-C-Deducting personal contributions 251 290-150 Personal contributions deductible 252 Conditions for deducting a personal contribution 253 290-155 Complying superannuation fund condition 253 290-160 Maximum earnings as employee condition 253 290-165 Age-related conditions 253 290-170 Notice of intent to deduct conditions 254 290-175 Deduction limited by amount specified in notice 255 290-180 Notice may be varied but not revoked or withdrawn 255 Subdivision 290-D-Tax offsets for spouse contributions 256 290-230 Offset for spouse contribution 256 290-235 Limit on amount of tax offsets 257 290-240 Tax file number 257 Division 292-Excess contributions tax 259 Guide to Division 292 259 292-1 What this Division is about 259 Subdivision 292-A-Object of this Division 259 292-5 Object of this Division 259 Subdivision 292-B-Excess concessional contributions tax 260 292-10 What this Subdivision is about 260 Operative provisions 260 292-15 Liability for excess concessional contributions tax 260 292-20 Your excess concessional contributions for a financial year 260 292-25 Your concessional contributions for a financial year 261 Subdivision 292-C-Excess non-concessional contributions tax 262 292-75 What this Subdivision is about 262 Operative provisions 262 292-80 Liability for excess non-concessional contributions tax 262 292-85 Your excess non-concessional contributions for a financial year 262 292-90 Your non-concessional contributions for a financial year 263 292-95 Contributions arising from structured settlements or orders for personal injuries 265 292-100 Contribution relating to some CGT small business concessions 267 292-105 CGT cap amount 269 Subdivision 292-D-Modifications for defined benefit interests 270 292-155 What this Subdivision is about 270 Operative provisions 270 292-160 Application 270 292-165 Concessional contributions-special rules for defined benefit interests 270 292-170 Notional taxed contributions 271 292-175 Defined benefit interest 274 Subdivision 292-E-Excess contributions tax assessments 275 Guide to Subdivision 292-E 275 292-225 What this Subdivision is about 275 Operative provisions 275 292-230 Commissioner must make an excess contributions tax assessment 275 292-235 Part-year assessment 276 292-240 Validity of assessment 276 292-245 Objections 277 292-250 Evidence 277 Subdivision 292-F-Amending excess contributions tax assessments 277 Guide to Subdivision 292-F 277 292-300 What this Subdivision is about 277 Operative provisions 278 292-305 Amendments within 4 years of the original assessment 278 292-310 Amended assessments are treated as excess contributions tax assessments 278 292-315 Later amendments-on request 278 292-320 Later amendments-fraud or evasion 279 292-325 Further amendment of an amended particular 279 292-330 Amendment on review etc. 280 Subdivision 292-G-Collection and recovery 280 Guide to Subdivision 292-G 280 292-380 What this Subdivision is about 280 Operative provisions 281 292-385 Due date for payment of excess contributions tax 281 292-390 General interest charge 281 292-395 Refunds of amounts overpaid 281 292-400 Security for payment of tax 281 292-405 Release authority 282 292-410 Giving a release authority to a superannuation provider 282 292-415 Superannuation provider given release authority must pay amount 284 Subdivision 292-H-Other provisions 285 292-465 Commissioner's discretion to disregard contributions etc. in relation to a financial year 285 292-470 Power of Commissioner to obtain information 286 Division 295-Taxation of superannuation entities 288 Guide to Division 295 288 295-1 What this Division is about 288 Subdivision 295-A-Provisions of general operation 289 295-5 Entities to which Division applies 289 295-10 How to work out the tax payable by superannuation entities 290 295-15 Division does not impose a tax on property of a State 291 295-20 Exempting laws ineffective 291 295-25 Assessments on basis of anticipated SIS Act notice 292 295-30 Effect of revocation etc. of SIS Act notices 292 295-35 Acronyms used in tables 292 Subdivision 295-B-Modifications of provisions of this Act 293 295-85 CGT to be primary code for calculating gains or losses 293 295-90 CGT rules for pre-30 June 1988 assets 294 295-95 Deductions related to contributions 295 295-100 Deductions for investing in PSTs and life policies 296 295-105 Distributions to PST unitholders 297 Subdivision 295-C-Contributions included 297 Guide to Subdivision 295-C 297 295-155 What this Subdivision is about 297 Contributions and payments 298 295-160 Contributions and payments 298 295-165 Exception-spouse contributions 299 295-170 Exception-Government co-contributions and contributions for a child 300 295-171 Exception-payments from FHSAs and Government FHSA contributions 300 295-173 Exception-trustee contributions 300 295-175 Exception-payments by a member spouse 301 295-180 Exception-choice to exclude certain contributions 301 295-185 Exception-temporary residents 301 Personal contributions and roll-over amounts 302 295-190 Personal contributions and roll-over amounts 302 295-195 Exclusion of personal contributions 303 Transfers from foreign funds 304 295-200 Transfers from foreign superannuation funds 304 Application of tables to RSA providers 304 295-205 Application of tables to RSA providers 304 Former constitutionally protected funds 305 295-210 Former constitutionally protected funds 305 Subdivision 295-D-Contributions excluded 305 295-260 Transfer of liability to investment vehicle 305 295-265 Application of pre-1 July 88 funding credits 307 295-270 Anticipated funding credits 309 Subdivision 295-E-Other income amounts 310 Amounts included 310 295-320 Other amounts included in assessable income 310 295-325 Previously complying funds 311 295-330 Previously foreign funds 312 Amounts excluded 312 295-335 Amounts excluded from assessable income 312 Subdivision 295-F-Exempt income 313 295-385 Income from assets set aside to meet current pension liabilities 313 295-390 Income from other assets used to meet current pension liabilities 314 295-395 Meaning of segregated non-current assets 316 295-400 Income of a PST attributable to current pension liabilities 317 295-405 Other exempt income 318 295-410 Amount credited to RSA 318 Subdivision 295-G-Deductions 319 Death or disability benefits 319 295-460 Benefits for which deductions are available 319 295-465 Complying funds-deductions for insurance premiums 320 295-470 Complying funds-deductions for future liability to pay benefits 321 295-475 RSA providers-deductions for insurance premiums 323 295-480 Meaning of whole of life policy and endowment policy 323 Increased amount of superannuation lump sum death benefits 324 295-485 Deductions for increased amount of superannuation lump sum death benefit 324 Other deductions 325 295-490 Other deductions 325 Certain amounts cannot be deducted 326 295-495 Amounts that cannot be deducted 326 Subdivision 295-H-Components of taxable income 327 295-545 Components of taxable income-complying superannuation funds, complying ADFs and PSTs 327 295-550 Meaning of non-arm's length income 328 295-555 Components of taxable income-RSA providers 329 Subdivision 295-I-No-TFN contributions 330 295-605 Liability for tax on no-TFN contributions income 331 295-610 No-TFN contributions income 331 295-615 Meaning of quoted (for superannuation purposes) 332 295-620 No reduction under Subdivision 295-D 332 295-625 Assessments 333 Subdivision 295-J-Tax offset for no-TFN contributions income (TFN quoted within 4 years) 334 295-675 Entitlement to a tax offset 334 295-680 Amount of the tax offset 334 Division 301-Superannuation member benefits paid from complying plans etc. 335 Guide to Division 301 335 301-1 What this Division is about 335 Subdivision 301-A-Application 335 301-5 Division applies to superannuation member benefits paid from complying plans etc. 335 Subdivision 301-B-Member benefits: general rules 336 Member benefits-recipient aged 60 or above 336 301-10 All superannuation benefits are tax free 336 Member benefits-recipient aged over preservation age and under 60 337 301-15 Tax free status of tax free component 337 301-20 Superannuation lump sum-taxable component taxed at 0% up to low rate cap amount, 15% on remainder 337 301-25 Superannuation income stream-taxable component attracts 15% offset 338 Member benefits-recipient aged under preservation age 338 301-30 Tax free status of tax free component 338 301-35 Superannuation lump sum-taxable component taxed at 20% 338 301-40 Superannuation income stream-taxable component is assessable income, 15% offset for disability benefit 339 Subdivision 301-C-Member benefits: elements untaxed in fund 339 301-90 Tax free component and element taxed in fund dealt with under Subdivision 301-B, but element untaxed in the fund dealt with under this Subdivision 340 Member benefits (element untaxed in fund)-recipient aged 60 or above 340 301-95 Superannuation lump sum-element untaxed in fund taxed at 15% up to untaxed plan cap amount, top rate on remainder 340 301-100 Superannuation income stream-element untaxed in fund attracts 10% offset 341 Member benefits (element untaxed in fund)-recipient aged over preservation age and under 60 341 301-105 Superannuation lump sum-element untaxed in fund taxed at 15% up to low rate cap amount, 30% up to untaxed plan cap amount, top rate on remainder 341 301-110 Superannuation income stream-element untaxed in fund is assessable income 342 Member benefits (element untaxed in fund)-recipient aged under preservation age 342 301-115 Superannuation lump sum-element untaxed in fund taxed at 30% up to untaxed plan cap amount, top rate on remainder 342 301-120 Superannuation income stream-element untaxed in fund is assessable income 343 Miscellaneous 343 301-125 Unclaimed money payments by the Commissioner 343 Subdivision 301-D-Departing Australia superannuation payments 343 301-170 Departing Australia superannuation payments 343 301-175 Treatment of departing Australia superannuation benefits 344 Subdivision 301-E-Superannuation lump sum member benefits less than $200 345 301-225 Superannuation lump sum member benefits less than $200 are tax free 345 Division 302-Superannuation death benefits paid from complying plans etc. 346 Guide to Division 302 346 302-1 What this Division is about 346 Subdivision 302-A-Application 346 302-5 Division applies to superannuation death benefits paid from complying plans etc. 346 302-10 Superannuation death benefits paid to trustee of deceased estate 347 Subdivision 302-B-Death benefits to dependant 347 Lump sum death benefits to dependants are tax free 348 302-60 All of superannuation lump sum is tax free 348 Superannuation income stream-either deceased died aged 60 or above or dependant aged 60 or above 348 302-65 Superannuation income stream benefits are tax free 348 Superannuation income stream-deceased died aged under 60 and dependant aged under 60 349 302-70 Superannuation income stream-tax free status of tax free component 349 302-75 Superannuation income stream-taxable component attracts 15% offset 349 Death benefits to dependant-elements untaxed in fund 349 302-80 Treatment of element untaxed in the fund of superannuation income stream death benefit to dependant 349 302-85 Deceased died aged 60 or above or dependant aged 60 years or above-superannuation income stream: element untaxed in fund attracts 10% offset 350 302-90 Deceased died aged under 60 and dependant aged under 60-superannuation income stream: element untaxed in fund is assessable income 350 Subdivision 302-C-Death benefits to non-dependant 350 Superannuation lump sum 351 302-140 Superannuation lump sum-tax free status of tax free component 351 302-145 Superannuation lump sum-element taxed in the fund taxed at 15%, element untaxed in the fund taxed at 30% 351 Subdivision 302-D-Definitions relating to dependants 351 302-195 Meaning of death benefits dependant 352 302-200 What is an interdependency relationship? 352 Division 303-Superannuation benefits paid in special circumstances 354 303-5 Commutation of income stream if you are under 25 etc. 354 303-10 Superannuation lump sum member benefit paid to member having a terminal medical condition 354 Division 304-Superannuation benefits in breach of legislative requirements etc. 356 Guide to Division 304 356 304-1 What this Division is about 356 Operative provisions 356 304-5 Application 356 304-10 Superannuation benefits in breach of legislative requirements etc. 356 304-15 Excess payments from release authorities 358 Division 305-Superannuation benefits paid from non-complying superannuation plans 359 Guide to Division 305 359 305-1 What this Division is about 359 Subdivision 305-A-Superannuation benefits from Australian non- complying superannuation funds 359 305-5 Tax treatment of superannuation benefits from certain Australian non-complying superannuation funds 359 Subdivision 305-B-Superannuation benefits from foreign superannuation funds 360 Application of Subdivision 360 305-55 Restriction to lump sums received from certain foreign superannuation funds 360 Lump sums received within 6 months after Australian residency or termination of foreign employment etc. 361 305-60 Lump sums tax free-foreign resident period 361 305-65 Lump sums tax free-Australian resident period 362 Lump sums to which sections 305-60 and 305-65 do not apply 363 305-70 Lump sums received more than 6 months after Australian residency or termination of foreign employment etc. 363 305-75 Lump sums-applicable fund earnings 364 305-80 Lump sums paid into complying superannuation plans- choice 366 Division 306-Roll-overs etc. 367 Guide to Division 306 367 306-1 What this Division is about 367 Operative provisions 367 306-5 Effect of a roll-over superannuation benefit 367 306-10 Roll-over superannuation benefit 367 306-15 Tax on excess untaxed roll-over amounts 368 306-20 Effect of payment to government of unclaimed superannuation money 369 306-25 Payments connected with financial claims scheme to RSAs 369 Division 307-Key concepts relating to superannuation benefits 372 Guide to Division 307 372 307-1 What this Division is about 372 Subdivision 307-A-Superannuation benefits generally 373 307-5 What is a superannuation benefit? 373 307-10 Payments that are not superannuation benefits 378 307-15 Payments for your benefit or at your direction or request 379 Subdivision 307-B-Superannuation lump sums and superannuation income stream benefits 379 307-65 Meaning of superannuation lump sum 379 307-70 Meaning of superannuation income stream and superannuation income stream benefit 379 Subdivision 307-C-Components of a superannuation benefit 380 307-120 Components of superannuation benefit 380 307-125 Proportioning rule 381 307-130 Superannuation guarantee payment consists entirely of taxable component 382 307-135 Superannuation co-contribution benefit payment consists entirely of tax free component 382 307-140 Contributions-splitting superannuation benefit consists entirely of taxable component 383 307-142 Components of certain unclaimed money payments 383 307-145 Modification for disability benefits 385 307-150 Modification in respect of superannuation lump sum with element untaxed in fund 386 Subdivision 307-D-Superannuation interests 387 307-200 Regulations relating to meaning of superannuation interests 388 307-205 Value of superannuation interest 388 307-210 Tax free component of superannuation interest 389 307-215 Taxable component of superannuation interest 389 307-220 What is the contributions segment? 389 307-225 What is the crystallised segment? 390 Subdivision 307-E-Elements taxed and untaxed in the fund of the taxable component of superannuation benefit 391 307-275 Element taxed in the fund and element untaxed in the fund of superannuation benefits 391 307-280 Superannuation benefits from constitutionally protected funds etc. 392 307-285 Trustee can choose to convert element taxed in the fund to element untaxed in the fund 392 307-290 Taxed and untaxed elements of death benefit superannuation lump sums 393 307-295 Superannuation benefits from public sector superannuation schemes may include untaxed element 393 307-300 Certain unclaimed money payments 395 Subdivision 307-F-Low rate cap and untaxed plan cap amounts 397 307-345 Low rate cap amount 397 307-350 Untaxed plan cap amount 398 Subdivision 307-G-Other concepts 399 307-400 Meaning of service period for a superannuation lump sum 399 Part 3-32-Co-operatives and mutual entities 401 Division 315-Demutualisation of private health insurers 401 Guide to Division 315 401 315-1 What this Division is about 401 Subdivision 315-A-Capital gains and losses connected with a demutualisation of a private health insurer to be disregarded 402 Rules for policy holders 403 315-5 Policy holders to disregard capital gains and losses related to demutualisation of private health insurer 403 315-10 Effect on the legal personal representative or beneficiary 403 315-15 Demutualisations to which this Division applies 403 315-20 What assets are covered 404 Rules for demutualising health insurer 404 315-25 Demutualising health insurers to disregard capital gains and losses related to demutualisation 404 Rules for other entities 405 315-30 Other entities to disregard capital gains and losses related to demutualisation 405 Subdivision 315-B-Cost base of certain shares and rights in private health insurers 405 315-80 Cost base and acquisition time of demutualisation assets 405 315-85 Demutualisation asset 406 315-90 Participating policy holders 407 Subdivision 315-C-Lost policy holders trust 407 315-140 Lost policy holders trust 407 315-145 CGT treatment of demutualisation assets in lost policy holders trust 408 315-150 Roll-over where assets transferred to lost policy holder 408 315-155 Trustee assessed if assets dealt with not for benefit of lost policy holder 409 315-160 Subdivision 126-E does not apply to lost policy holders trust 410 Subdivision 315-D-Special cost base rules for certain shares and rights in holding companies 410 315-210 Cost base for shares and rights in certain holding companies 410 Subdivision 315-E-Special CGT rule for legal personal representatives and beneficiaries 412 315-260 Special CGT rule for legal personal representatives and beneficiaries 412 Subdivision 315-F-Non-CGT consequences of demutualisation 413 315-310 General taxation consequences of issue of demutualisation assets etc. 413 Division 316-Demutualisation of friendly society health or life insurers 414 Guide to Division 316 414 316-1 What this Division is about 414 Subdivision 316-A-Application 414 316-5 Application of this Division 414 Subdivision 316-B-Capital gains and losses connected with the demutualisation 415 Guide to Subdivision 316-B 415 316-50 What this Subdivision is about 415 Gains and losses of members, insured entities and successors 416 316-55 Disregarding capital gains and losses, except some involving receipt of money 416 316-60 Taking account of some capital gains and losses involving receipt of money 417 316-65 Valuation factor for sections 316-60, 316-105 and 316-165 418 316-70 Value of the friendly society 419 Friendly society's gains and losses 421 316-75 Disregarding friendly society's capital gains and losses 421 Other entities' gains and losses 421 316-80 Disregarding other entities' capital gains and losses 421 Subdivision 316-C-Cost base of shares and rights issued under the demutualisation 421 Guide to Subdivision 316-C 421 316-100 What this Subdivision is about 421 316-105 Cost base and time of acquisition of shares and certain rights issued under demutualisation 422 316-110 Demutualisation assets 422 316-115 Entities to which section 316-105 applies 423 Subdivision 316-D-Lost policy holders trust 424 Guide to Subdivision 316-D 424 316-150 What this Subdivision is about 424 Application 425 316-155 Lost policy holders trust 425 Effects of CGT events happening to interests and assets in trust 426 316-160 Disregarding beneficiaries' capital gains and losses, except some involving receipt of money 426 316-165 Taking account of some capital gains and losses involving receipt of money by beneficiaries 426 316-170 Roll-over where shares or rights to acquire shares transferred to beneficiary of lost policy holders trust 427 316-175 Trustee assessed if shares or rights dealt with not for benefit of beneficiary of lost policy holders trust 428 316-180 Subdivision 126-E does not apply 429 Subdivision 316-E-Special CGT rules for legal personal representatives and beneficiaries 429 316-200 Demutualisation assets not owned by deceased but passing to beneficiary in deceased estate 429 316-205 Interest in lost policy holders trust not owned by deceased but passing to beneficiary in deceased estate 430 Subdivision 316-F-Non-CGT consequences of the demutualisation 430 Guide to Subdivision 316-F 430 316-250 What this Subdivision is about 430 316-255 General taxation consequences of issue of demutualisation assets etc. 431 316-260 Franking debits to stop the friendly society and its subsidiaries having franking surpluses 432 316-265 Franking debits to negate franking credits from some distributions to friendly society and subsidiaries 432 316-270 Franking debits to negate franking credits from post- demutualisation payments of pre-demutualisation tax 433 316-275 Franking credits to negate franking debits from refunds of tax paid before demutualisation 433 Part 3-35-Insurance business 435 Division 320-Life insurance companies 435 Guide to Division 320 435 320-1 What this Division is about 435 Operative provisions 437 Subdivision 320-A-Preliminary 437 320-5 Object of Division 437 Subdivision 320-B-What is included in a life insurance company's assessable income 438 Guide to Subdivision 320-B 438 320-10 What this Subdivision is about 438 Operative provisions 438 320-15 Assessable income-various amounts 438 320-30 Assessable income-special provision for certain income years 440 320-35 Exempt income 441 320-37 Non-assessable non-exempt income 441 320-45 Tax treatment of gains or losses from CGT events in relation to complying superannuation/FHSA assets 444 Subdivision 320-C-Deductions and capital losses 444 Guide to Subdivision 320-C 444 320-50 What this Subdivision is about 444 Operative provisions 445 320-55 Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from complying superannuation/FHSA assets 445 320-60 Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from segregated exempt assets 446 320-65 Deduction for life insurance premiums in respect of life insurance policies that provide for participating or discretionary benefits 446 320-70 No deduction for life insurance premiums in respect of certain life insurance policies payable only on death or disability 446 320-75 Deduction for ordinary investment policies 447 320-80 Deduction for certain claims paid under life insurance policies 447 320-85 Deduction for increase in value of liabilities under net risk components of life insurance policies 448 320-87 Deduction for assets transferred from or to complying superannuation/FHSA asset pool 449 320-100 Deduction for life insurance premiums paid under certain contracts of reinsurance 450 320-105 Deduction for assets transferred to segregated exempt assets 450 320-107 Deductions for increased amount of lump sum death benefit 450 320-110 Deduction for interest credited to income bonds 451 320-111 Deduction for funeral policy payout 452 320-112 Deduction for scholarship plan payout 452 320-115 No deduction for amounts credited to RSAs 453 320-120 Capital losses from assets other than complying superannuation/FHSA assets or segregated exempt assets 453 320-125 Capital losses from complying superannuation/FHSA assets 453 Subdivision 320-D-Income tax, taxable income and tax loss of life insurance companies 454 Guide to Subdivision 320-D 454 320-130 What this Subdivision is about 454 320-131 Overview of Subdivision 454 General rules 456 320-133 Object of Subdivision 456 320-134 Income tax of a life insurance company 456 320-135 Taxable income and tax loss of each of the 2 classes 457 Taxable income and tax loss of life insurance companies 458 320-137 Taxable income-complying superannuation/FHSA class 458 320-139 Taxable income-ordinary class 460 320-141 Tax loss-complying superannuation/FHSA class 461 320-143 Tax loss-ordinary class 462 320-149 Provisions that apply only in relation to the ordinary class 463 Subdivision 320-E-No-TFN contributions of life insurance companies that are RSA providers 463 Guide to Subdivision 320-E 463 320-150 What this Subdivision is about 463 Operative provisions 464 320-155 Subdivisions 295-I and 295-J apply to companies that are RSA providers 464 Subdivision 320-F-Complying superannuation/FHSA asset pool 464 Guide to Subdivision 320-F 464 320-165 What this Subdivision is about 464 Operative provisions 465 320-170 Establishment of complying superannuation/FHSA asset pool 465 320-175 Valuations of complying superannuation/FHSA assets and complying superannuation/FHSA liabilities for each valuation time 466 320-180 Consequences of a valuation under section 320-175 467 320-185 Transfer of assets to complying superannuation/FHSA asset pool otherwise than as a result of a valuation under section 320-175 468 320-190 Complying superannuation/FHSA liabilities 469 320-195 Transfer of assets and payment of amounts from a complying superannuation/FHSA asset pool otherwise than as a result of a valuation under section 320-175 470 320-200 Consequences of transfer of assets to or from complying superannuation/FHSA asset pool 471 Subdivision 320-H-Segregation of assets to discharge exempt life insurance policy liabilities 473 Guide to Subdivision 320-H 473 320-220 What this Subdivision is about 473 Operative provisions 474 320-225 Segregation of assets for purpose of discharging exempt life insurance policy liabilities 474 320-230 Valuations of segregated exempt assets and exempt life insurance policy liabilities for each valuation time 475 320-235 Consequences of a valuation under section 320-230 476 320-240 Transfer of assets to segregated exempt assets otherwise than as a result of a valuation under section 320- 230 477 320-245 Exempt life insurance policy liabilities 478 320-246 Exempt life insurance policy 479 320-247 Policy split into an exempt life insurance policy and another life insurance policy 481 320-250 Transfer of assets and payment of amounts from segregated exempt assets otherwise than as a result of a valuation under section 320-230 481 320-255 Consequences of transfer of assets to or from segregated exempt assets 482 Subdivision 320-I-Transfers of business 486 Guide to Subdivision 320-I 486 320-300 What this Subdivision is about 486 Operative provisions 486 320-305 When this Subdivision applies 486 320-310 Special deductions and amounts of assessable income 487 320-315 Complying superannuation/FHSA asset pool and segregated exempt assets 487 320-320 Certain amounts treated as life insurance premiums 488 320-325 Friendly societies 488 320-330 Immediate annuities 488 320-335 Parts of assets treated as separate assets 489 320-340 Continuous disability policies 489 320-345 Exemption of management fees 490 Division 322-Assistance for policyholders with insolvent general insurers 492 Guide to Division 322 492 322-1 What this Division is about 492 Subdivision 322-A-HIH rescue package 492 322-5 Rescue payments treated as insurance payments by HIH 492 322-10 HIH Trust exempt from tax 493 322-15 Certain capital gains and capital losses disregarded 493 Subdivision 322-B-Tax treatment of entitlements under financial claims scheme 493 Guide to Subdivision 322-B 493 322-20 What this Subdivision is about 493 Operative provisions 494 322-25 Payment of entitlement under financial claims scheme treated as payment from insurer 494 322-30 Disposal of rights against insurer to APRA and meeting of financial claims scheme entitlement have no CGT effects 494 Part 3-45-Rules for particular industries and occupations 496 Division 328-Small business entities 496 Guide to Division 328 496 328-5 What this Division is about 496 328-10 Concessions available to small business entities 497 Subdivision 328-B-Objects of this Division 498 328-50 Objects of this Division 498 Subdivision 328-C-What is a small business entity 499 Guide to Subdivision 328-C 499 328-105 What this Subdivision is about 499 Operative provisions 499 328-110 Meaning of small business entity 499 328-115 Meaning of aggregated turnover 501 328-120 Meaning of annual turnover 502 328-125 Meaning of connected with an entity 503 328-130 Meaning of affiliate 505 Subdivision 328-D-Capital allowances for small business entities 506 Guide to Subdivision 328-D 506 328-170 What this Subdivision is about 506 Operative provisions 507 328-175 Calculations for depreciating assets 507 328-180 Low cost assets 510 328-185 Pooling 511 328-190 Calculation 513 328-195 Opening pool balance 514 328-200 Closing pool balance 514 328-205 Estimate of taxable use 516 328-210 Low pool value 518 328-215 Disposal etc. of depreciating assets 519 328-220 What happens if you are not a small business entity or do not choose to use this Subdivision for an income year 519 328-225 Change in business use [see Note 6] 520 328-230 Estimate where deduction denied 523 328-235 Interaction with Divisions 85 and 86 523 328-243 Roll-over relief 523 328-245 Consequences of roll-over 524 328-247 Pool deductions 525 328-250 Deductions for assets first used in BAE year 525 328-253 Deductions for cost addition amounts 527 328-255 Closing pool balance etc. below zero 528 328-257 Taxable use 528 Subdivision 328-E-Trading stock for small business entities 529 Guide to Subdivision 328-E 529 328-280 What this Subdivision is about 529 Operative provisions 529 328-285 Trading stock for small business entities 529 328-295 Value of trading stock on hand 530 Division 345-FHSAs 532 Guide to Division 345 532 345-1 What this Division is about 532 Subdivision 345-A-Treatment of FHSA providers 532 345-5 FHSA provider that is trustee of FHSA trust-tax payable 533 345-10 FHSA provider that is trustee of FHSA trust-CGT to be primary code for calculating gains or losses 533 345-15 FHSA provider that is an ADI (other than RSA provider)-taxable income and standard component of taxable income 534 345-20 FHSA provider that is an ADI-FHSA component of taxable income 535 345-25 FHSA provider that is an ADI (other than an RSA provider)-amounts that cannot be deducted 535 345-30 Amounts of tax paid by FHSA providers that are ADIs 535 Subdivision 345-B-Treatment of FHSA holders 536 345-50 Credits to and payments from FHSAs etc. 536 Subdivision 345-C-FHSA misuse tax 536 345-100 Liability for FHSA misuse tax 536 345-110 Due date for payment of FHSA misuse tax 537 345-115 General interest charge 537 Division 375-Australian films 538 Subdivision 375-G-Film losses 538 Guide to Subdivision 375-G 538 375-800 What this Subdivision is about 538 Operative provisions 538 375-805 Does your tax loss have a film component? 538 375-810 What is a film loss? 540 375-815 Deductibility of film losses 540 375-820 Order in which tax losses are to be deducted 540 Subdivision 375-H-Deductions for shares in a film licensed investment company 541 375-850 What this Subdivision is about 541 Provisions affecting you if you own shares in a film licensed investment company 541 375-855 What can you deduct? 541 375-860 When can you claim the deduction? 542 375-865 How can you lose your entitlement? 542 375-870 How this Subdivision applies to partners and partnerships 543 375-872 Distribution of FLIC concessional capital is instead taken to be a dividend 544 Provisions affecting film licensed investment companies 545 375-875 Tax losses cannot be transferred to or from FLICs 545 375-880 FLIC cannot claim deductions for concessional capital 545 Division 376-Films generally (tax offsets for Australian production expenditure) 546 Subdivision 376-A-Guide to Division 376 546 376-1 What this Division is about 546 376-2 Key features of the tax offsets for Australian production expenditure on films 546 376-5 Structure of this Division 547 Subdivision 376-B-Tax offsets for Australian expenditure in making a film 548 Refundable tax offset for Australian expenditure in making a film (location offset) 549 376-10 Film production company entitled to refundable tax offset for Australian expenditure in making a film (location offset) 549 376-15 Amount of the location offset 550 376-20 Minister must issue certificate for a film for the location offset 550 376-25 Company may nominate one individual whose remuneration is to be disregarded for the location offset 553 376-30 Minister to determine a company's qualifying Australian production expenditure for the location offset 554 Refundable tax offset for post, digital and visual effects production for a film (PDV offset) 554 376-35 Film production company entitled to refundable tax offset for post, digital and visual effects production for a film (PDV offset) 554 376-40 Amount of the PDV offset 556 376-45 Minister must issue certificate for a film for the PDV offset 556 376-50 Minister to determine a company's qualifying Australian production expenditure for the PDV offset 558 Refundable tax offset for Australian expenditure in making an Australian film (producer offset) 559 376-55 Film production company entitled to refundable tax offset for Australian expenditure in making an Australian film (producer offset) 559 376-60 Amount of the producer offset 561 376-65 Film authority must issue certificate for an Australian film for the producer offset 561 376-70 Determination of content of film 566 376-75 Film authority to determine a company's qualifying Australian production expenditure for the producer offset 567 Subdivision 376-C-Production expenditure and qualifying Australian production expenditure 568 Production expenditure-common rules 569 376-125 Production expenditure-general test 569 376-130 Production expenditure-special qualifying Australian production expenditure 570 376-135 Production expenditure-specific exclusions 571 Production expenditure-special rules for the location offset 573 376-140 Production expenditure-special rules for the location offset 573 Qualifying Australian production expenditure-common rules 574 376-145 Qualifying Australian production expenditure-general test 574 376-150 Qualifying Australian production expenditure- specific inclusions 574 376-155 Qualifying Australian production expenditure- specific exclusions 575 376-160 Qualifying Australian production expenditure- treatment of services embodied in goods 576 Qualifying Australian production expenditure-special rules for the location offset and the PDV offset 576 376-165 Qualifying Australian production expenditure-special rules for the location offset and the PDV offset 576 Qualifying Australian production expenditure-special rules for the producer offset 578 376-170 Qualifying Australian production expenditure-special rules for the producer offset 578 Expenditure generally-common rules 581 376-175 Expenditure to be worked out on an arm's length basis 581 376-180 Expenditure incurred by prior production companies 581 Subdivision 376-D-Certificates for films and other matters 583 376-230 Production company may apply for certificate 583 376-235 Notice of refusal to issue certificate 584 376-240 Issue of certificate 585 376-245 Revocation of certificate 586 376-250 Notice of decision or determination 587 376-255 Review of decisions by the Administrative Appeals Tribunal 588 376-260 Minister may make rules about the location offset and the PDV offset 588 376-265 Film authority may make rules about the producer offset 590 376-270 Amendment of assessments 590 376-275 Review in relation to certain production levels 591 Division 380-National Rental Affordability Scheme 592 Guide to Division 380 592 380-1 What this Division is about 592 Subdivision 380-A-National Rental Affordability Scheme Tax Offset 592 380-5 Claims by individuals, corporate tax entities and superannuation funds 593 380-10 Claims by a party to a non-entity joint venture 593 380-15 Claims by certain entities to whom NRAS rent flows indirectly 595 380-20 Claims by a trustee of a trust that does not have net income for an income year 596 380-25 When NRAS rent flows indirectly to or through an entity 597 380-30 Share of NRAS rent 599 Subdivision 380-B-Payments made in relation to the National Rental Affordability Scheme etc. 602 380-35 Payments made and non-cash benefits provided in relation to the National Rental Affordability Scheme 602 Division 385-Primary production 603 Guide to Division 385 603 385-1 What this Division is about 603 385-5 Where to find some other rules relevant to primary producers 603 Subdivision 385-E-Primary producer can elect to spread or defer tax on profit from forced disposal or death of live stock 604 Guide to Subdivision 385-E 604 385-90 What this Subdivision is about 604 385-95 Basic principles for elections under this Subdivision 605 Operative provisions 605 385-100 Cases where you can make an election 605 385-105 Election to spread tax profit over 5 years 607 385-110 Alternative election to defer tax profit and reduce cost of replacement live stock 607 385-115 Your assessable income includes an amount for replacement live stock you breed 608 385-120 Purchase price of replacement live stock is reduced 608 385-125 Alternative election because of bovine tuberculosis has effect over 10 years not 5 609 Subdivision 385-F-Insurance for loss of live stock or trees 609 385-130 Insurance for loss of live stock or trees 609 Subdivision 385-G-Double wool clips 610 385-135 Election to defer including profit on second wool clip 610 Subdivision 385-H-Rules that apply to all elections made under Subdivisions 385-E, 385-F and 385-G 611 385-145 Partnerships and trusts 611 385-150 Time for making election 611 385-155 Amounts are assessable income from carrying on the primary production business 612 385-160 Effect of certain events on election 612 385-163 Disentitling events 612 385-165 New partnership can elect to be treated as same entity as old partnership 614 385-170 New partnership can elect to take advantage of election made by former owner of the business 614 Division 392-Long-term averaging of primary producers' tax liability 615 Guide to Division 392 615 392-1 What this Division is about 615 392-5 Overview of averaging process 615 Subdivision 392-A-Is your income tax affected by averaging? 618 392-10 Individuals who carry on a primary production business 618 392-15 Meaning of basic taxable income 619 392-20 Trust beneficiaries taken to be carrying on primary production business 620 392-25 Choosing not to have your income tax averaged 620 Subdivision 392-B-What kind of averaging adjustment must you make? 621 Guide to Subdivision 392-B 621 392-30 What this Subdivision is about 621 Tax offset or extra income tax 621 392-35 Will you get a tax offset or have to pay extra income tax? 621 How to work out the comparison rate 623 392-40 Identify income years for averaging your basic taxable income 623 392-45 Work out your average income for those years 624 392-50 Work out the income tax on your average income at basic rates 624 392-55 Work out the comparison rate 624 Subdivision 392-C-How big is your averaging adjustment? 625 Guide to Subdivision 392-C 625 392-60 What this Subdivision is about 625 392-65 What your averaging adjustment reflects 625 Your gross averaging amount 627 392-70 Working out your gross averaging amount 627 Your averaging adjustment 627 392-75 Working out your averaging adjustment 627 How to work out your averaging component 627 392-80 Work out your taxable primary production income 627 392-85 Work out your taxable non-primary production income 629 392-90 Work out your averaging component 630 Subdivision 392-D-Effect of permanent reduction of your basic taxable income 631 392-95 You are treated as if you had not carried on business before 631 Division 394-Forestry managed investment schemes 633 Guide to Division 394 633 394-1 What this Division is about 633 394-5 Object of this Division 633 394-10 Deduction for amounts paid under forestry managed investment schemes 634 394-15 Forestry managed investment schemes and related concepts 635 394-20 Payments on behalf of participant in forestry managed investment scheme 636 394-25 CGT event in relation to forestry interest in forestry managed investment scheme-initial participant 636 394-30 CGT event in relation to forestry interest in forestry managed investment scheme-subsequent participant 637 394-35 70% DFE rule 639 394-40 Payments under forestry managed investment scheme 640 394-45 Direct forestry expenditure 640 Division 396-Land transport facilities borrowings 643 Guide to Division 396 643 396-5 What this Division is about 643 Subdivision 396-A-Key operative provisions 644 Guide to Subdivision 396-A 644 396-10 What this Subdivision is about 644 Operative provisions 644 396-15 Tax offset for LTF interest on land transport facilities borrowings 644 396-20 Maximum cost to Commonwealth 645 396-25 Borrower cannot deduct LTF interest for which lender has tax offset 645 Subdivision 396-B-What LTF interest is covered? 646 Guide to Subdivision 396-B 646 Operative provisions 646 396-30 What is LTF interest? 646 396-35 Interest covered by land transport facilities borrowings agreement 647 396-40 Interest ceasing to be covered by a land transport facilities borrowings agreement 647 Subdivision 396-C-Projects, borrowers and lenders 648 Guide to Subdivision 396-C 648 Operative provisions 648 396-45 What projects can be approved? 648 396-50 Who can be approved as a borrower? 649 396-55 Who can be a lender? 650 Subdivision 396-D-Application, approval and agreement process 650 Guide to Subdivision 396-D 650 Operative provisions 650 396-60 Applications 650 396-65 Minister or Commissioner may seek more information 651 396-70 Transport Minister to consider applications 651 396-75 Selection criteria 652 396-80 Land transport facilities borrowings agreements 653 396-85 Conditions to be in all agreements 653 396-90 Variation of agreements 655 Subdivision 396-E-Miscellaneous 655 396-95 Provision of information 655 396-100 Publication of information about approvals and agreements 656 396-105 Delegation by Transport Minister 656 396-110 Decision by Transport Minister not reviewable by AAT 656 Division 402-Environment protection expenditure 657 Guide to Division 402 657 402-1 What this Division is about 657 Subdivision 402-W-Urban water tax offset 657 Guide to Subdivision 402-W 657 402-750 What this Subdivision is about 657 402-755 Entitlement to urban water tax offset 658 402-760 Certificates 658 402-765 Amount of urban water tax offset 659 402-770 Revoking certificates 660 402-775 AAT review 661 402-780 Guidelines 661 Division 405-Above-average special professional income of authors, inventors, performing artists, production associates and sportspersons 662 Guide to Division 405 662 405-1 What this Division is about 662 405-5 Special rate of income tax on your above-average special professional income 663 405-10 Overview of the Division 664 Subdivision 405-A-Above-average special professional income 665 405-15 When do you have above-average special professional income? 665 Subdivision 405-B-Assessable professional income 666 405-20 What you count as assessable professional income 666 405-25 Meaning of special professional, performing artist, production associate, sportsperson and sporting competition 668 405-30 What you cannot count as assessable professional income 670 405-35 Limits on counting amounts as assessable professional income 671 405-40 Joint author or inventor treated as sole author or inventor 672 Subdivision 405-C-Taxable professional income and average taxable professional income 672 405-45 Working out your taxable professional income 672 405-50 Working out your average taxable professional income 673 Division 410-Copyright collecting societies 675 410-1 What this Division is about 675 Operative provision 675 410-5 Copyright collecting society must give a notice to a member of the society 675 Part 3-10-Financial transactions Division 230-Taxation of financial arrangements Table of Subdivisions Guide to Division 230 230-A Core rules 230-B The accruals/realisation methods 230-C Fair value method 230-D Foreign exchange retranslation method 230-E Hedging financial arrangements method 230-F Reliance on financial reports 230-G Balancing adjustment on ceasing to have a financial arrangement 230-H Exceptions 230-I Other provisions 230-J Additional operation of Division Guide to Division 230 230-1 What this Division is about This Division is about the tax treatment of gains and losses from your financial arrangements. You recognise the gains and losses, as appropriate, over the life of a financial arrangement and ignore distinctions between income and capital unless specific rules apply. If it is sufficiently certain that you will make a gain or loss, you use a compounding accruals method to recognise the gain or loss. Otherwise you use a realisation method. Instead of either, you may be able to choose to use a fair value or hedging method or to rely on your financial reports. You may also be able to choose to recognise foreign exchange gains and losses using a retranslation method. 230-5 Scope of this Division (1) You have a financial arrangement if you have one or more cash settlable legal or equitable rights and/or obligations to receive or provide a financial benefit. (2) This Division does not apply to all financial arrangements. The main exceptions are if: (a) you are: (i) an individual; or (ii) a superannuation entity, managed investment scheme or an entity substantially similar to a managed investment scheme under foreign law with assets of less than $100 million; or (iii) an ADI, securitisation vehicle or other financial sector entity with an aggregated turnover of less than $20 million; or (iv) 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; and either: (iv) the arrangement is to end not more than 12 months after you start to have it; or (v) the arrangement is not a qualifying security; or (b) the arrangement is a financial arrangement under section 230-50 (equity interests etc.) and neither a fair value election, a hedging financial arrangement election nor an election to rely on financial reports applies to the arrangement. Note: Section 230-455 provides for the exceptions referred to in paragraph (a). Subdivision 230-A-Core rules Table of sections Objects 230-10 Objects of this Division Tax treatment of gains and losses from financial arrangements 230-15 Gains are assessable and losses deductible 230-20 Gain or loss to be taken into account only once under this Act 230-25 Associated financial benefits to be taken into account only once under this Act 230-30 Treatment of gains and losses related to exempt income and non-assessable non-exempt income 230-35 Treatment of gains and losses of private or domestic nature Method to be applied to take account of gain or loss 230-40 Methods for taking gain or loss into account Financial arrangement concept 230-45 Financial arrangement 230-50 Financial arrangement (equity interest or right or obligation in relation to equity interest) 230-55 Rights, obligations and arrangements (grouping and disaggregation rules) General rules 230-60 When financial benefit provided or received under financial arrangement 230-65 Amount of financial benefit relating to more than one financial arrangement etc. 230-70 Apportionment when financial benefit received or right ceases 230-75 Apportionment when financial benefit provided or obligation ceases 230-80 Consistency in working out gains or losses (integrity measure) 230-85 Rights and obligations include contingent rights and obligations Objects 230-10 Objects of this Division The objects of this Division are: (a) to minimise the extent to which the tax treatment of gains and losses from your *financial arrangements distorts, by providing inappropriate impediments and stimulation, your trading, financing and investment decisions and your risk taking and risk management; and (b) to do so by aligning more closely the tax and commercial recognition of gains and losses from your financial arrangements in the following ways: (i) by allocating the gains and losses to income years throughout the life of your financial arrangements on a reasonable basis; (ii) by generally recognising gains and losses on revenue rather than capital account; and (c) to appropriately take account of, and minimise, your compliance costs. Tax treatment of gains and losses from financial arrangements 230-15 Gains are assessable and losses deductible Gains (1) Your assessable income includes a gain you make from a *financial arrangement. Note: This Division does not apply to gains that are subject to exceptions under Subdivision 230-H. Losses (2) You can deduct a loss you make from a *financial arrangement, but only to the extent that: (a) you make it in gaining or producing your assessable income; or (b) you necessarily make it in carrying on a *business for the purpose of gaining or producing your assessable income. Note: This Division does not apply to losses that are subject to exceptions under Subdivision 230-H. (3) You can also deduct a loss you make from a *financial arrangement if: (a) you are an *Australian entity; and (b) you make the loss in deriving income from a foreign source; and (c) the income is *non-assessable non-exempt income under section 23AI, 23AJ or 23AK of the Income Tax Assessment Act 1936; and (d) the loss is, in whole or in part, a cost in relation to a *debt interest you issue that is covered by paragraph 820-40(1)(a). You can deduct the loss only to the extent to which it is a cost in relation to a *debt interest you issue that is covered by paragraph 820-40(1)(a). Note: This Division does not apply to losses that are subject to exceptions under Subdivision 230-H. (4) If the *financial arrangement is a *debt interest, the loss is not prevented from being deductible for an income year under subsection (2) merely because of either or both of the following: (a) one or more of the *financial benefits that are taken into account in working out the amount of the loss are *contingent on the economic performance (whether past, current or future) of: (i) you or a part of your activities; or (ii) a *connected entity of yours or a part of the activities of a connected entity of yours; (b) one or more of the financial benefits that are taken into account in working out the amount of the loss secure a permanent or enduring benefit for you or a connected entity of yours. (5) Subject to subsection (6), subsection (4) does not apply to the loss to the extent to which the annually compounded internal rate of return on the *debt interest exceeds the *benchmark rate of return for the debt interest increased by 150 basis points. (6) If: (a) regulations made for the purposes of subsection 25-85(6) provide that a specified number of basis points is to apply for the purposes of applying subsection 25-85(5) in particular circumstances; and (b) those circumstances exist in relation to the *debt interest; subsection (5) applies as if the reference in that subsection to 150 basis points were a reference to the number of basis points specified in the regulations. Division does not affect foreign residence rules (7) Nothing in this Division affects the operation of the provisions of Division 6 that provide for the significance of foreign residence for the assessability of ordinary and statutory income. Note 1: Gains that you make under this Division may be ordinary or statutory income for the purposes of Division 6. Note 2: For the effect of a change of residence during an income year, see sections 230-485 and 230-490. 230-20 Gain or loss to be taken into account only once under this Act Application of section (1) This section applies to the following: (a) a gain that is included in your assessable income for an income year under this Division; (b) a loss that is allowable as a deduction to you for an income year under this Division; (c) a gain or a loss that is dealt with in accordance with subsection 230-310(4) in relation to an income year. Purpose of this section (2) The purpose of this section is to ensure that your gains and losses, and *financial benefits, to which this section applies are taken into account only once under this Act in working out your taxable income. Gain or loss to be taken into account only once (3) A gain or loss to which this section applies is not to be (to any extent): (a) included in your assessable income; or (b) allowable as a deduction to you; or (c) dealt with in accordance with subsection 230-310(4); again under this Division for the same or any other income year. (4) A gain or loss to which this section applies is not to be (to any extent): (a) included in your assessable income; or (b) allowable as a deduction to you; under any provisions of this Act outside this Division for the same or any other income year. Section does not give rise to exempt income (5) A gain is not to be treated as *exempt income merely because it is not included in your assessable income under this section. 230-25 Associated financial benefits to be taken into account only once under this Act Application of section (1) This section applies to a *financial benefit whose amount or value is taken into account in working out whether you make, or the amount of, a gain or loss to which paragraph 230-20(1)(a), (b) or (c) applies. Associated financial benefit to be taken into account only once (2) A *financial benefit to which this section applies is not to be (to any extent): (a) included in your assessable income; or (b) allowable as a deduction to you; under any provision of this Act outside this Division for the same or any other income year. Exception for certain bad debts (3) If: (a) a *financial benefit has been included in your assessable income under a provision of this Act outside this Division; and (b) a bad debt deduction would have been allowed under section 25- 35 in relation to the financial benefit; subsection (2) does not prevent that bad debt deduction from being allowed under section 25-35 in relation to the financial benefit as if the debt were still outstanding. Section does not give rise to exempt income (4) A *financial benefit is not to be treated as *exempt income merely because it is not included in your assessable income under this section. 230-30 Treatment of gains and losses related to exempt income and non- assessable non-exempt income (1) Despite section 230-15, a gain that you make from a *financial arrangement: (a) to the extent that it reflects an amount that would be treated, or would reasonably expected to be treated, as *exempt income under a provision of this Act if this Division were disregarded- is exempt income; and (b) to the extent that it reflects an amount that would be treated or would reasonably expected to be treated, as *non-assessable non-exempt income under a provision of this Act if this Division were disregarded-is not assessable income and is not exempt income. (2) Despite section 230-15, a gain that you make from a *financial arrangement: (a) to the extent that, if it had been a loss, you would have made it in gaining or producing *exempt income-is exempt income; and (b) to the extent to which, if it had been a loss, you would have made it in gaining or producing *non-assessable non-exempt income-is not assessable income and is not exempt income. (3) A loss you make from a *financial arrangement is not allowable as a deduction to you under any provision of this Act (other than subsection 230-15(3)) to the extent that you make it in gaining or producing your: (a) *exempt income; or (b) *non-assessable non-exempt income. 230-35 Treatment of gains and losses of private or domestic nature Borrowings etc. used for private or domestic purpose (1) Subsections (2) and (3) apply if: (a) a *borrowing is made by you, or credit is provided to you, under a *financial arrangement; and (b) you use some or all of the funds borrowed or the credit provided for a private or domestic purpose. (2) This Division does not apply to a gain you make from the arrangement to the extent that you use the funds raised or the credit provided for a private or domestic purpose. (3) A loss you make from the arrangement is not allowable as a deduction to you under any provision of this Act to the extent that you use the funds raised or the credit provided for a private or domestic purpose. Derivative financial arrangement held for private or domestic purpose (4) Subsections (5) and (6) apply if: (a) you are an individual; and (b) you make a gain or loss from a *derivative financial arrangement; and (c) the arrangement is held, wholly or in part, for a private or domestic purpose. (5) This Division does not apply to a gain you make from the arrangement to the extent that the arrangement is held or used for a private or domestic purpose. (6) A loss you make from the arrangement is not allowable as a deduction to you under any provision of this Act to the extent that the arrangement is held or used for a private or domestic purpose. Method to be applied to take account of gain or loss 230-40 Methods for taking gain or loss into account Methods available (1) The methods that can be applied to take account of a gain or loss you make from a *financial arrangement are: (a) the accruals and realisation methods provided for in Subdivision 230-B; or (b) the fair value method provided for in Subdivision 230-C; or (c) the foreign exchange retranslation method provided for in Subdivision 230-D; or (d) the hedging financial arrangement method provided for in Subdivision 230-E; or (e) the method of relying on your financial reports provided for in Subdivision 230-F; or (f) a balancing adjustment provided for in Subdivision 230-G. Note: The methods referred to in paragraphs (b) to (e) only apply if you make an election under the relevant Subdivision and you must meet certain requirements before you can make such an election. (2) A gain or loss is not taken into account under any of the methods referred to in paragraphs (1)(a), (b), (c) and (e) to the extent to which it is taken into account under the method referred to in paragraph (1)(f) (balancing adjustment). (3) A gain or loss is not taken into account under the method referred to in paragraph (1)(f) (balancing adjustment) to the extent to which it is taken into account under the method referred to in paragraph (1)(d) (hedging financial arrangement method). Note: The hedging financial arrangement method may take some account of the gain or loss by reference to the balancing adjustment method (see subsection 230-300(5)). Elections override accruals and realisation methods (4) Subdivision 230-B (accruals and realisation method) does not apply to a gain or loss you make from a *financial arrangement: (a) if Subdivision 230-C (fair value method) applies to the arrangement; or (b) to the extent that Subdivision 230-D (foreign exchange retranslation method) applies to the gain or loss; or (c) to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement; or (d) if Subdivision 230-F (method of relying on financial reports) applies to the arrangement; or (e) if the arrangement is a financial arrangement under section 230- 50 (equity interests etc.). Priorities among election methods (5) Subdivision 230-C (fair value method) does not apply to a gain or loss you make from a *financial arrangement: (a) to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement; or (b) if Subdivision 230-F (method of relying on financial reports) applies to the arrangement. (6) Subdivision 230-D (foreign exchange retranslation method) does not apply to a gain or loss you make from a *financial arrangement: (a) if Subdivision 230-C (fair value method) applies to the arrangement; or (b) to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement; or (c) if Subdivision 230-F (method of relying on financial reports) applies to the arrangement. (7) Subdivision 230-F (method of relying on financial reports) does not apply to a gain or loss you make from a *financial arrangement to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement. Financial arrangement concept 230-45 Financial arrangement (1) You have a financial arrangement if you have, under an *arrangement: (a) a *cash settlable legal or equitable right to receive a *financial benefit; or (b) a cash settlable legal or equitable obligation to provide a financial benefit; or (c) a combination of one or more such rights and/or one or more such obligations; unless: (d) you also have under the arrangement one or more legal or equitable rights to receive something and/or one or more legal or equitable obligations to provide something; and (e) for one or more of the rights and/or obligations covered by paragraph (d): (i) the thing that you have the right to receive, or the obligation to provide, is not a financial benefit; or (ii) the right or obligation is not cash settlable; and (f) the one or more rights and/or obligations covered by paragraph (e) are not insignificant in comparison with the right, obligation or combination covered by paragraph (a), (b) or (c). The right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement. Note 1: Whether your rights and/or obligations under an arrangement constitute a financial arrangement can change over time depending on changes either to the terms of the arrangement or external circumstances (such as particular rights or obligations under the arrangement being satisfied by the parties). For example, a contract may provide for the transfer of a boat in 6 months time and payment of the contract price at the end of 2 years. Until the boat is delivered, there is no financial arrangement because of the operation of paragraphs (d), (e) and (f) above. Once the boat is delivered, there is a financial arrangement because those paragraphs are no longer applicable. Note 2: The operative provisions of this Division do not apply to all financial arrangements, and only apply partially to some: see the exceptions in Subdivision 230-H. Note 3: There are some rules in this Division that tell you what happens if an arrangement ceases to be a financial arrangement (see Subdivision 230-G and section 230-505). (2) A right you have to receive, or an obligation you have to provide, a *financial benefit is cash settlable if, and only if: (a) the benefit is money or a *money equivalent; or (b) in the case of a right-you intend to satisfy or settle it by receiving money or a money equivalent or by starting to have, or ceasing to have, another *financial arrangement; or (c) in the case of an obligation-you intend to satisfy or settle it by providing money or a money equivalent or by starting to have, or ceasing to have, another financial arrangement; or (d) you have a practice of satisfying or settling similar rights or obligations as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way); or (e) you deal with the right or obligation, or with similar rights or obligations, in order to generate a profit from short-term fluctuations in price, from a dealer's margin, or from both; or (f) none of paragraphs (a) to (e) applies but you satisfy subsection (3); or (g) you are able to settle the right or obligation as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way) and you do not have, as your sole or dominant purpose for entering into the arrangement under which you are to receive or provide the financial benefit, the purpose of receiving or delivering the financial benefit as part of your expected purchase, sale or usage requirements. A reference in paragraph (b) or (c) to a financial arrangement does not include a reference to something that is a financial arrangement under section 230-50. Note: Examples of dealing of the kind covered by paragraph (e) are: (a) dealing with the right or obligation, or similar rights or obligations, on a frequent basis, a short-term basis or on a frequent and short-term basis; and (b) acquiring the right or obligation, or similar rights or obligations, and managing the resulting risk by entering into offsetting arrangements that provide a profit margin. (3) You satisfy this subsection if: (a) the *financial benefit is readily convertible into money or a *money equivalent; and (b) there is a market for the financial benefit that has a high degree of liquidity; and (c) either: (i) the amount of the money or money equivalent referred to in paragraph (a) is not subject to a substantial risk of change in value; or (ii) your purpose, or one of your purposes, for entering into the arrangement under which you are to receive or provide the financial benefit, is to receive or deliver the financial benefit so that it may be converted or liquidated into money or a money equivalent (other than in the ordinary course of business). 230-50 Financial arrangement (equity interest or right or obligation in relation to equity interest) (1) You also have a financial arrangement if you have an *equity interest. The equity interest constitutes the financial arrangement. (2) You also have a financial arrangement if: (a) you have, under an *arrangement: (i) a legal or equitable right to receive something that is a financial arrangement under this section; or (ii) a legal or equitable obligation to provide something that is a financial arrangement under this section; or (iii) a combination of one or more such rights and/or obligations; and (b) the right, obligation or combination does not constitute, or form part of, a financial arrangement under subsection 230- 45(1). The right, obligation or combination referred to in paragraph (a) constitutes the financial arrangement. Note 1: Paragraph 230-40(4)(e) prevents the accruals method or the realisation method being applied to something that is a financial arrangement under this section. Note 2: Subsection 230-270(1) prevents the retranslation method being applied to something that is a financial arrangement under this section. Note 3: Subsection 230-330(1) prevents the hedging method being applied to something that is a financial arrangement under this section. 230-55 Rights, obligations and arrangements (grouping and disaggregation rules) Single right or obligation or multiple rights or obligations? (1) If you have a right to receive 2 or more *financial benefits, you are taken, for the purposes of this Division, to have a separate right to receive each of those financial benefits. (2) If you have an obligation to provide 2 or more *financial benefits, you are taken, for the purposes of this Division, to have a separate obligation to provide each of those financial benefits. (3) Subsections (1) and (2) apply for the avoidance of doubt. Matters relevant to determining what rights and/or obligations constitute particular arrangements (4) For the purposes of this Division, whether a number of rights and/or obligations are themselves an *arrangement or are 2 or more separate arrangements is a question of fact and degree that you determine having regard to the following: (a) the nature of the rights and/or obligations; (b) their terms and conditions (including those relating to any payment or other consideration for them); (c) the circumstances surrounding their creation and their proposed exercise or performance (including what can reasonably be seen as the purposes of one or more of the entities involved); (d) whether they can be dealt with separately or must be dealt with together; (e) normal commercial understandings and practices in relation to them (including whether they are regarded commercially as separate things or as a group or series that forms a whole); (f) the objects of this Division. In applying this subsection, have regard to the matters referred to in paragraphs (a) to (f) both in relation to the rights and/or obligations separately and in relation to the rights and/or obligations in combination with each other. Example 1: Your rights and obligations under a typical convertible note, including the right to convert the note into a share or shares, would constitute one arrangement. Example 2: Your rights and obligations under a typical price- linked or index-linked bond would constitute one arrangement. Note 1: If you raised funds by means of a contract that you would not have entered into without entering into another contract, and neither contract could be assigned to a third party without the other also being assigned, this would tend to indicate that your rights and obligations under the 2 contracts together constitute one arrangement. Note 2: If the commercial effect of your individual rights and/or obligations in a group or series cannot be understood without reference to the group or series as a whole, this would tend to indicate that all of your rights and/or obligations in the group or series together constitute one arrangement. General rules 230-60 When financial benefit provided or received under financial arrangement Financial benefit provided under financial arrangement (1) You are taken, for the purposes of this Division, to have (or to have had) an obligation to provide a *financial benefit under a *financial arrangement if: (a) you have (or had) an obligation to provide the financial benefit in relation to the arrangement; and (b) the financial benefit would not otherwise be treated as one that you have (or had) an obligation to provide under the arrangement; and (c) the financial benefit plays an integral role in determining: (i) whether you make a gain or loss from the arrangement; or (ii) the amount of such a gain or loss. Paragraph (a) applies even if the entity to which you provide the financial benefit is not a party to the arrangement. Note: This means that the financial benefits you provide to acquire the financial arrangement (whether to the issuer, a previous holder or a third party) are taken to be financial benefits you provide under the arrangement. The financial benefits you provide may include, for example, fees paid or the forgoing of rights to receive a financial benefit. Financial benefit received under financial arrangement (2) You are taken, for the purposes of this Division, to have (or to have had) a right to receive a *financial benefit under a *financial arrangement if: (a) you have (or had) a right to receive the financial benefit in relation to the arrangement; and (b) the financial benefit would not otherwise be treated as one that you have (or had) a right to receive under the arrangement; and (c) the financial benefit plays an integral role in determining: (i) whether you make a gain or loss from the arrangement; or (ii) the amount of such a gain or loss. Paragraph (a) applies even if the entity that provides the financial benefit is not a party to the arrangement. Note: The financial benefits you receive may include, for example, the waiving of an obligation you have to provide a financial benefit. 230-65 Amount of financial benefit relating to more than one financial arrangement etc. (1) This section applies if: (a) a *financial benefit plays the integral role mentioned in paragraph 230-60(1)(c) or (2)(c) in relation to a *financial arrangement; and (b) either or both of the following apply: (i) the financial benefit plays that role in relation to one or more other financial arrangements; (ii) the financial benefit is provided or received for one or more other things that are not financial arrangements. (2) For the purposes of this Division, determine the amount of the *financial benefit that plays that role in relation to a particular *financial arrangement by apportioning the actual amount of the financial benefit, on a reasonable basis, between: (a) that financial arrangement; and (b) each other financial arrangement (if any) in relation to which the benefit plays that role; and (c) each other thing (if any) mentioned in subparagraph (1)(b)(ii). 230-70 Apportionment when financial benefit received or right ceases (1) Apply subsection (2) in working out whether you make, or will make, a gain or loss (and the amount of the gain or loss) at a time when: (a) you receive a particular *financial benefit under a *financial arrangement; or (b) one of your rights under a financial arrangement *ceases. The gain or loss is to be calculated in nominal (and not *present value) terms. (2) You must have regard to the extent to which the *financial benefits that you have provided, or are to provide, under the *financial arrangement are reasonably attributable, at the time mentioned in subsection (1), to the benefit or right referred to in paragraph (1)(a) or (b). (3) Any attribution made under subsection (2) must reflect appropriate and commercially accepted valuation principles that properly take into account: (a) the nature of the rights and obligations under the *financial arrangement; and (b) the risks associated with each *financial benefit, right and obligation under the arrangement; and (c) the time value of money. (4) Despite subsection (2), no *financial benefit that you have provided, or are to provide, under the *financial arrangement is to be attributed to the benefit or right referred to in paragraph (1)(a) or (b) if: (a) you are working out the amount of a gain or loss for the purposes of Subdivision 230-B; and (b) the gain or loss is not an overall gain or loss from the arrangement (within the meaning of that Subdivision) at the time when you start to have the arrangement; and (c) the benefit or right referred to in paragraph (1)(a) or (b) is an amount that represents, or is a right to an amount that represents: (i) interest; or (ii) a *return paid or provided on a *debt interest; or (iii) something that is in the nature of interest; or (iv) something that could reasonably be regarded as being a substitute for interest; or (v) something prescribed by the regulations for the purposes of this paragraph. Note 1: An example of something in the nature of interest is a discount on a security. Note 2: An example of something that could reasonably be regarded as being a substitute for interest is a lump sum payment received instead of payments of interest. 230-75 Apportionment when financial benefit provided or obligation ceases (1) Apply subsection (2) in working out whether you make, or will make, a gain or loss (and the amount of the gain or loss) at a time when: (a) you provide a particular *financial benefit under the *financial arrangement; or (b) one of your obligations under a financial arrangement *ceases. The gain or loss is to be calculated in nominal (and not *present value) terms. (2) You must have regard to the extent to which the *financial benefits that you have received, or are to receive, under the *financial arrangement are reasonably attributable, at the time mentioned in subsection (1), to the benefit or obligation referred to in paragraph (1)(a) or (b). (3) Any attribution made under subsection (2) must reflect appropriate and commercially accepted valuation principles that properly take into account: (a) the nature of the rights and obligations under the *financial arrangement; and (b) the risks associated with each *financial benefit, right and obligation under the arrangement; and (c) the time value of money. (4) Despite subsection (2), no *financial benefit that you have received, or are to receive, under the *financial arrangement is to be attributed to the benefit or obligation referred to in paragraph (1)(a) or (b) if: (a) you are working out the amount of a gain or loss for the purposes of Subdivision 230-B; and (b) the gain or loss is not an overall gain or loss from the arrangement (within the meaning of that Subdivision) at the time when you start to have the arrangement; and (c) the benefit or obligation referred to in paragraph (1)(a) or (b) is an amount that represents, or is an obligation to provide an amount that represents: (i) interest; or (ii) a *return paid or provided on a *debt interest; or (iii) something that is in the nature of interest; or (iv) something that could reasonably be regarded as being a substitute for interest; or (v) something prescribed by the regulations for the purposes of this paragraph. Note 1: An example of something in the nature of interest is a discount on a security. Note 2: An example of something that could reasonably be regarded as being a substitute for interest is a lump sum payment made instead of payments of interest. 230-80 Consistency in working out gains or losses (integrity measure) Object of section (1) The object of this section is to stop you obtaining an inappropriate tax benefit from not working out your gains and losses in a consistent manner. Consistent treatment for particular financial arrangement (2) If: (a) this Division provides that a particular method applies to gains or losses you make from a *financial arrangement; and (b) that method allows you to choose the particular manner in which you apply that method; you must use that manner consistently for the arrangement for all income years. Consistent treatment for financial arrangements of essentially the same nature (3) If: (a) this Division provides that a particular method applies to gains or losses you make from 2 or more *financial arrangements; and (b) that method allows you to choose the particular manner in which you apply that method; you must use that same manner consistently for all of those financial arrangements that are essentially of the same nature. 230-85 Rights and obligations include contingent rights and obligations To avoid doubt: (a) a right is treated as a right for the purposes of this Division even it is subject to a contingency; and (b) an obligation is treated as an obligation for the purposes of this Division even if it is subject to a contingency. Subdivision 230-B-The accruals/realisation methods Table of sections Guide to Subdivision 230-B 230-90 What this Subdivision is about Objects of Subdivision 230-95 Objects of this Subdivision When accruals method or realisation method applies 230-100 When accruals method or realisation method applies 230-105 Sufficiently certain overall gain or loss 230-110 Sufficiently certain gain or loss from particular event 230-115 Sufficiently certain financial benefits 230-120 Financial arrangements with notional principal The accruals method 230-125 Overview of the accruals method 230-130 Applying accruals method to work out period over which gain or loss is to be spread 230-135 How gain or loss is spread 230-140 Method of spreading gain or loss-effective interest method 230-145 Application of effective interest method where differing income and accounting years 230-150 Election for portfolio treatment of fees 230-155 Election for portfolio treatment of fees where differing income and accounting years 230-160 Portfolio treatment of fees 230-165 Portfolio treatment of premiums and discounts for acquiring portfolio 230-170 Allocating gain or loss to income years 230-175 Running balancing adjustments Realisation method 230-180 Realisation method Reassessment and re-estimation 230-185 Reassessment 230-190 Re-estimation 230-195 Balancing adjustment if rate of return maintained on re- estimation 230-200 Re-estimation if balancing adjustment on partial disposal Guide to Subdivision 230-B 230-90 What this Subdivision is about This Subdivision applies the accruals method to determine the amount and timing of gains and losses from a financial arrangement if they are sufficiently certain for such accrual to be done. This Subdivision applies the realisation method to determine the amount and timing of gains and losses if they are not sufficiently certain to be dealt with under the accruals method. If the accruals method is applied to a gain or loss on the basis of an estimate of a financial benefit and the benefit when received or provided is more or less than the estimate, a balancing adjustment is made to correct for the underestimate or overestimate. If the accruals method is being applied to gains and losses from the arrangement and there is a material change to the arrangement, or the circumstances in which it operates, a reassessment is made of whether the accruals method or the realisation method should apply to gains and losses from the arrangement. A change in circumstances may also cause a re-estimation of gains and losses that the accruals method is being applied to. Objects of Subdivision 230-95 Objects of this Subdivision The objects of this Subdivision are: (a) to properly recognise gains and losses from *financial arrangements by allocating them to appropriate periods of time; and (b) to reduce compliance costs by reflecting commercial accounting concepts where appropriate; and (c) to minimise tax deferral. When accruals method or realisation method applies 230-100 When accruals method or realisation method applies When accruals method applies and when realisation method applies (1) This section tells you when to apply the accruals method and when to apply the realisation method if this Subdivision applies to gains and losses from a *financial arrangement. Accruals method-sufficiently certain overall gain or loss at start time (2) The accruals method provided for in this Subdivision applies to a gain or loss you make from a *financial arrangement if: (a) the gain or loss is an overall gain or loss from the arrangement; and (b) the gain or loss is sufficiently certain at the time when you start to have the arrangement. Note: Subsection 230-105(1) tells you when you have a sufficiently certain overall gain or loss. Accruals method-sufficiently certain particular gain or loss (3) The accruals method provided for in this Subdivision also applies to a gain or loss you make from a *financial arrangement if: (a) the gain or loss arises from a *financial benefit that you are to receive or are to provide under the arrangement; and (b) the gain or loss: (i) is sufficiently certain at the time when you start to have the arrangement and before you are to receive or provide the benefit; or (ii) becomes sufficiently certain after the time when you start to have the arrangement and before you are to receive or provide the benefit; and (c) the benefit has not already been taken into account in applying: (i) the accruals method provided for in this Subdivision; or (ii) the realisation method provided for in this Subdivision; to another gain or loss from the arrangement. This subsection has effect subject to subsection (4). Note: Subsection 230-110(1) tells you when you have a sufficiently certain gain or loss at a particular time. (4) Subsection (3) does not apply to a gain or loss that you make from a *financial arrangement if: (a) you are: (i) an individual; or (ii) an entity (other than an individual) that satisfies subsection 230-455(2), (3) or (4) for the income year in which you start to have the arrangement; and (b) the arrangement is a *qualifying security; and (c) you have not made an election under subsection 230-455(7). Realisation method-gain or loss not sufficiently certain (5) The realisation method provided for in this Subdivision applies to a gain or loss that you make from a *financial arrangement if the accruals method provided for in this Subdivision does not apply to that gain or loss. Note: Section 230-180 tells you how to apply the realisation method to the gain or loss. 230-105 Sufficiently certain overall gain or loss (1) You have a sufficiently certain overall gain or loss from a *financial arrangement at the time when you start to have the arrangement only if it is sufficiently certain at that time that you will make an overall gain or loss from the arrangement of: (a) a particular amount; or (b) at least a particular amount. The amount of the gain or loss is the amount referred to in paragraph (a) or (b). Note: Sections 230-70 and 230-75 (about apportionment of financial benefits) only apply in working out whether you make, or will make, a gain or loss (and the amount of the gain or loss) when particular events happen. They do not apply in working out, at the time when you start to have a financial arrangement, whether it is sufficiently certain that you will make an overall gain or loss from the arrangement. (2) In applying subsection (1), you must: (a) assume that you will continue to have the *financial arrangement for the rest of its life; and (b) have regard to the extent of the risk that a *financial benefit that you are not sufficiently certain to provide or receive under the arrangement may reduce the amount of the gain or loss. 230-110 Sufficiently certain gain or loss from particular event (1) You have a sufficiently certain gain or loss from a *financial arrangement at a particular time if it is sufficiently certain at that time that you will make a gain or loss from the arrangement of: (a) a particular amount; or (b) at least a particular amount; when one of the following occurs: (c) you receive a particular *financial benefit under the arrangement or one of your rights under the arrangement *ceases; (d) you provide a particular financial benefit under the arrangement or one of your obligations under the arrangement ceases. The amount of the gain or loss is the amount referred to in paragraph (a) or (b). (2) In applying subsection (1) to work out whether you have a sufficiently certain gain or loss at a particular time: (a) have regard to the extent of the risk that a *financial benefit that you are not sufficiently certain to provide or receive under the arrangement may reduce the amount of the gain or loss; and (b) disregard any financial benefit that has already been taken into account in working out the amount of a sufficiently certain overall gain or loss from the *financial arrangement under subsection 230-105(1) at the time when you started to have the arrangement; and (c) disregard any financial benefit (or that part of any financial benefit) that has already been taken into account in working out the amount of a sufficiently certain gain or loss from the *financial arrangement under subsection (1). Note: Sections 230-70 and 230-75 allow you to apportion financial benefits provided and financial benefits received in working out the amount of a gain or loss. 230-115 Sufficiently certain financial benefits (1) In deciding for the purposes of this Subdivision whether it is sufficiently certain at a particular time that you will make a gain or loss from a *financial arrangement, have regard only to: (a) *financial benefits that you are sufficiently certain to receive; and (b) financial benefits that you are sufficiently certain to provide. Note: The particular time may be the time at which you start to have the arrangement. (2) A *financial benefit that you are to receive or provide is to be treated as one that you are sufficiently certain to receive or to provide only if: (a) it is reasonably expected that you will receive or provide the financial benefit (assuming that you will continue to have the *financial arrangement for the rest of its life); and (b) at least some of the amount or value of the benefit is, at that time, fixed or determinable with reasonable accuracy. (3) In applying subsection (2) to the *financial benefit: (a) you must have regard to: (i) the terms and conditions of the *financial arrangement; and (ii) accepted pricing and valuation techniques; and (iii) the economic or commercial substance and effect of the arrangement; and (iv) the contingencies that attach to the other financial benefits that are to be provided or received under the arrangement; and (b) you must treat the financial benefit as if it were not contingent if it is appropriate to do so having regard to the contingencies that attach to the other financial benefits that are to be received or provided under the arrangement. (4) In applying paragraph (2)(b) at a particular time (the reference time) to a *financial benefit that depends on a variable that is based on: (a) an interest rate; or (b) a rate that solely or primarily reflects the time value of money; or (c) a rate that solely or primarily reflects a consumer price index; or (d) a rate that solely or primarily reflects an index prescribed by the regulations for the purposes of this paragraph; you must assume that that variable will continue to have the value it has at the reference time. (5) Despite subsection (4), in applying paragraph (2)(b) at a particular time to a *financial benefit that depends on a rate of change to a variable that is based on: (a) a rate that solely or primarily reflects a consumer price index; or (b) a rate that solely or primarily reflects an index prescribed by the regulations for the purposes of this paragraph; you must assume that the rate of change to that variable will continue to be the rate of change that is current at that time. (6) If subsection (4) or (5) applies to a gain or loss and you are determining the amount of the gain or loss at a particular time, you must also assume that that variable will continue to have the value that it has at that time. (7) Subsections (4) and (5) do not limit paragraph (2)(b). (8) If all of the *financial benefits provided and received under the *financial arrangement are denominated in a particular foreign currency, those financial benefits are not to be translated into your *applicable functional currency for the purposes of applying subsection (2) to the arrangement. (9) To avoid doubt: (a) a *financial benefit that you have already provided at a particular time is taken to be one that it is, at that time, a financial benefit that you are sufficiently certain to provide; and (b) a financial benefit that you have already received at a particular time is taken to be one that it is, at that time, a financial benefit that you are sufficiently certain to receive. 230-120 Financial arrangements with notional principal (1) This section applies to a *financial arrangement that you have if, in substance or effect, and having regard to the pricing, terms and conditions of the arrangement: (a) the arrangement consists of these things: (i) a leg, the *financial benefits to be provided or received in respect of which are calculated by reference to, or are reasonably related to, a notional principal; (ii) another leg, the financial benefits to be provided or received in respect of which also are calculated by reference to, or are reasonably related to, a notional principal; (iii) if the arrangement includes one or more other things-those things; and (b) when you start to have the arrangement, the value of the notional principal in relation to one leg is equal to the value of the notional principal in relation to the other leg; and (c) all or part of the notional principal in relation to each leg is provided or received at a time, regardless of whether that time is different in relation to each leg. Example: A swap contract. (2) To avoid doubt, the *financial benefits mentioned in subparagraphs (1)(a)(i) and (ii), and the notional principal in relation to each leg, need not actually be provided or received. (3) In applying this Subdivision to the *financial arrangement: (a) work out the *financial benefits from the arrangement as follows: (i) work out the financial benefits from each thing of which the arrangement consists separately from the financial benefits from each other thing of which the arrangement consists; (ii) ensure that results under subparagraph (i) are consistent with the timing and amount of financial benefits to be actually provided or received under the arrangement; and (b) work out your gains and losses from the arrangement as follows: (i) work out the gains and losses from each thing of which the arrangement consists separately from the gains and losses from each other thing of which the arrangement consists; (ii) treat the gains and losses mentioned in subparagraph (i) for all of those things as your gains and losses from the arrangement; and (c) in working out a gain or loss from a thing for the purposes of subparagraph (b)(i), and, if the accruals method applies to the gain or loss, how it is to be spread and allocated: (i) if the thing is a leg-take into account the amount of the notional principal at a time and in a manner that properly reflects the way in which the financial benefits in respect of that leg are calculated; and (ii) if the thing is not a leg-take into account an amount relevant to the thing at a time and in a manner that properly reflects the way in which the financial benefits in respect of that thing are calculated. The accruals method 230-125 Overview of the accruals method If the accruals method applies to a gain or loss you make from a *financial arrangement: (a) you use section 230-130 to work out the period over which the gain or loss is to be spread; and (b) you use section 230-135 to work out how to allocate the gain or loss to particular intervals within the period over which the gain or loss is to be spread; and (c) if an interval to which part of the gain or loss is allocated straddles 2 income years, you use section 230-170 to work out how to allocate that part of the gain or loss allocated between those 2 income years. 230-130 Applying accruals method to work out period over which gain or loss is to be spread Period over which overall gain or loss is to be spread (1) If you have a sufficiently certain overall gain or loss from a *financial arrangement under subsection 230-105(1), the period over which the gain or loss is to be spread is the period that: (a) starts when you start to have the arrangement; and (b) ends when you will cease to have the arrangement. In applying paragraph (b), you must assume that you will continue to have the arrangement for the rest of its life. (2) However, if you have sufficiently certain gains or losses from the arrangement that: (a) can be spread under subsection (3); and (b) when considered together, represent adequately the overall gain or loss mentioned in subsection (1); you may spread those gains or losses in accordance with subsection (3) instead of spreading the overall gain or loss in accordance with subsection (1). Period over which particular gain or loss is to be spread (3) If you have a sufficiently certain gain or loss from a *financial arrangement under subsection 230-110(1), the period over which the gain or loss is to be spread is the period to which the gain or loss relates. Have regard to the pricing, terms and conditions of the arrangement in working out the period to which the gain or loss relates. This subsection has effect subject to subsections (4) and (5). (4) The start of the period over which a gain or loss to which subsection (3) applies is to be spread must: (a) not start earlier than the time when you start to have the *financial arrangement; and (b) not start earlier than the start of the income year during which it becomes sufficiently certain that you will make the gain or loss. (5) The end of the period over which a gain or loss to which subsection (3) applies is to be spread must: (a) not end later than the time when you will cease to have the *financial arrangement; and (b) not end later than the end of the income year during which: (i) the *financial benefit that gives rise to the gain or loss is to be received or provided; or (ii) the right or obligation whose *ceasing gives rise to the gain or loss is to cease. 230-135 How gain or loss is spread How to spread gain or loss (1) This section tells you how to spread a gain or loss to which the accruals method applies. Compounding accruals or approximation (2) The gain or loss is to be spread using: (a) compounding accruals; or (b) a method whose results approximate those obtained using the method referred to in paragraph (a) (having regard to the length of the period over which the gain or loss is to be spread). (3) The following subsections of this section clarify the way in which the gain or loss is to be spread in accordance with paragraph (2)(a). Intervals to which parts of gain or loss allocated (4) The intervals to which parts of the gain or loss are allocated must: (a) not exceed 12 months; and (b) all be of the same length. Paragraph (b) does not apply to the first and last intervals. These may be shorter than the other intervals. Fixing of amount and rate for interval (5) For each interval: (a) determine a rate of return; and (b) determine an amount to which you apply the rate of return. (6) For the purposes of paragraph (5)(b), in determining the amount to which you apply the rate of return for an interval, have regard to: (a) the amount or value; and (b) the timing; of *financial benefits that are to be taken into account in working out the amount of the gain or loss, and were provided or received by you during the interval. Assumption of continuing to hold arrangement for rest of its life (7) The gain or loss is to be spread assuming that you will continue to have the *financial arrangement for the rest of its life. Regard to be had to financial benefits provided or received in interval (8) In allocating the gain or loss to intervals, have regard to the *financial benefits to be provided or received in each of those intervals. 230-140 Method of spreading gain or loss-effective interest method (1) This section clarifies that the method mentioned in subsection (2) of spreading gains and losses is a method covered by paragraph 230-135(2)(b) (methods approximating compounding accruals). (2) The method is the effective interest method mentioned in *accounting standard AASB 139 (or another accounting standard prescribed by the regulations for the purposes of this subsection). (3) However, this section applies to a particular *financial arrangement you have only if: (a) in a case where there is a discount or premium under the arrangement-when you start to have the arrangement, the annually compounded rate of return applicable to the discount or premium does not exceed 1%; and (b) when you start to have the arrangement, neither the maximum life of the arrangement (as determined under the terms and conditions of the arrangement) nor the expected life of the arrangement exceeds: (i) unless subparagraph (ii) applies-30 years; or (ii) if the regulations prescribe a different period for the purposes of this subparagraph-that period; and (c) each *financial benefit that you have an obligation to provide or a right to receive under the arrangement, and that gives rise to a gain or loss from the arrangement (other than a gain or loss that is attributable to any discount or premium): (i) relates to a period not exceeding 12 months; and (ii) will be provided or received in the period to which it relates; and Note: Different financial benefits may relate to different periods. (d) you prepare a financial report for the year in which you start to have the arrangement; and (e) that financial report is: (i) prepared in accordance with paragraph 230-210(2)(a); and (ii) audited in accordance with paragraph 230-210(2)(b); and (f) all gains and losses from the arrangement to which the accrual method applies are spread in a way that is consistent with that financial report. (4) For the purposes of paragraph (3)(a), assume that you will continue to have the arrangement for the rest of its expected life. 230-145 Application of effective interest method where differing income and accounting years (1) This section applies if: (a) you prepare a financial report for a year (the first year); and (b) you prepare a financial report for the subsequent year (the second year); and (c) your income year starts in the first year and ends in the second year; and (d) both the financial report for the first year and the financial report for the second year are: (i) prepared in accordance with paragraph 230-210(2)(a); and (ii) audited in accordance with paragraph 230-210(2)(b); and (e) the auditor's reports are unqualified for both the financial report for the first year and the financial report for the second year. (2) For the purposes of paragraph 230-140(3)(d), treat yourself as having prepared a financial report for the income year in which you start to have the arrangement. (3) Work out the gain or loss you make from the arrangement for the income year as follows: (a) firstly, work out the gain or loss you make from the arrangement for the first year in accordance with paragraph 230- 140(3)(f) (treating the first year as an income year); (b) next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4); (c) next, work out the gain or loss you make from the arrangement for the second year in accordance with paragraph 230-140(3)(f) (treating the second year as an income year); (d) next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4); (e) next: (i) if the amounts worked out under paragraphs (b) and (d) are both gains-add them together to work out the gain from the arrangement for the income year; or (ii) if the amounts worked out under paragraphs (b) and (d) are both losses-add them together to work out the loss from the arrangement for the income year; or (iii) if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain-subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year. (4) For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by: (a) using a methodology that is reasonable; and (b) using the same methodology for the first and second years. (5) For the purposes of paragraph (4)(a), treat a methodology that attributes the gain or loss on a pro-rata basis as not being reasonable. 230-150 Election for portfolio treatment of fees (1) You may make an election for an income year under this section if: (a) you prepare a financial report for the income year in accordance with: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and (b) the financial report is audited in accordance with: (i) the *auditing standards; or (ii) if the auditing standards do not apply to the auditing of the financial report-comparable auditing standards made under a foreign law. (2) An election under this section is irrevocable. 230-155 Election for portfolio treatment of fees where differing income and accounting years (1) This section applies if: (a) you prepare a financial report for a year (the first year); and (b) you prepare a financial report for the subsequent year (the second year); and (c) your income year starts in the first year and ends in the second year; and (d) both the financial report for the first year and the financial report for the second year are: (i) prepared in accordance with paragraph 230-150(1)(a); and (ii) audited in accordance with paragraph 230-150(1)(b); and (e) the auditor's reports are unqualified for both the financial report for the first year and the financial report for the second year. (2) Treat yourself as eligible to make an election for the income year under subsection 230-150(1). (3) Work out the gain or loss you make from the arrangement for the income year as follows: (a) firstly, work out the gain or loss you make from the arrangement for the first year in accordance with subsections 230-160(3) and (4) or 230-165(3) and (4) (treating the first year as an income year); (b) next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4); (c) next, work out the gain or loss you make from the arrangement for the second year in accordance with subsections 230-160(3) and (4) or 230-165(3) and (4) (treating the second year as an income year); (d) next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4); (e) next: (i) if the amounts worked out under paragraphs (b) and (d) are both gains-add them together to work out the gain from the arrangement for the income year; or (ii) if the amounts worked out under paragraphs (b) and (d) are both losses-add them together to work out the loss from the arrangement for the income year; or (iii) if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain-subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year. (4) For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by: (a) using a methodology that is reasonable; and (b) using the same methodology for the first and second years. (5) For the purposes of paragraph (4)(a), treat a methodology that attributes the gain or loss on a pro-rata basis as not being reasonable. 230-160 Portfolio treatment of fees (1) This section applies in relation to a *financial arrangement if: (a) you have made an election under section 230-150 in an income year; and (b) you start to have the financial arrangement in that income year or a later income year; and (c) the financial arrangement is part of a portfolio of similar financial arrangements; and (d) a gain or loss to which subsection 230-130(3) applies arises in part from fees in respect of the *financial arrangement; and (e) the fees play an integral role in determining the amount of the gain or loss; and (f) the net amount of the fees is not expected to be significant relative to an overall gain or loss from the arrangement. (2) For the purposes of this Division, split the gain or loss mentioned in paragraph (1)(d) as follows: (a) to the extent that it arises from the fees, treat it as a gain or loss from the *financial arrangement (the fees gain or loss) to which subsection 230-130(3) applies; (b) to the extent that it does not arise from the fees, treat it as a separate gain or loss from the financial arrangement to which subsection 230-130(3) applies. Note: The separate gain or loss mentioned in paragraph (b) may itself be split under subsection 230-165(2) (premium/discount gain or loss). Determination of period for fees gain or loss (3) The period over which the fees gain or loss is to be spread is the period that you determine to be the expected life of the portfolio, if: (a) the basis on which you determine the period accords with the spreading of the fees gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230-150(1)(a); and (b) the basis on which you determine the period is set and recorded before any fees in respect of the *financial arrangement fall due; and (c) the period can be justified objectively; and (d) the period is reasonable in the circumstances. Spreading the fees gain or loss (4) The method by which the fees gain or loss is to be spread is the method that you determine, if: (a) the basis on which you determine the method accords with the spreading of the fees gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230-150(1)(a); and (b) the method is determined before any fees in respect of the *financial arrangement fall due; and (c) the method can be justified objectively; and (d) the method is reasonable in the circumstances. (5) To avoid doubt, subsections (3) and (4) apply despite sections 230-130 and 230-135. 230-165 Portfolio treatment of premiums and discounts for acquiring portfolio (1) This section applies in relation to a *financial arrangement if: (a) you have made an election under section 230-150 in an income year; and (b) you start to have the financial arrangement in that income year or a later income year; and (c) the financial arrangement is part of a portfolio of similar financial arrangements; and (d) a gain or loss to which subsection 230-130(3) applies arises in part from a premium or discount in starting to have the portfolio; and (e) the gain or loss is not expected to be significant relative to the amount of the gain or loss on the portfolio. (2) For the purposes of this Division, split the gain or loss mentioned in paragraph (1)(d) as follows: (a) to the extent that it arises from the premium or discount, treat it as a gain or loss from the *financial arrangement (the premium/discount gain or loss) to which subsection 230-130(3) applies; (b) to the extent that it does not arise from the premium or discount, treat it as a separate gain or loss from the financial arrangement to which subsection 230-130(3) applies. Note: The separate gain or loss mentioned in paragraph (b) may itself be split under subsection 230-160(2) (portfolio fees gain or loss). Determination of period for premium/discount gain or loss (3) The period over which the premium/discount gain or loss is to be spread is the period that you determine to be the expected life of the portfolio, if: (a) the basis on which you determine the period accords with the spreading of the premium/discount gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230-150(1)(a); and (b) the basis on which you determine the period is set and recorded before you start to have the *financial arrangement; and (c) the period can be justified objectively; and (d) the period is reasonable in the circumstances. Spreading the premium/discount gain or loss (4) The method by which the premium/discount gain or loss is to be spread is the method that you determine, if: (a) the basis on which you determine the method accords with the spreading of the premium/discount gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230-150(1)(a); and (b) the method is determined before you start to have the *financial arrangement; and (c) the method can be justified objectively; and (d) the method is reasonable in the circumstances. (5) To avoid doubt, subsections (3) and (4) apply despite sections 230-130 and 230-135. 230-170 Allocating gain or loss to income years (1) You are taken, for the purposes of section 230-15, to make, for an income year, a gain or loss equal to a part of a gain or loss if: (a) that part of the gain or loss is allocated to an interval under section 230-135; and (b) that interval falls wholly within that income year. (2) If: (a) a part of a gain or loss is allocated to an interval under section 230-135; and (b) that interval straddles 2 income years; you are taken, for purposes of section 230-15, to make a gain or loss equal to so much of that part of the gain or loss as is allocated between those income years on a reasonable basis. (3) If: (a) a *head company of a *consolidated group or *MEC group has a *financial arrangement; and (b) a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and (c) immediately after the leaving time, the head company no longer has the arrangement because the subsidiary member ceased to be a member of the group; an income year of the group is taken, for the purposes of applying this section to the group and the arrangement, to end at the leaving time. 230-175 Running balancing adjustments Overestimate of financial benefit to be received (1) You are taken for the purposes of this Division to make a loss from a *financial arrangement if: (a) a provision of this Subdivision has applied on the basis that you were sufficiently certain, at a particular time, to receive a *financial benefit of, or of at least, a particular amount under the arrangement; and (b) when you receive the benefit (or the time comes for you to receive the benefit), the amount you receive (or are to receive) is nil or is less than the amount estimated. The amount of the loss is equal to the difference between the amount estimated and the amount you receive (or are to receive). You are taken to have made the loss for the income year in which you receive the benefit (or in which the time comes for you to receive the benefit). Underestimate of financial benefit to be received (2) You are taken for the purposes of this Division to make a gain from a *financial arrangement if: (a) a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to receive a *financial benefit of, or of at least, a particular amount under the arrangement; and (b) when you receive the benefit, or the time comes for you to receive the benefit, the amount you receive, or are to receive, is more than the amount estimated. The amount of the gain is equal to the difference between the amount estimated and the amount you receive or are to receive. You are taken to have made that gain in the income year in which you receive the benefit or in which the time comes for you to receive the benefit. Overestimate of financial benefit to be provided (3) You are taken for the purposes of this Division to make a gain from a *financial arrangement if: (a) a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to provide a *financial benefit of, or of at least, a particular amount under the arrangement; and (b) when you provide the benefit, or the time comes for you to provide the benefit, the amount you provide, or are to provide, is nil or is less than the amount estimated. The amount of the gain is equal to the difference between the amount estimated and the amount you provide or are to provide. You are taken to have made that gain in the income year in which you provide the benefit or in which the time comes for you to provide the benefit. Underestimate of financial benefit to be provided (4) You are taken for the purposes of this Division to make a loss from a *financial arrangement if: (a) a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to provide a *financial benefit of, or of at least, a particular amount under the arrangement; and (b) when you provide the benefit, or the time comes for you to provide the benefit, the amount you are to provide is more than the estimated amount referred to in paragraph (a). The amount of the loss is equal to the difference between the amount estimated and the amount you are to provide. You are taken to have made that loss in the income year in which you provide the benefit or in which the time comes for you to provide the benefit. Realisation method 230-180 Realisation method (1) If a gain or loss is to be taken into account using the realisation method, you are taken, for the purposes of section 230- 15, to make the gain or loss for the income year in which the gain or loss occurs. Note: Sections 230-70 and 230-75 allow you to apportion financial benefits provided and financial benefits received in working out the amount of the gain or loss. (2) For the purposes of subsection (1), a gain or loss from a *financial arrangement is taken to occur at the time at which the last of the *financial benefits taken into account in determining the amount of the gain or loss: (a) is provided; or (b) if the financial benefit is not provided at the time when it is due to be provided under the arrangement and it is reasonable to expect that the financial benefit will be provided-is due to be provided. This subsection has effect subject to subsection (3). (3) For the purposes of subsection (1), you make a loss from a *financial arrangement from writing off, as a bad debt, a right to a *financial benefit (or a part of a financial benefit) if: (a) the financial benefit was taken into account in working out the amount of a gain from the arrangement and the gain has been included in your assessable income under this Division; or (b) the right is one in respect of money that you lent in the ordinary course of your *business of lending money; or (c) the right is one that you bought in the ordinary course of your business of lending money. (4) The loss referred to in subsection (3) occurs when you write off the right to the *financial benefit (or the part of the financial benefit) as a bad debt. (5) The amount of the loss referred to in subsection (3) is: (a) if paragraph (3)(a) applies-so much of the gain referred to in that paragraph as is reasonably attributable to the *financial benefit (or the part of the financial benefit); or (b) if paragraph (3)(b) applies-the amount of the financial benefit (or the part of the financial benefit); or (c) if paragraph (3)(c) applies-the amount of the financial benefit (or the part of the financial benefit) but only up to the value of the financial benefit you provided to acquire the right to the financial benefit (or the part of the financial benefit). (6) For the purposes of this Act, a deduction for the loss referred to in subsection (3) is to be treated as a deduction of a bad debt. Note: Various provisions in this Act and the Income Tax Assessment Act 1936 restrict the availability of deductions for bad debts and make provision in relation to the recoupment of amounts in relation to bad debts that have been written off. These provisions are set out in subsection 25-35(5). Reassessment and re-estimation 230-185 Reassessment (1) You must make a fresh assessment of which gains and losses from a *financial arrangement the accruals method should apply to, and which gains and losses from that arrangement the realisation method should apply to, if: (a) the accruals method, or the realisation method, provided for in this Subdivision applies to gains and losses from the arrangement; and (b) there is a material change to: (i) the terms and conditions of the arrangement; or (ii) circumstances that affect the arrangement. (2) Without limiting subsection (1), the following changes are material changes to the terms and conditions of, or circumstances that affect, the *financial arrangement: (a) a change to the terms or conditions of the arrangement in a way that alters the essential nature of the arrangement (for example, by altering it from a *debt interest to an *equity interest or from an equity interest to a debt interest); (b) a change to the terms or conditions of the arrangement in a way that materially affects the contingencies on which significant obligations and rights under the arrangement are dependent (for example, by introducing such a contingency or removing such a contingency); (c) a change in circumstances that makes something that: (i) materially affects significant obligations and rights under the arrangement; and (ii) was previously dependent on a contingency; no longer dependent on a contingency (because, for example, only one of a number of previously possible contingencies is realised); (d) a change to: (i) the terms on which credit is to be provided to an entity that is not a party to the arrangement; or (ii) the credit rating of an entity that is not a party to the arrangement; if a significant obligation or right under the arrangement is dependent on that credit being provided or that rating being maintained; (e) if the arrangement is, or includes, a financial asset or financial liability and you prepare your financial reports in accordance with: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; a change to the terms or conditions of, or circumstances that affect, the arrangement that are sufficient for the financial asset or financial liability to be treated as impaired for the purposes of those standards. (3) You do not need to make a reassessment under this section merely because of a change in the fair value of the *financial arrangement. 230-190 Re-estimation When re-estimation necessary (1) You re-estimate a gain or loss from a *financial arrangement under subsection (5) if: (a) the accruals method applies to the gain or loss; and (b) circumstances arise that materially affect: (i) the amount or value; or (ii) the timing; of *financial benefits that were taken into account in working out the amount of the gain or loss; and (c) the circumstances do not give rise to a re-estimation under section 230-200; and (d) in a case where the gain or loss is spread using the method referred to in paragraph 230-135(2)(b) in accordance with section 230-140 (effective interest method)-the maximum life of the arrangement (as determined under the terms and conditions of the arrangement) is more than 12 months. (2) If subsection (1) applies, you must re-estimate the gain or loss: (a) unless paragraph (b) applies-as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph (1)(b); or (b) if paragraph (1)(d) is satisfied and the terms and conditions of the *financial arrangement provide for reset dates to occur no more than 12 months apart-at the relevant reset date. (3) Without limiting subsection (1), the following are circumstances of the kind referred to in paragraph (1)(b): (a) a material change in market conditions that are relevant to the amount or value of the *financial benefits to be received or provided under the *financial arrangement; (b) cash flows that were previously estimated becoming known and the difference between the cash flows that become known and the cash flows that were previously estimates is not insignificant; (c) a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt; (d) you have made a reassessment under section 230-185 in relation to gains or losses under the arrangement and you have determined on the reassessment under that section that the accruals method should continue to apply to those gains or losses. (4) You do not re-estimate the gain or loss from a *financial arrangement under subsection (5) merely because of a change in the credit rating, or the creditworthiness, of a party or parties to the arrangement. Nature of re-estimation (5) Making a re-estimation in relation to a gain or loss under this subsection involves: (a) a fresh determination of the amount of the gain or loss; and (b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of the redetermined gain or loss that has not already been allocated to intervals ending before the re-estimation is made to intervals ending after the re-estimation is made. Basis for re-estimation (6) You may make the fresh allocation of the gain or loss under subsection (5) on these bases: (a) if you satisfy subsection (7) in relation to the *financial arrangement-by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return; (b) in any case-by adjusting the rate of return and maintaining the amount to which the adjusted rate of return is to be applied. The object to be achieved by both bases is to allow you to bring the remainder of the gain or loss based on the new estimates properly to account over the remainder of the period over which you spread the gain or loss. Note: The amount referred to in paragraph (b) is the amount to which the previous rate of return was being applied immediately before the re-estimation. (7) You satisfy this subsection in relation to a *financial arrangement if every re-estimation you make under subsection (5) in relation to a gain or loss from the arrangement is made in accordance with: (a) financial reports of the kind referred to in paragraph 230- 395(2)(a) that are audited as referred to in paragraph 230- 395(2)(b) (regardless of whether Subdivision 230-F (reliance on financial reports method) are to apply to a particular financial arrangement); and (b) *accounting standard AASB 139 (or another accounting standard prescribed by the regulations for the purposes of this paragraph). (8) The following subsections apply if the re-estimation arises because of an impairment (within the meaning of the *accounting standards) of: (a) the *financial arrangement; or (b) a financial asset or financial liability that forms part of the arrangement. (9) Despite paragraph (6)(a), you must make the fresh allocation in accordance with paragraph (6)(b). (10) To the extent that the impairment results in you making a loss for an income year under section 230-15, you cannot deduct that loss for the income year. 230-195 Balancing adjustment if rate of return maintained on re-estimation (1) If you make a fresh allocation of the gain or loss on the basis referred to in paragraph 230-190(6)(a), you must make the following balancing adjustment: (a) if you re-estimate a gain and the amount to which you apply the rate of return increases-you make a gain from the *financial arrangement, for the income year in which you make the re- estimation, equal to the amount of the increase; (b) if you re-estimate a gain and the amount to which you apply the rate of return decreases-you make a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the decrease; (c) if you re-estimate a loss and the amount to which you apply the rate of return increases-you make a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the increase; (d) if you re-estimate a loss and the amount to which you apply the rate of return decreases-you make a gain from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the decrease. (2) Subsection (3) applies if: (a) the re-estimation is made wholly or partly on the basis that you have written off, as a bad debt, a right to receive a *financial benefit (or a part of a financial benefit); and (b) the right: (i) is not one in respect of money that you lent in the ordinary course of your *business of lending money; and (ii) is not one that you bought in the ordinary course of your business of lending money. (3) The balancing adjustment to be made under paragraph (1)(b), to the extent that it relates to the writing off of the bad debt, must not exceed so much of the gain in relation to the *financial arrangement as: (a) has been assessed under this Division; and (b) is reasonably attributable to the *financial benefit (or the part of the financial benefit). (4) Subsection (5) applies if: (a) the re-estimation is made wholly or partly on the basis that you have written off, as a bad debt, a right to receive a *financial benefit; and (b) the right is one that you bought in the ordinary course of your *business of lending money. (5) The balancing adjustment to be made under paragraph (1)(b), to the extent that it relates to the writing off of the bad debt, must not exceed the value of the *financial benefit you provided to acquire the right to the financial benefit (or the part of the financial benefit). (6) For the purposes of this Act, a deduction for the balancing adjustment referred to in subsection (3) is to be treated as a deduction of a bad debt. Note: Various provisions in this Act and the Income Tax Assessment Act 1936 restrict the availability of deductions for bad debts and make provision in relation to the recoupment of amounts in relation to bad debts that have been written off. These provisions are set out in subsection 25-35(5). 230-200 Re-estimation if balancing adjustment on partial disposal Re-estimation if balancing adjustment on partial disposal (1) You also re-estimate a gain or loss from a *financial arrangement under subsection (2) if: (a) the accruals method applies to the gain or loss; and (b) a balancing adjustment is made in relation to the arrangement under Subdivision 230-G because you transfer to another entity: (i) a proportionate share of all of your rights and/or obligations under the arrangement; or (ii) a right or obligation that you have under the arrangement to a specifically identified *financial benefit; or (iii) a proportionate share of a right or obligation that you have under the arrangement to a specifically identified financial benefit. You must re-estimate the gain or loss as soon as reasonably practicable after the transfer occurs. Nature of re-estimation (2) Making a re-estimation in relation to a gain or loss under this subsection involves: (a) a fresh determination of the amount of the gain or loss disregarding: (i) *financial benefits; and (ii) amounts of the gain or loss that have already been allocated to intervals ending before the re-estimation is made; to the extent to which they are reasonably attributable to the proportionate share, or the right or obligation, referred to in paragraph (1)(b); and (b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of that gain or loss that has not already been allocated to intervals ending before the re-estimation is made to intervals ending after the re-estimation is made. In applying paragraph (a), disregard subsections 230-70(4) and 230- 75(4). Basis for re-estimation (3) You make the fresh allocation of the gain or loss under subsection (2) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return. The object to be achieved by the fresh allocation is to allow you to bring the redetermined gain or loss properly to account over the remainder of the period over which you spread the gain or loss. Subdivision 230-C-Fair value method Table of sections 230-205 Objects of this Subdivision 230-210 Fair value election 230-215 Fair value election where differing income and accounting years 230-220 Financial arrangements to which fair value election applies 230-225 Financial arrangements to which election does not apply 230-230 Applying fair value method to gains and losses 230-235 Splitting financial arrangements into 2 financial arrangements 230-240 When election ceases to apply 230-245 Balancing adjustment if election ceases to apply 230-205 Objects of this Subdivision The objects of this Subdivision are: (a) to allow you to align the tax treatment of gains and losses from *financial arrangements with the accounting treatment that applies where assets and liabilities are classified or designated as at fair value through profit or loss; and (b) to facilitate efficient price-making; and (c) to achieve the above objects without allowing you to obtain an inappropriate tax benefit. 230-210 Fair value election Election (1) You may make a fair value election under this section if you are eligible under subsection (2) to make the election for the income year in which you make the election. Eligibility to make fair value election for an income year (2) You are eligible to make a fair value election for an income year if: (a) you prepare a financial report for that income year in accordance with: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and (b) the financial report is audited in accordance with: (i) the *auditing standards; or (ii) if the auditing standards do not apply to the auditing of the financial report-comparable auditing standards made under a foreign law. Note: Section 230-500 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division. Election irrevocable (3) A *fair value election is irrevocable. Note: The election may cease to have effect, or cease to apply to a particular financial arrangement, under section 230- 240. 230-215 Fair value election where differing income and accounting years (1) This section applies if: (a) you prepare a financial report for a year (the first year); and (b) you prepare a financial report for the subsequent year (the second year); and (c) your income year starts in the first year and ends in the second year; and (d) both the financial report for the first year and the financial report for the second year are: (i) prepared in accordance with paragraph 230-210(2)(a); and (ii) audited in accordance with paragraph 230-210(2)(b); and (e) the auditor's reports are unqualified for both the financial report for the first year and the financial report for the second year. (2) Treat yourself as eligible to make an election for the income year under subsection 230-210(2). (3) Work out the gain or loss you make from the *financial arrangement for the income year as follows: (a) firstly, work out the gain or loss you make from the arrangement for the first year in accordance with section 230- 230 (treating the first year as an income year); (b) next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4); (c) next, work out the gain or loss you make from the arrangement for the second year in accordance with section 230-230 (treating the second year as an income year); (d) next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4); (e) next: (i) if the amounts worked out under paragraphs (b) and (d) are both gains-add them together to work out the gain from the arrangement for the income year; or (ii) if the amounts worked out under paragraphs (b) and (d) are both losses-add them together to work out the loss from the arrangement for the income year; or (iii) if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain-subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year. (4) For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by: (a) using a methodology that is reasonable; and (b) using the same methodology for the first and second years. (5) For the purposes of paragraph (4)(a), treat a methodology that attributes the gain or loss on a pro-rata basis as not being reasonable. 230-220 Financial arrangements to which fair value election applies (1) A *fair value election applies in relation to *financial arrangements that: (a) are *Division 230 financial arrangements; and (b) are recognised in financial reports of the kind referred to in paragraph 230-210(2)(a) that are audited, or required to be audited, as referred to in paragraph 230-210(2)(b); and (c) are assets or liabilities that you are required (whether or not as a result of a choice you make) by: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards that apply to the preparation of the financial report under a *foreign law; to classify or designate, in the financial reports, as at fair value through profit or loss; and (d) you start to have in the income year in which you make the election or in a later income year. This subsection has effect subject to section 230-225. (2) If, but for this subsection, paragraphs (1)(b) and (c) would not be satisfied in relation to a *financial arrangement because the arrangement is an intra-group transaction for the purposes of: (a) *accounting standard AASB 127 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or (b) if that standard does not apply to the preparation of the financial report-a comparable accounting standard that applies to the preparation of the financial report under a *foreign law; paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement. Note: Financial arrangements between members of a consolidated group or MEC group are not covered by this subsection because the single entity rule in subsection 701-1(1) operates to treat them as not being financial arrangements for the purposes of this Division. (3) If: (a) the *financial arrangement would not be a financial arrangement if the following provisions were disregarded: (i) Division 9A of Part III of the Income Tax Assessment Act 1936 (which deals with offshore banking units); (ii) Part IIIB of that Act (which deals with Australian branches of foreign banks etc.); and (b) paragraphs (1)(b) and (c) would be satisfied in relation to the financial arrangement if the arrangement had been between 2 separate entities; and (c) the *fair value election is made by: (i) if section 121EB of the Income Tax Assessment Act 1936 applies- the OBU mentioned in that section (disregarding the operation of that section); or (ii) if section 160ZZW of that Act applies-the bank mentioned in that section (disregarding the operation of that section); paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement. 230-225 Financial arrangements to which election does not apply (1) A *fair value election does not apply to a *financial arrangement if: (a) the arrangement is an *equity interest; and (b) you are the issuer of the equity interest. (2) A *fair value election does not apply to a *financial arrangement if: (a) you are: (i) an individual; or (ii) an entity (other than an individual) that satisfies subsection 230-455(2), (3) or (4) for the income year in which you start to have the arrangement; and (b) the arrangement is a *qualifying security; and (c) you have not made an election under subsection 230-455(7). (3) A *fair value election does not apply to a *financial arrangement if: (a) the election is made by the *head company of a *consolidated group or *MEC group; and (b) the election specifies that the election is not to apply to financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and (c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group. (4) A *fair value election does not apply to a *financial arrangement if the arrangement is associated with a business of a kind specified in regulations made for the purposes of this subsection. 230-230 Applying fair value method to gains and losses (1) If a *fair value election applies to your *financial arrangement, the gain or loss you make from the arrangement for an income year is: (a) the gain or loss that the standards referred to in paragraph 230-210(2)(a) require you to recognise in profit or loss for the income year from the asset or liability mentioned in paragraph 230-220(1)(c); or (b) if subsection 230-220(2) applies to the arrangement-the gain or loss that the standards referred to in paragraph 230-220(1)(c) would have required you to recognise in profit or loss for the year from the asset or liability mentioned in paragraph 230- 220(1)(c) if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph 230-220(2)(b); or (c) if subsection 230-220(3) applies to the arrangement-the gain or loss that the standards referred to in paragraph 230-220(1)(c) would have required you to recognise in profit or loss for the year from the asset or liability mentioned in paragraph 230- 220(1)(c) if the arrangement had been between 2 separate entities. Note: Subsection 230-40(7) provides that an election under Subdivision 230-E (hedging financial arrangements method) or Subdivision 230-F (method of relying on financial reports) may override a fair value election. (2) Subsection (3) applies if: (a) a *head company of a *consolidated group or *MEC group has a *financial arrangement; and (b) a *fair value election applies to the arrangement; and (c) a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and (d) immediately after the leaving time, the head company no longer has the arrangement because the subsidiary member ceased to be a member of the group. (3) The gain or loss the group makes from the arrangement for the income year in which the leaving time occurs is taken to be the gain or loss that the standards referred to in paragraph 230- 210(2)(a) would require the group to recognise as at fair value through profit or loss for the income year from the asset or liability mentioned in paragraph 230-220(1)(c) if: (a) the circumstances that existed in relation to the arrangement (including its value) immediately before the leaving time had continued to exist until the end of the income year; and (b) any circumstances that arise in relation to the financial arrangement after the leaving time were disregarded. 230-235 Splitting financial arrangements into 2 financial arrangements (1) If: (a) a *financial arrangement is constituted only in part by an asset or liability mentioned in paragraph 230-220(1)(c); and (b) a *fair value election would apply to the arrangement if it were constituted solely by that asset or liability; the provisions of this Division (other than this section) apply to the arrangement as if it were instead 2 separate financial arrangements. (2) The 2 separate *financial arrangements are: (a) one consisting of the part referred to in paragraph (1)(a); and (b) one consisting of the remaining part. 230-240 When election ceases to apply (1) A *fair value election ceases to have effect from the start of an income year if you cease to be eligible under subsection 230- 210(2) to make the fair value election for that income year. (2) Subsection (1) does not prevent you from making a new *fair value election at a later time if you become, at that later time, eligible under subsection 230-210(2) to make a fair value election for an income year. Note: The new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made. (3) A *fair value election ceases to apply to a particular *financial arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 230- 220(1)(b) or (c) during that income year. (4) If the election ceases to apply to a particular *financial arrangement under subsection (3), the election cannot subsequently reapply to that arrangement (even if the requirements of paragraphs 230-220(1)(b) and (c) are satisfied once more in relation to the arrangement). 230-245 Balancing adjustment if election ceases to apply (1) You must make balancing adjustments under subsection (2) if a *fair value election ceases to have effect under subsection 230- 240(1). (2) The balancing adjustments under this subsection are the balancing adjustments you would make under Subdivision 230-G for each of the *financial arrangements to which the election applied if you disposed of the arrangement for its fair value when the election ceases to have effect. (3) You must make a balancing adjustment under subsection (4) if a *fair value election ceases to apply to a particular *financial arrangement under subsection 230-240(3). (4) The balancing adjustment under this subsection is the balancing adjustment you would make under Subdivision 230-G if you disposed of the *financial arrangement for its fair value when the election ceases to apply to the arrangement. (5) If a balancing adjustment is made under subsection (2) or (4) in relation to a *financial arrangement, you are taken, for the purposes of this Division, to have reacquired the arrangement at its fair value immediately after the election ceased to have effect or ceased to apply to the arrangement. Subdivision 230-D-Foreign exchange retranslation method Table of sections 230-250 Objects of this Subdivision 230-255 Foreign exchange retranslation election 230-260 Foreign exchange retranslation election where differing income and accounting years 230-265 Financial arrangements to which general election applies 230-270 Financial arrangements to which general election does not apply 230-275 Balancing adjustment for election in relation to qualifying forex accounts 230-280 Applying foreign exchange retranslation method to gains and losses 230-285 When election ceases to apply 230-290 Balancing adjustment if election ceases to apply 230-250 Objects of this Subdivision The objects of this Subdivision are: (a) to allow you to align the tax treatment of gains and losses from foreign exchange rate changes with the accounting treatment of profits and losses from such changes; and (b) to achieve this without allowing you to obtain an inappropriate tax benefit. 230-255 Foreign exchange retranslation election General election (1) You may make a foreign exchange retranslation election under this subsection if you are eligible under subsection (2) to make the election for the income year in which you make the election. Eligibility to make election (2) You are eligible to make a *foreign exchange retranslation election for an income year if: (a) you prepare a financial report for that income year in accordance with: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and (b) the financial report is audited in accordance with: (i) the *auditing standards; or (ii) if the auditing standards do not apply to the auditing of the financial report-comparable auditing standards made under a foreign law. Note: Section 230-500 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division. Election in relation to qualifying forex accounts (3) You may make a foreign exchange retranslation election under this subsection in relation to a *financial arrangement if: (a) the arrangement is a *qualifying forex account; and (b) you have not made a *foreign exchange retranslation election under subsection (1) that applies to the account. You may make the election even if you start to have the arrangement before you make the election. Financial arrangements to which election in relation to qualifying forex accounts applies (4) The election under subsection (3) applies to the *financial arrangement: (a) from the time when you start to have the arrangement if the election is made before you start to have the arrangement; or (b) from the start of the income year in which the election is made if you make the election after you start to have the arrangement. Election irrevocable (5) A *foreign exchange retranslation election is irrevocable. Note: The election may cease to apply under section 230-285. 230-260 Foreign exchange retranslation election where differing income and accounting years (1) This section applies if: (a) you prepare a financial report for a year (the first year); and (b) you prepare a financial report for the subsequent year (the second year); and (c) your income year starts in the first year and ends in the second year; and (d) both the financial report for the first year and the financial report for the second year are: (i) prepared in accordance with paragraph 230-255(2)(a); and (ii) audited in accordance with paragraph 230-255(2)(b); and (e) the auditor's reports are unqualified for both the financial report for the first year and the financial report for the second year. (2) Treat yourself as eligible to make an election for the income year under subsection 230-255(2). (3) Work out the gain or loss you make from the arrangement for the income year as follows: (a) firstly, work out the gain or loss you make from the arrangement for the first year in accordance with section 230- 280 (treating the first year as an income year); (b) next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4); (c) next, work out the gain or loss you make from the arrangement for the second year in accordance with section 230-280 (treating the second year as an income year); (d) next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4); (e) next: (i) if the amounts worked out under paragraphs (b) and (d) are both gains-add them together to work out the gain from the arrangement for the income year; or (ii) if the amounts worked out under paragraphs (b) and (d) are both losses-add them together to work out the loss from the arrangement for the income year; or (iii) if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain-subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year. (4) For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by: (a) using a methodology that is reasonable; and (b) using the same methodology for the first and second years. (5) For the purposes of paragraph (4)(a), treat a methodology that attributes the gain or loss on a pro-rata basis as not being reasonable. 230-265 Financial arrangements to which general election applies (1) A *foreign exchange retranslation election under subsection 230- 255(1) applies to each of your *financial arrangements: (a) that are *Division 230 financial arrangements; and (b) that are recognised in financial reports of a kind referred to in paragraph 230-255(2)(a) that are audited, or required to be audited, as referred to in paragraph 230-255(2)(b); and (c) in relation to which you are required by: (i) *accounting standard AASB 121 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or (ii) if that standard does not apply to the preparation of the financial report-a comparable accounting standard that applies to the preparation of the financial report under a *foreign law; to recognise, in the financial reports, amounts in profit or loss (if any) that are attributable to changes in currency exchange rates; and (d) that you start to have in the income year in which you make the election or in a later income year. This subsection has effect subject to section 230-270. Note: The election also has consequences under Subdivision 775-F for arrangements that are not Division 230 financial arrangements. (2) If, but for this subsection, paragraphs (1)(b) and (c) would not be satisfied in relation to a *financial arrangement because the arrangement is an intra-group transaction for the purposes of: (a) *accounting standard AASB 127 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or (b) if that standard does not apply to the preparation of the financial report-a comparable accounting standard that applies to the preparation of the financial report under a *foreign law; paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement. Note: Financial arrangements between members of a consolidated group or MEC group are not covered by this subsection because the single entity rule in subsection 701-1(1) operates to treat them as not being financial arrangements for the purposes of this Division. (3) If: (a) the *financial arrangement would not be a financial arrangement if the following provisions were disregarded: (i) Division 9A of Part III of the Income Tax Assessment Act 1936 (which deals with offshore banking units); (ii) Part IIIB of that Act (which deals with Australian branches of foreign banks etc.); and (b) paragraphs (1)(b) and (c) would be satisfied in relation to the financial arrangement if the arrangement had been between 2 separate entities; and (c) the *foreign exchange retranslation election under subsection 230-255(1) is made by: (i) if section 121EB of the Income Tax Assessment Act 1936 applies- the OBU mentioned in that section (disregarding the operation of that section); or (ii) if section 160ZZW of that Act applies-the bank mentioned in that section (disregarding the operation of that section); paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement. 230-270 Financial arrangements to which general election does not apply (1) For the purposes of this Division, a *foreign exchange retranslation election under subsection 230-255(1) does not apply to a *financial arrangement if the arrangement is a financial arrangement under section 230-50 (equity interests etc.). (2) For the purposes of this Division, a *foreign exchange retranslation election under subsection 230-255(1) does not apply to a *financial arrangement if: (a) you are: (i) an individual; or (ii) an entity (other than an individual) that satisfies subsection 230-455(2), (3) or (4) for the income year in which you start to have the arrangement; and (b) the arrangement is a *qualifying security; and (c) you have not made an election under subsection 230-455(7). (3) A *foreign exchange retranslation election under subsection 230- 255(1) does not apply to a *financial arrangement if: (a) the election is made by the *head company of a *consolidated group or *MEC group; and (b) the election specifies that the election is not to apply to financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and (c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group. (4) A *foreign exchange retranslation election does not apply to a *financial arrangement if the arrangement is associated with a business of a kind specified in regulations made for the purposes of this subsection. 230-275 Balancing adjustment for election in relation to qualifying forex accounts (1) If a *hedging financial arrangement that you have does not (apart from this section) meet the requirements of sections 230-355 to 230-365, treat it as meeting those requirements if the Commissioner makes a determination under subsection (2) in relation to the arrangement. (2) The Commissioner may make the determination if the Commissioner considers that this is appropriate, having regard to: (a) the respects in which the arrangement does not meet those requirements; and (b) the extent to which it does not meet those requirements; and (c) the reasons why it does not meet those requirements; and (d) if the Commissioner is considering whether to impose conditions under subsection (3)-the likelihood that you will comply with those conditions; and (e) the objects of this Subdivision. (3) The balancing adjustment under this subsection is the balancing adjustment you would make under Subdivision 230-G if you ceased to have the arrangement for its fair value at the time when the election started to apply to the arrangement (but only to the extent to which the balancing adjustment is reasonably attributable to a *currency exchange rate effect). 230-280 Applying foreign exchange retranslation method to gains and losses General election (1) You make a gain or loss from a *financial arrangement for an income year if: (a) a *foreign exchange retranslation election under subsection 230- 255(1) applies to the arrangement; and (b) any of the following subparagraphs apply: (i) the standard referred to in paragraph 230-265(1)(c) requires you to recognise a particular amount in profit or loss in relation to that arrangement for that income year; (ii) if subsection 230-265(2) applies to the arrangement-the standard referred to in paragraph 230-265(1)(c) would have required you to recognise a particular amount in profit or loss in relation to that arrangement for that income year if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph 230-265(2)(b); (iii) if subsection 230-265(3) applies to the arrangement-the standard referred to in paragraph 230-265(1)(c) would have required you to recognise a particular amount in profit or loss for the year that is attributable to currency exchange rates mentioned in paragraph 230-265(1)(c) if the arrangement had been between 2 separate entities. The amount of the gain or loss is the amount the standard requires, or would have required, you to recognise. Note: See subsection 230-40(6). Election in relation to qualifying forex accounts (2) You make a gain or loss from a *financial arrangement for an income year if: (a) a *foreign exchange retranslation election under subsection 230- 255(3) applies to the arrangement; and (b) the standard referred to in paragraph 230-265(1)(c): (i) requires you to recognise a particular amount in profit or loss in relation to that arrangement for that income year; or (ii) would require you to recognise a particular amount in profit or loss in relation to that arrangement for that income year if that standard applied to the arrangement; or (iii) would require you to recognise a particular amount in profit or loss in relation to that arrangement for that income year if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph 230-265(2)(b); or (iv) would require you to recognise a particular amount in profit or loss in relation to that arrangement for that income year if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph 230-265(2)(b) and if that standard applied to the arrangement. The amount of the gain or loss is the amount the standard requires, or would require, you to recognise. Subsidiary leaving group (3) Subsection (4) applies if: (a) a *head company of a *consolidated group or *MEC group has a *financial arrangement; and (b) a *foreign exchange retranslation election under subsection 230- 255(1) or (3) applies to the arrangement; and (c) a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and (d) immediately after the leaving time, the head company no longer has the arrangement because the subsidiary member ceased to be a member of the group. (4) The gain or loss the group makes from the *financial arrangement for the income year in which the leaving time occurs is taken to be the gain or loss that the standard referred to in paragraph 230-265(1)(c) would require the group to recognise in profit or loss in relation to the arrangement for that income year if: (a) the circumstances that existed in relation to the arrangement (including its value) immediately before the leaving time had continued to exist until the end of the income year; and (b) any circumstances that arise in relation to the arrangement after the leaving time were disregarded. 230-285 When election ceases to apply General election (1) A *foreign exchange retranslation election under subsection 230- 255(1) ceases to have effect from the start of an income year if you cease to be eligible under subsection 230-255(2) to make a foreign exchange retranslation election under subsection 230-255(1) for that income year. (2) Subsection (1) does not prevent you from making a new *foreign exchange retranslation election at a later time if you become, at that later time, eligible under subsection 230-255(2), to make a foreign exchange retranslation election under subsection 230-255(1) for that income year. Note: The new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made. (3) A *foreign exchange retranslation election under subsection 230- 255(1) ceases to apply to a *financial arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 230-265(1)(b) or (c) during that income year. (4) If the election ceases to apply to a particular *financial arrangement under subsection (3), the election cannot subsequently reapply to that arrangement (even if the requirements of paragraphs 230-265(1)(b) and (c) are satisfied once more in relation to the arrangement). Election in relation to qualifying forex accounts (5) A *foreign exchange retranslation election under subsection 230- 255(3) ceases to apply to a *financial arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of subsection 230-255(3) during that income year. (6) If the election ceases to apply to a particular *financial arrangement under subsection (5), the election cannot subsequently reapply to that arrangement (even if the requirements of subsection 230-255(3) are satisfied once more in relation to the arrangement). 230-290 Balancing adjustment if election ceases to apply (1) You must make balancing adjustments under subsection (2) if a *foreign currency retranslation election ceases to have effect under subsection 230-285(1). (2) The balancing adjustments under this subsection are the balancing adjustments you would make under Subdivision 230-G for each of the *financial arrangements to which the election applied if you disposed of the arrangement for its fair value when the election ceases to have effect (but only to the extent to which the balancing adjustment is reasonably attributable to a *currency exchange rate effect). (3) You must make a balancing adjustment under this section if a *foreign currency retranslation election ceases to apply to a particular *financial arrangement under subsection 230-285(3) or (5). (4) The balancing adjustment under this subsection is the balancing adjustment you would make under Subdivision 230-G if you disposed of the *financial arrangement for its fair value when the election ceases to apply to the arrangement (but only to the extent to which the balancing adjustment is reasonably attributable to a *currency exchange rate effect). (5) If a balancing adjustment is made under subsection (2) or (4) in relation to a *financial arrangement, you are taken, for the purposes of this Division, to have reacquired the arrangement at its fair value immediately after the election ceased to have effect or ceased to apply to the arrangement. Subdivision 230-E-Hedging financial arrangements method Table of sections 230-295 Objects of this Subdivision 230-300 Applying hedging financial arrangement method to gains and losses 230-305 Table of events and allocation rules 230-310 Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item 230-315 Hedging financial arrangement election 230-320 Hedging financial arrangement election where differing income and accounting years 230-325 Hedging financial arrangements to which election applies 230-330 Hedging financial arrangements to which election does not apply 230-335 Hedging financial arrangement and hedged item 230-340 Generally whole arrangement must be financial hedging arrangement 230-345 Requirements not satisfied because of honest mistake or inadvertence 230-350 Derivative financial arrangement and foreign currency hedge 230-355 Recording requirements 230-360 Determining basis for allocating gain or loss 230-365 Effectiveness of the hedge 230-370 When election ceases to apply 230-375 Balancing adjustment if election ceases to apply 230-380 Where requirements not met 230-385 You may be excluded from this Subdivision for deliberate failures to comply with requirements 230-295 Objects of this Subdivision The objects of this Subdivision are: (a) to facilitate the efficient management of financial risk by reducing after-tax mismatches and better aligning tax treatment where hedging takes place; and (b) to minimise tax deferral and tax motivated practices (including tax deferral arising from such practices as tax advantaged selection from among possible hedges and inappropriate selection of tax treatment). 230-300 Applying hedging financial arrangement method to gains and losses (1) If you have a *hedging financial arrangement to which a *hedging financial arrangement election applies, the gain or loss you make for an income year from the arrangement is worked out under this section and section 230-310 instead of under Subdivision 230-B, 230-C, 230-D, 230-F or 230-G. (2) Except where subsection (5) applies, the gain or loss you make from the *hedging financial arrangement is equal to the overall gain or loss you make from the arrangement. (3) The gain or loss you make from the *hedging financial arrangement is allocated over income years according to the determination referred to in subsection 230-360(1). Note 1: The allocation is capable of extending to income years after you cease to have the hedging financial arrangement (see subsection 230-360(3)). Note 2: The determination must be included in the record made under section 230-355. (4) If the *hedging financial arrangement is a *foreign currency hedge and is a *debt interest, split a gain or loss you make from the arrangement as follows: (a) to the extent to which the gain or loss represents a *currency exchange rate effect attributable to the outstanding balance in relation to the debt interest, treat it as a separate gain or loss to which subsections (1) and (2) apply; (b) to the extent that it does not represent that effect, treat it as a separate gain or loss from the financial arrangement that is allocated under Subdivision 230-B, 230-F or 230-G. (5) If an event listed in the table in section 230-305 occurs: (a) the gain or loss you make from the *hedging financial arrangement is equal to any gain or loss that you would have made: (i) while the arrangement was hedging the *hedged item or items; and (ii) on ceasing to have the arrangement; if you ceased to have the arrangement for its fair value at the time of the event; and (b) this Division further applies as if, just after the event, you had acquired the arrangement for its fair value at the time of the event. Despite subsection (3), the gain or loss referred to in paragraph (a) is allocated over income years according to the table. (6) The regulations may apply subsection (5) and section 230-305 (with the modifications that are provided for in the regulations) to the situation in which you cease to have one or more, but not all, of the *hedged items. (7) Subsection (8) applies if the *hedging financial arrangement: (a) is a *financial arrangement under section 230-50 (equity interests etc.); and (b) is a *foreign currency hedge; and (c) is one that you issue. (8) Split a gain or loss you make from the arrangement as follows: (a) to the extent to which the gain or loss represents a *currency exchange rate effect, treat it as a separate gain or loss to which subsections (1) and (2) apply; (b) to the extent that it does not represent that effect, treat it as a separate gain or loss from the financial arrangement to which this Division does not apply. (9) Subsections (10) and (11) apply if: (a) a *head company of a *consolidated group or *MEC group has a *hedging financial arrangement; and (b) a *hedging financial arrangement election applies to the arrangement; and (c) a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and (d) immediately after the leaving time: (i) the head company no longer has the arrangement because the subsidiary member ceased to be a member of the group; and (ii) the head company no longer has the *hedged item (or all of the hedged items) because the subsidiary member ceased to be a member of the group. (10) The gain or loss the group makes from the arrangement for the income year in which the leaving time occurs is taken to be the gain or loss that would be allocated to the group in accordance with this section (disregarding subsection (5)) if: (a) the circumstances that existed in relation to the arrangement (including its value) immediately before the leaving time had continued to exist until the end of the income year; and (b) any circumstances that arise in relation to the *financial arrangement after the leaving time were disregarded. (11) For the purposes of applying paragraph (5)(a) to the *head company of the group at the leaving time, disregard item 2 of the table in section 230-305. 230-305 Table of events and allocation rules For the purposes of paragraph 230-300(5)(a), the following table lists events and their consequences: |Table of events and allocation rules | |Item |If this event occurs ...|Your gain or loss is | | | |allocated ... | |1 |(a) you revoke the |over income years | | |hedging designation; or |according to the basis | | |(b) you redesignate your|determined under | | |*hedging financial |subsection 230-360(1). | | |arrangement; or | | | |(c) you cease to meet | | | |the requirement of | | | |section 230-365 in | | | |relation to your hedging| | | |financial arrangement | | |2 |(a) you cease to have |to the income year in | | |the *hedged item or all |which the event occurs. | | |of the hedged items; or | | | |(b) you cease to expect | | | |that the hedged item or | | | |items will come into | | | |existence; or | | | |(c) you cease to expect | | | |that you will have the | | | |hedged item or items | | |3 |a risk being hedged by |to the income year in | | |your *hedging financial |which the risk ceases to| | |arrangement ceases to |exist. | | |exist | | 230-310 Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item (1) The object of this section is to better align, in particular circumstances, the tax classification of a gain or loss you make from a *hedging financial arrangement with the tax classification of the *hedged item. (2) This section applies if: (a) you make a gain or loss from a *hedging financial arrangement for an income year; and (b) a *hedging financial arrangement election applies to the arrangement. (3) Subject to subsection (4): (a) if you make a gain from the arrangement-your assessable income includes the gain in accordance with subsection 230-15(1); and (b) if you make a loss from the arrangement-you may deduct the loss in accordance with subsections 230-15(2) and (3). Note: Section 230-300 tells you how to allocate the gain or loss to an income year or years. (4) A gain or loss you make from a *hedging financial arrangement, to the extent to which it is reasonably attributable to a *hedged item referred to in the following table, is dealt with in the way indicated in that item: |Special tax classification for gains and losses | |Item |For a hedged |the gain ... |the loss ... | | |item that is or | | | | |produces ... | | | |1 |a *CGT asset any|is treated as a |is treated as a | | |*net capital |*capital gain |*capital loss | | |gain in relation|from a CGT event|from a CGT event| | |to which would |(but only to the|(but only to the| | |be assessable |extent to which |extent to which | | |under Parts 3-1 |the gain is |the loss is | | |and 3-3 in |reasonably |reasonably | | |relation to |attributable to |attributable to | | |which a *CGT |the hedged item |the hedged item | | |event (the |CGT event) |CGT event) | | |hedged item CGT | | | | |event) occurs | | | |2 |a *CGT asset |is treated as a |is treated as a | | |that is *taxable|*capital gain |*capital loss | | |Australian |from a *CGT |from a CGT event| | |property |event for a CGT |for a CGT asset | | | |asset that is |that is taxable | | | |taxable |Australian | | | |Australian |property | | | |property | | |3 |a *CGT asset |is disregarded |is disregarded | | |your capital |or reduced by |or reduced by | | |gains and losses|the same |the same | | |in relation to |percentage |percentage | | |which are | | | | |disregarded, or | | | | |reduced by a | | | | |particular | | | | |percentage, | | | | |under | | | | |Division 855 | | | |4 |*exempt income |is treated as |is not | | | |exempt income |deductible | |5 |*non-assessable |is treated as |is not | | |non-exempt |non-assessable |deductible | | |income of an |non-exempt | | | |Australian |income | | | |resident | | | |6 |a share in a |is treated as a |is treated as a | | |company that is |*capital gain |*capital loss | | |a foreign |from a CGT event|from a CGT event| | |resident if the |that is reduced |that is reduced | | |capital gain or |by the same |by the same | | |loss you make |percentage |percentage | | |from a *CGT | | | | |event that | | | | |happens to the | | | | |share is reduced| | | | |by a particular | | | | |percentage under| | | | |Subdivision 768-| | | | |G | | | |7 |*ordinary income|is treated as |is treated as a | | |or *statutory |ordinary income |loss incurred in| | |income from an |or statutory |gaining or | | |*Australian |income from an |producing | | |source |Australian |ordinary income | | | |source |or statutory | | | | |income from an | | | | |Australian | | | | |source | |8 |*ordinary income|is treated as |is treated as a | | |or *statutory |ordinary income |loss incurred in| | |income from a |or statutory |gaining or | | |source out of |income from a |producing | | |Australia |source out of |ordinary income | | | |Australia |or statutory | | | | |income from a | | | | |source out of | | | | |Australia | |9 |a loss or |is treated as |is treated as a | | |outgoing |ordinary income |loss incurred in| | |incurred in |or statutory |gaining or | | |gaining or |income from a |producing | | |producing |source out of |ordinary income | | |*ordinary income|Australia |or statutory | | |or *statutory | |income from a | | |income from a | |source out of | | |source out of | |Australia | | |Australia | | | |10 |a loss or |is treated as |is treated as a | | |outgoing |ordinary income |loss incurred in| | |incurred in |or statutory |gaining or | | |gaining or |income from an |producing | | |producing |Australian |ordinary income | | |*ordinary income|source |or statutory | | |or *statutory | |income from an | | |income from an | |Australian | | |*Australian | |source | | |source | | | |11 |a loss or |is treated as |is treated as a | | |outgoing that is|*non-assessable |loss that is not| | |not allowed as a|non-exempt |allowed as a | | |deduction |income |deduction | |12 |a net investment|(a) to the |(a) to the | | |in a foreign |extent that the |extent that the | | |operation |net investment |net investment | | |(within the |would give rise |would give rise | | |meaning of the |to income that |to income that | | |*accounting |is |is | | |standards) that |*non-assessable |non-assessable | | |is not carried |non-exempt |non-exempt | | |on through: |income under |income under | | |(a) a company in|section 23AH of |section 23AH of | | |which you hold |the Income Tax |the Income Tax | | |shares; or |Assessment Act |Assessment Act | | |(b) a company |1936-is treated |1936-is not | | |that is a |as |deductible; and | | |subsidiary of |non-assessable |(b) otherwise-is| | |yours (within |non-exempt |treated in | | |the meaning of |income; and |accordance with | | |the Corporations|(b) otherwise-is|the item or | | |Act 2001). |treated in |items in this | | | |accordance with |table that are | | | |the item or |applicable to | | | |items in this |the loss. | | | |table that are | | | | |applicable to | | | | |the gain. | | (5) If: (a) a *hedged item is your net investment in a foreign operation (within the meaning of the *accounting standards); and (b) the foreign operation is carried on through: (i) a company in which you hold shares; or (ii) a company that is a subsidiary of yours (within the meaning of the Corporations Act 2001); the hedged item is taken, for the purposes of applying the table in subsection (4), to be the interest you have in the shares of the company. 230-315 Hedging financial arrangement election Election (1) You can make a hedging financial arrangement election if you are eligible under subsection (2) to make the election for the income year in which you make the election. Eligibility to make hedging financial arrangement election for an income year (2) You are eligible to make a hedging financial arrangement election for an income year if: (a) you prepare a financial report for that income year in accordance with: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and (b) the financial report is audited in accordance with: (i) the *auditing standards; or (ii) if the auditing standards do not apply to the auditing of the financial report-comparable auditing standards made under a foreign law. Note: Section 230-500 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division. Election irrevocable (3) The *hedging financial arrangement election is irrevocable. Note: The election may cease to apply under section 230-385. 230-320 Hedging financial arrangement election where differing income and accounting years (1) This section applies if: (a) you prepare a financial report for a year (the first year); and (b) you prepare a financial report for the subsequent year (the second year); and (c) your income year starts in the first year and ends in the second year; and (d) both the financial report for the first year and the financial report for the second year are: (i) prepared in accordance with paragraph 230-315(2)(a); and (ii) audited in accordance with paragraph 230-315(2)(b); and (e) the auditor's reports are unqualified for both the financial report for the first year and the financial report for the second year. (2) Treat yourself as eligible to make an election for the income year under subsection 230-315(2). 230-325 Hedging financial arrangements to which election applies (1) A *hedging financial arrangement election applies to a *hedging financial arrangement if: (a) you start to have the arrangement in the income year in which you make the election or in a later income year; and (b) the requirements in sections 230-355 to 230-365 are met in relation to the arrangement. Note: Paragraph (b)-see section 230-380 for the Commissioner's discretion in relation to failures to meet the requirements of sections 230-355 to 230-365. (2) For the purposes of paragraph (1)(b), treat the requirement in paragraph 230-365(c) as being met even if you do not assess the hedging of the risk mentioned in that paragraph, but you can demonstrate that you intend to do so. (3) This section has effect subject to section 230-330. 230-330 Hedging financial arrangements to which election does not apply (1) A *hedging financial arrangement election does not apply to a *financial arrangement if the arrangement is a financial arrangement under section 230-50 (equity interests etc.). (2) Subsection (1) does not apply to a *hedging financial arrangement if: (a) the hedging financial arrangement is a *foreign currency hedge; and (b) you issue the hedging financial arrangement. (3) A *hedging financial arrangement election does not apply to a *financial arrangement if: (a) you are: (i) an individual; or (ii) an entity (other than an individual) that satisfies subsection 230-455(2), (3) or (4) for the income year in which you start to have the arrangement; and (b) the arrangement is a *qualifying security; and (c) you have not made an election under subsection 230-455(7). (4) A *hedging financial arrangement election does not apply to a *financial arrangement if: (a) the election is made by the *head company of a *consolidated group or *MEC group; and (b) the election specifies that the election is not to apply to financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and (c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group. (5) A *hedging financial arrangement election does not apply to a *financial arrangement if the arrangement is associated with a business of a kind specified in regulations made for the purposes of this subsection. 230-335 Hedging financial arrangement and hedged item Hedging financial arrangement (1) A *financial arrangement that you have that is a *derivative financial arrangement, or is not a derivative financial arrangement but is a *foreign currency hedge, is a hedging financial arrangement if: (a) you create, acquire or apply the arrangement for the purpose of hedging a risk or risks in relation to a *hedged item; and (b) at the time you create, acquire or apply the arrangement, the arrangement satisfies the requirements of the standards referred to in paragraph 230-315(2)(a) to be a hedging instrument; and (c) the arrangement is recorded as a hedging instrument in: (i) your financial report (including documents and records on which the report is based); or (ii) if the arrangement hedges a risk in relation to foreign currency-the financial report of a consolidated entity in which you are included (including documents and records on which the report is based); for the income year in which the rights and/or obligations are created, acquired or applied. Note: For document and record, see section 25 of the Acts Interpretation Act 1901. (2) If: (a) the *financial arrangement would not be a financial arrangement if the following provisions were disregarded: (i) Division 9A of Part III of the Income Tax Assessment Act 1936 (which deals with offshore banking units); (ii) Part IIIB of that Act (which deals with Australian branches of foreign banks etc.); and (b) paragraphs (1)(b) and (c) would be satisfied in relation to the financial arrangement if the arrangement had been between 2 separate entities; paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement. (3) A *financial arrangement that is a *derivative financial arrangement, or is not a derivative financial arrangement but is a *foreign currency hedge, is a hedging financial arrangement if: (a) you create, acquire or apply the arrangement for the purpose of hedging a risk or risks in relation to something; and (b) one or more of subsections (4), (5), (6) or (7) is satisfied; and (c) the requirements of paragraphs (1)(b) or (c) are not able to be satisfied: (i) because of the requirements of the standards referred to in paragraph 230-315(2)(a); and (ii) not because of any act or omission on your part to deliberately fail to satisfy those requirements; and (d) you satisfy the additional recording requirements of subsection 230-355(5); and (e) you satisfy the requirements (if any) prescribed by the regulations for the purposes of this paragraph. (4) This subsection is satisfied if: (a) the *financial arrangement hedges a foreign currency risk in relation to an anticipated dividend from a *connected entity; and (b) the dividend is *non-assessable non-exempt income under section 23AJ of the Income Tax Assessment Act 1936. (5) This subsection is satisfied if: (a) you enter into a *financial arrangement with a *connected entity; and (b) the standards referred to in paragraph 230-315(2)(a) require that a consolidated financial report be prepared that deals with both your affairs and the affairs of the connected entity; and (c) the report properly reflects your affairs; and (d) the arrangement satisfies the requirements of paragraph (1)(a); and (e) the arrangement would satisfy the requirements of paragraph (1)(b) or (c) but for the fact that the consolidated report disregards the arrangement. (6) This subsection is satisfied if: (a) the period for which the risk or risks are hedged does not straddle 2 or more income years; and (b) the *financial arrangement satisfies the requirements of paragraph (1)(a); and (c) the arrangement would satisfy the requirements of paragraph (1)(c) if the period for which the risk or risks that are hedged did straddle 2 or more income years. (7) This subsection is satisfied if the requirements prescribed by the regulations for the purposes of this subsection are satisfied. Financial arrangement hedging more than one type of risk (8) A *financial arrangement that hedges more than one type of risk may only be a hedging financial arrangement if the standards referred to in paragraph (1)(b) allow the arrangement to be designated as a hedge of those risks. More than one financial arrangement hedging the same risk or risks (9) If 2 or more *financial arrangements hedge the same risk or risks, each of the arrangements may only be a hedging financial arrangement if the standards referred to in paragraph (1)(b) allow those arrangements to be viewed in combination and jointly designated as hedging that risk or those risks. Hedged item (10) If a *financial arrangement that you have hedges a risk in relation to: (a) an asset or a part of an asset; or (b) a liability or a part of a liability; or (c) a firm commitment (within the meaning of the *accounting standards) or a part of such a commitment; or (d) a highly probable forecast transaction (within the meaning of the accounting standards) or a part of such a transaction; or (e) a net investment in a foreign operation (within the meaning of the accounting standards) or a part of such an investment; or (f) something prescribed by the regulations for the purposes of this paragraph; the asset (or that part of the asset), the liability (or that part of the liability), the commitment (or that part of the commitment), the transaction (or that part of the transaction) or the investment (or that part of the investment) is a hedged item for the arrangement. (11) If a *financial arrangement is a *hedging financial arrangement because of paragraph (4)(a), the anticipated dividend referred to in that subparagraph is a hedged item for the arrangement even if subsection (10) is not satisfied in relation to the anticipated dividend. 230-340 Generally whole arrangement must be financial hedging arrangement (1) Subject to subsections (2), (3) and (4), the whole of a *financial arrangement must satisfy the requirements of subsection 230-335(1) or (3) for the arrangement to be a hedging financial arrangement. Partial hedges (2) If a *financial arrangement: (a) is an options contract; and (b) hedges risk only in part by reference to changes in the intrinsic value of the options contract; the arrangement may be treated as a hedging financial arrangement to the extent to which the part of the arrangement referred to in paragraph (b) satisfies the requirements of subsection 230-335(1) or (3). (3) If a *financial arrangement: (a) is a forward contract; and (b) has a spot price element and an interest element; the arrangement may be treated as a hedging financial arrangement to the extent to which the spot price element satisfies the requirements of subsection 230-335(1) or (3). Proportionate hedges (4) A specified proportion of a *financial arrangement may be treated as a hedging financial arrangement to the extent to which that proportion of the arrangement satisfies the requirements of subsection 230-335(1) or (3). Separate financial arrangements if partial or proportionate hedge (5) If a part (or parts), or a proportion (or proportions), of a *financial arrangement is (or are) treated as a *hedging financial arrangement under subsection (2), (3) or (4): (a) the part (or each of the parts), or the proportion (or each of the proportions), of the arrangement that is (or are) treated as a hedging financial arrangement is taken to be a separate financial arrangement for the purposes of this Division; and (b) the remaining part or proportion (if any) of the arrangement is taken to be a separate financial arrangement for the purposes of this Division. (6) Subsection (5) has effect even if there would not be separate *arrangements under subsection 230-55(4). 230-345 Requirements not satisfied because of honest mistake or inadvertence If a *derivative financial arrangement, or a *foreign currency hedge, that you have would not be a *hedging financial arrangement only because the requirements of paragraph 230-335(1)(b) or (c), or both, are not satisfied because of an honest mistake or inadvertence, it is nevertheless a hedging financial arrangement if the Commissioner considers this appropriate having regard to: (a) your documented risk management practices and policies; and (b) your record keeping practices; and (c) your accounting systems and controls; and (d) your internal governance processes; and (e) the circumstances surrounding the mistake or inadvertence (including the steps (if any) taken to correct or address the mistake or inadvertence and the steps (if any) taken to prevent a recurrence); and (f) the extent to which the requirements of paragraphs 230- 335(1)(b) and (c) have been met; and (g) the objects of this Subdivision. 230-350 Derivative financial arrangement and foreign currency hedge Derivative financial arrangement (1) A derivative financial arrangement is a *financial arrangement that you have where: (a) its value changes in response to changes in a specified variable or variables; and (b) there is no requirement for a net investment, or there is such a requirement but the net investment is smaller than would be required for other types of financial arrangement that would be expected to have a similar response to changes in market factors. Note: Paragraph (a)-a specified variable includes an interest rate, foreign exchange rate, credit rating, index or commodity or financial instrument price. Foreign currency hedge (2) A foreign currency hedge is a *financial arrangement that you have if: (a) paragraph (1)(a) is satisfied but paragraph (1)(b) is not; and (b) the arrangement hedges a risk in relation to movements in currency exchange rates. 230-355 Recording requirements (1) The requirement of this section is that you must make, or have in place, a record that: (a) contains a description of the following: (i) the *hedging financial arrangement in relation to which the election is made; (ii) the nature of the risk or risks being hedged; (iii) the *hedged item or items; (iv) how you will assess the effectiveness of hedging the risk in reducing your exposure to changes in the fair value of the hedged item or items or cash flows or foreign currency exposure attributable to them; (v) the risk management objective for, and the risk management strategy to be followed in, acquiring, creating or applying the arrangement; and (b) contains any further details that the *accounting standards require, by way of documentation, for an arrangement to be recorded in a financial report as a hedging instrument; and (c) sets out the terms of the determinations you make under section 230-360. To avoid doubt, paragraph (b) applies even if the arrangement is not recorded in your financial report as a hedging instrument. (2) To avoid doubt, the record may consist of a single document or 2 or more documents. (3) The record must be made or in place: (a) at, or soon after, the time when you create, acquire or apply the *hedging financial arrangement; or (b) at such other time as is provided for in the regulations for the purposes of this paragraph. (4) The description must be sufficiently precise and detailed that the following are clear: (a) that the risk in respect of the particular *hedged item or items was the one hedged by the *hedging financial arrangement; (b) the extent to which the risk was hedged; (c) that the rights and/or obligations comprising the hedging financial arrangement were in fact those created, acquired or applied for the purpose of hedging the risk. (5) If a *financial arrangement is a *hedging financial arrangement under subsection 230-335(2) or (3), the following requirements must be met in addition to the requirements of subsections (1), (3) and (4): (a) you must make or have in place, at, or soon before or soon after, the time when you create, acquire or apply the arrangement, a record that sets out: (i) a statement of why, and the way in which, the arrangement operates commercially or economically as a hedge of the *hedged item or items; and (ii) the reasons why the arrangement does not satisfy the requirements of the standards referred to in paragraph 230- 315(2)(a) to be a hedging instrument; (b) you must, at the end of each income year during which you have the arrangement, make a record of the accumulated gains and/or losses (whether realised or unrealised) as at the end of that income year from the arrangement or arrangements relating to the hedged item or items that are yet to be included in your assessable income or allowed to you as deductions; (c) you must have, at the time when you create, acquire or apply the arrangement, a record that sets out your risk management policies and practices; (d) you must have in place, at the time when you create, acquire or apply the arrangement, internal risk management systems and controls that record the arrangement and the hedged item or items. (6) For the purposes of paragraph (5)(b), you must assume that: (a) all the gains from the *financial arrangement would be assessable income; and (b) all the losses from the financial arrangement would be allowed to you as deductions. 230-360 Determining basis for allocating gain or loss (1) A requirement of this section is that you must determine the basis on which your gain or loss from the *hedging financial arrangement is to be allocated to an income year, or over 2 or more income years, for the purposes of this Division. (2) It is also a requirement of this section that the basis that you determine must: (a) fairly and reasonably correspond with the basis on which gains, losses or other amounts in relation to the *hedged item or items are recognised or allocated under this Act; and (b) be objective; and (c) be sufficiently precise and detailed that, when your gain, loss or other amount from the *hedged item or items is taken into account for the purposes of this Act, the following will be clear from the record made under section 230-355: (i) the time at which the gain or loss from the *hedging financial arrangement is to be taken into account for the purposes of this Division; (ii) the way in which that gain or loss will be dealt with under section 230-310. Note: Paragraph (a) refers to an amount in relation to the hedged item or items being recognised or allocated under this Act. This would include an amount being allowed as a deduction or an amount being included in assessable income. If the hedged item were an asset, an amount referable to a part of the cost of the asset might, for example, be allowed as a deduction for a particular income year. (3) To avoid doubt, the income years over which your gain or loss is to be allocated may include an income year that starts after you cease to have the *hedging financial arrangement. 230-365 Effectiveness of the hedge The requirement of this section is that: (a) hedging the risk must be expected to be highly effective (within the meaning of the standards referred to in paragraph 230-315(2)(a)), for the period for which you expect to have the *hedging financial arrangement, in reducing your exposure to changes in the fair value of the *hedged item or items or cash flows attributable to your hedged risk; and (b) the fair value of the hedged item or items or cash flows relating to them and the fair value of the arrangement must be able to be reliably measured; and (c) you must assess the hedging of the risk by the arrangement: (i) on a regular basis in accordance with the *accounting standards; and (ii) at least once in each 12 month period; and your assessment must be that it will be highly effective (within the meaning of the standards referred to in paragraph 230-315(2)(a)) in reducing your exposure to changes in the fair value of the hedged item or items or cash flows attributable to the hedged risk throughout the remainder of the period for which you expect to have the arrangement. 230-370 When election ceases to apply (1) A *hedging financial arrangement election ceases to have effect from the start of an income year if you cease to be eligible under subsection 230-315(2) to make the election for that income year. (2) Subsection (1) does not prevent you from making a new *hedging financial arrangement election at a later time if you become, at that later time, eligible under subsection 230-315(2) to make an election for an income year. Note: The new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made. 230-375 Balancing adjustment if election ceases to apply (1) This section applies if a *hedging financial arrangement election ceases to have effect under subsection 230-370(1). (2) You are taken, for the purposes of this Division, to have: (a) disposed of each *hedging financial arrangement to which the election applies for its fair value immediately before the election ceases to have effect; and (b) reacquired the arrangement at its fair value immediately after the election ceases to have effect. (3) To avoid doubt, this Subdivision applies, for the purposes of working out the consequences of the disposal referred to in paragraph (2)(a), as if the *hedging financial arrangement were one to which the *hedging financial arrangement election applied at the time of the disposal. 230-380 Where requirements not met Commissioner may determine that requirement met (1) If a *hedging financial arrangement that you have would not meet the requirements of sections 230-355 to 230-365, it nevertheless meets the requirements if the Commissioner considers this appropriate having regard to: (a) the respects in which it would not do so; and (b) the extent to which it would not do so; and (c) the reasons why it would not do so; and (d) if the Commissioner is considering whether to impose conditions under subsection (2)-the likelihood that you will comply with those conditions; and (e) the objects of this Subdivision. Commissioner may impose additional record keeping requirements (2) The Commissioner may make a determination under subsection (1) conditional on your keeping records in addition to those required by section 230-355. (3) A determination under subsection (1) ceases to have effect if you breach a condition imposed under subsection (2). (4) Subsection (3) ceases to apply to you if the Commissioner determines that that subsection ceases to apply to you. The determination takes effect from the date specified in the determination. (5) In deciding whether to make the determination under subsection (4), the Commissioner must have regard to: (a) your record keeping practices; and (b) your compliance history; and (c) any changes that have been made to: (i) your accounting systems and controls; and (ii) your internal governance processes; to ensure that breaches of the kind referred to in subsection (3) do not happen again; and (d) any other relevant matter. Commissioner may determine matter under section 230-360 (6) If: (a) the Commissioner makes a determination under subsection (1) in relation to a *hedging financial arrangement; and (b) either or both of the following applies: (i) you fail to determine a matter in relation to the arrangement under section 230-360; (ii) you determine a matter in relation to the arrangement under section 230-360 but the determination does not satisfy the requirements of subsection 230-360(2); the Commissioner may determine that matter and the Commissioner's determination has effect as if you had made the determination and recorded it under that section. 230-385 You may be excluded from this Subdivision for deliberate failures to comply with requirements When section applies (1) This section applies if: (a) you start to have a *hedging financial arrangement to which your *hedging financial arrangement election applies; and (b) you do not meet a requirement of section 230-355 or 230-360 in relation to the arrangement; and (c) you deliberately fail to meet that requirement in order to have this Subdivision not apply to the arrangement. Hedging financial arrangement election ceases to apply (2) The *hedging financial arrangement election does not apply to a *hedging financial arrangement you start to have after you fail to meet the requirement referred to in paragraph (1)(b). Commissioner may determine that hedging financial arrangement is to reapply (3) Subsection (2) ceases to apply to you if the Commissioner determines that that subsection ceases to apply to you. The determination takes effect from the date specified in the determination. (4) The Commissioner may make the determination under subsection (3) only if satisfied that you are unlikely to deliberately fail again to meet a requirement of section 230-355 or 230-360 in order to have this Subdivision not apply to a *hedging financial arrangement. (5) In deciding whether to make the determination under subsection (3), the Commissioner must have regard to: (a) your record keeping practices; and (b) your compliance history; and (c) any changes that have been made to: (i) your accounting systems and controls; and (ii) your internal governance processes; to ensure that failures of the kind referred to in paragraph (1)(c) do not happen again; and (d) any other relevant matter. (6) If the Commissioner makes a determination under subsection (3), the *hedging financial arrangement election applies to a *hedging financial arrangement only if you start to have the arrangement after the determination takes effect. Commissioner may still exercise powers under section 230-380 (7) This section does not prevent the Commissioner from exercising the Commissioner's powers under section 230-380 in relation to the *hedging financial arrangement referred to in paragraph (1)(a). Subdivision 230-F-Reliance on financial reports Table of sections 230-390 Objects of this Subdivision 230-395 Election to rely on financial reports 230-400 Financial reports election where differing income and accounting years 230-405 Commissioner discretion to waive requirements in paragraphs 230-395(2)(c) and (e) 230-410 Financial arrangements to which the election applies 230-415 Financial arrangements not covered by election 230-420 Effect of election to rely on financial reports 230-425 When election ceases to apply 230-430 Balancing adjustment if election ceases to apply 230-390 Objects of this Subdivision The objects of this Subdivision are: (a) to reduce administration and compliance costs by allowing you to align the tax treatment of your gains and losses from a *financial arrangement with the accounting treatment that applies to the arrangement; and (b) to achieve those objects without your obtaining inappropriate tax benefits. 230-395 Election to rely on financial reports Election (1) You may make an election to rely on financial reports if you are eligible under subsection (2) to make the election for the income year in which you make the election. Eligibility to make election (2) You are eligible to make an election to rely on financial reports for an income year if: (a) you prepare a financial report for that income year in accordance with: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and (b) the financial report is audited in accordance with: (i) the *auditing standards; or (ii) if the auditing standards do not apply to the auditing of the financial report-comparable auditing standards made under a foreign law; and (c) your auditor has not qualified the auditor's report on your financial report for that income year or any of the last 4 financial years in a respect that is relevant to the taxation treatment of *financial arrangements; and (d) your accounting systems and controls and your internal governance processes are reliable; and (e) no report of an audit or review conducted in the income year, or any of the preceding 4 income years, has included an adverse assessment of your accounting systems in a respect that is relevant to the taxation treatment of financial arrangements. Note 1: Paragraph (b)-section 230-500 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division. Note 2: For the purposes of paragraphs (c) and (e), a qualification or assessment may be relevant to the taxation treatment of financial arrangements even though it does not deal with the amount or timing of recognition of gains or losses (but relates, for example, to the reliability of the accounting systems through which information about financial arrangements is recorded). (3) Paragraph (2)(e) does not apply to a report of: (a) an internal audit or review that you conduct; or (b) an audit or review of a kind prescribed by the regulations for the purposes of this paragraph. Election irrevocable (4) An election under subsection (1) is irrevocable. Note: The election may cease to apply under section 230-425. 230-400 Financial reports election where differing income and accounting years (1) This section applies if: (a) you prepare a financial report for a year (the first year); and (b) you prepare a financial report for the subsequent year (the second year); and (c) your income year starts in the first year and ends in the second year; and (d) both the financial report for the first year and the financial report for the second year are: (i) prepared in accordance with paragraph 230-395(2)(a); and (ii) audited in accordance with paragraph 230-395(2)(b); and (e) the auditor's reports are unqualified for both the financial report for the first year and the financial report for the second year. (2) Treat yourself as eligible to make an election for the income year under subsection 230-395(2). (3) Work out the gain or loss you make from the arrangement for the income year as follows: (a) firstly, work out the gain or loss you make from the arrangement for the first year in accordance with section 230- 420 (treating the first year as an income year); (b) next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4); (c) next, work out the gain or loss you make from the arrangement for the second year in accordance with section 230-420 (treating the second year as an income year); (d) next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4); (e) next: (i) if the amounts worked out under paragraphs (b) and (d) are both gains-add them together to work out the gain from the arrangement for the income year; or (ii) if the amounts worked out under paragraphs (b) and (d) are both losses-add them together to work out the loss from the arrangement for the income year; or (iii) if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain-subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year. (4) For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by: (a) using a methodology that is reasonable; and (b) using the same methodology for the first and second years. (5) For the purposes of paragraph (4)(a), treat a methodology that attributes the gain or loss on a pro-rata basis as not being reasonable. 230-405 Commissioner discretion to waive requirements in paragraphs 230- 395(2)(c) and (e) (1) Paragraph 230-395(2)(c) or (e) does not apply in relation to your *election to rely on financial reports for a particular income year or income years if the Commissioner determines that the paragraph does not apply to the election for that income year or those income years. (2) In deciding whether to make the determination under subsection (1), the Commissioner must have regard to: (a) the reasons for the non-compliance with the standards concerned; and (b) the remedial action (if any) that you have undertaken to ensure that non-compliance with those standards does not occur in future (such as changes to your accounting systems and controls or to your internal governance structures); and (c) if you, or your activities, are subject to regulatory oversight or review-any opinions expressed by the regulator about the adequacy of remedial action of the kind referred to in paragraph (b); and (d) any other relevant matter. 230-410 Financial arrangements to which the election applies (1) An *election to rely on financial reports applies in relation to a *financial arrangement that you have if: (a) the arrangement is a *Division 230 financial arrangement; and (b) you start to have the arrangement in the income year in which you make the election or in a later income year; and (c) the arrangement is recognised in financial reports of the kind referred to in paragraph 230-395(2)(a) that are audited as referred to in paragraph 230-395(2)(b); and (d) if the arrangement is a financial arrangement under section 230- 50-the arrangement is an asset or liability that you are required (whether or not as a result of a choice you make) by: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards that apply to the preparation of the financial report under a *foreign law; to classify or designate, in the financial reports, as at fair value through profit or loss; and (e) it is reasonably expected that the following is, or will be, the same: (i) the amount of the overall gain or loss you make from the arrangement (as determined in accordance with the financial reports); (ii) the amount of the overall gain or loss you make from the arrangement (as determined in accordance with the provisions of this Division if the election under subsection (1) did not apply to the arrangement); and (f) the differences between the results of the following methods would reasonably be expected not to be substantial: (i) the method used in your financial reports to work out the amounts of the gain or loss you make from the arrangement for each income year; (ii) the method that would be applied by this Division to work out the amounts of those gains or losses if the election did not apply to the arrangement. This subsection has effect subject to section 230-415. (2) In applying paragraph (1)(f) at the time when you start to have the *financial arrangement, disregard any differences between the results of the methods referred to in subparagraphs (1)(f)(i) and (ii) that are attributable solely to the provision for the possible impairment of debts required by the standards referred to in paragraph 230-395(2)(a). (3) Subsections (4), (5) and (6) apply if, but for this subsection, paragraphs (1)(c) and (d) would not be satisfied in relation to a *financial arrangement because the arrangement is an intra-group transaction for the purposes of: (a) *accounting standard AASB 127 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or (b) if that standard does not apply to the preparation of the financial report-a comparable accounting standard that applies to the preparation of the financial report under a *foreign law. Note: Financial arrangements between members of a consolidated group or MEC group are not covered by this subsection because the single entity rule in subsection 701-1(1) operates to treat them as not being financial arrangements for the purposes of this Division. (4) Paragraphs (1)(c) and (d) are taken to be satisfied in relation to the *financial arrangement. (5) Paragraph (1)(e) applies as if the reference in subparagraph (1)(e)(i) to the amount of the overall gain or loss you make from the *financial arrangement (as determined in accordance with the financial reports) were a reference to the amount of that overall gain or loss (as would be determined in accordance with the financial reports if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph (3)(b)). (6) Paragraph (1)(f) applies as if the reference in subparagraph (1)(f)(i) to the method used in your financial reports to work out the amounts of the gain or loss you make from the arrangement for each income year were a reference to the method that would be used in your financial reports to work out those amounts if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph (3)(b). (7) For the purposes of applying subparagraphs (1)(e)(ii) and (f)(ii) to a *financial arrangement, assume that you had made any election that: (a) you could make under Subdivision 230-C or 230-D; and (b) could apply to the arrangement. (8) If: (a) the *financial arrangement would not be a financial arrangement if the following provisions were disregarded: (i) Division 9A of Part III of the Income Tax Assessment Act 1936 (which deals with offshore banking units); (ii) Part IIIB of that Act (which deals with Australian branches of foreign banks etc.); and (b) paragraphs (1)(c) and (d) would be satisfied in relation to the financial arrangement if the arrangement had been between 2 separate entities; and (c) the *election to rely on financial reports is made by: (i) if section 121EB of the Income Tax Assessment Act 1936 applies- the OBU mentioned in that section (disregarding the operation of that section); or (ii) if section 160ZZW of that Act applies-the bank mentioned in that section (disregarding the operation of that section); paragraphs (1)(c) and (d) are taken to be satisfied in relation to the arrangement. 230-415 Financial arrangements not covered by election (1) An *election to rely on financial reports does not apply to a *financial arrangement if: (a) the arrangement is an *equity interest; and (b) you are the issuer of the equity interest. (2) An *election to rely on financial reports does not apply to a *financial arrangement if: (a) you are: (i) an individual; or (ii) an entity (other than an individual) that satisfies subsection 230-455(2), (3) or (4) for the income year in which you start to have the arrangement; and (b) the arrangement is a *qualifying security; and (c) you have not made an election under subsection 230-455(7). (3) An *election to rely on financial reports does not apply to a *financial arrangement if: (a) the election is made by the *head company of a *consolidated group or *MEC group; and (b) the election specifies that the election is not to apply to financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and (c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group. (4) An *election to rely on financial reports does not apply to a *financial arrangement if the arrangement is associated with a business of a kind specified in regulations made for the purposes of this subsection. 230-420 Effect of election to rely on financial reports (1) If an *election to rely on financial reports applies to a *financial arrangement, the gain or loss you make from the arrangement for an income year is: (a) the gain or loss that the standards referred to in paragraph 230-395(2)(a) require you to recognise in profit or loss from that arrangement for that income year; or (b) if subsection 230-410(3) applies to the arrangement-the gain or loss that the standards referred to in paragraph 230-395(2)(a) would have required you to recognise in profit or loss from that arrangement for that income year if the arrangement had not been an intra-group transaction for the purposes of the standard referred to in paragraph 230-410(3)(b); or (c) if subsection 230-410(8) applies to the arrangement-the gain or loss that the standards referred to in paragraph 230-410(1)(d) would have required you to recognise in profit or loss for the year from the asset or liability mentioned in paragraph 230- 410(1)(d) if the arrangement had been between 2 separate entities. Note: Subsection 230-40(7) provides that this Subdivision does not apply to a gain or loss from a financial arrangement to the extent to which Subdivision 230-E (hedging financial arrangements method) applies to the arrangement. (2) Subsection (3) applies if: (a) a *head company of a *consolidated group or *MEC group has a *financial arrangement; and (b) an *election to rely on financial reports applies to the arrangement; and (c) a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and (d) immediately after the leaving time, the subsidiary member has the arrangement. (3) The gain or loss the group makes from the *financial arrangement for the income year in which the leaving time occurs is taken to be the gain or loss that the standards referred to in paragraph 230-395(2)(a) would require the group to recognise in profit or loss from the arrangement for that income year if: (a) the circumstances that existed in relation to the arrangement (including its value) immediately before the leaving time had continued to exist until the end of the income year; and (b) any circumstances that arise in relation to the arrangement after the leaving time were disregarded. 230-425 When election ceases to apply (1) An election under subsection 230-395(1) ceases to have effect from the start of an income year if you cease to be eligible to make an *election to rely on financial reports for that income year. (2) Subsection (1) does not prevent you from making a new election under subsection 230-395(1) at a later time if you become, at that later time, eligible to make an *election to rely on financial reports for an income year. Note: The new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made. (3) An election under subsection 230-395(1) ceases to apply to a *financial arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 230- 410(1)(c), (d), (e) or (f) during that income year. (4) If the election ceases to apply to a particular *financial arrangement under subsection (3), the election cannot subsequently apply to that arrangement (even if the requirements of paragraphs 230-410(1)(c), (d), (e) and (f) are satisfied once more in relation to the arrangement). 230-430 Balancing adjustment if election ceases to apply (1) You must make balancing adjustments under subsection (2) if an election under subsection 230-395(1) ceases to have effect under subsection 230-425(1). (2) The balancing adjustments under this subsection are the balancing adjustments you would make under Subdivision 230-G in relation to each of the *financial arrangements to which the election applied if you disposed of the arrangement for its fair value when the election ceases to have effect. (3) You must make balancing adjustments under subsection (5) if an election under subsection 230-395(1) ceases to apply to a particular *financial arrangement under subsection 230-425(3). (4) Subsection (3) does not apply to a *financial arrangement if: (a) the arrangement is not one that you are required (whether or not as a result of a choice you make) by the standards referred to in paragraph 230-395(2)(a) to classify or designate, in your financial reports, as at fair value through profit or loss; and (b) the election under subsection 230-395(1) ceases to apply to the arrangement because the arrangement fails to satisfy the requirements of paragraph 230-410(1)(e) or (f); and (c) the arrangement ceases to satisfy the requirements of that paragraph because the arrangement becomes impaired for the purposes of those standards. (5) The balancing adjustment under this subsection is the balancing adjustment you would make under Subdivision 230-G if you disposed of the *financial arrangement for its fair value when the election ceases to apply to the arrangement. (6) If a balancing adjustment is made under subsection (2) or (5) in relation to a *financial arrangement, you are taken, for the purposes of this Division, to have reacquired the arrangement at its fair value immediately after the election ceased to have effect or ceased to apply to the arrangement. Subdivision 230-G-Balancing adjustment on ceasing to have a financial arrangement Table of sections 230-435 When balancing adjustment made 230-440 Exceptions 230-445 Balancing adjustment 230-435 When balancing adjustment made When balancing adjustment made (1) A balancing adjustment is made under this Subdivision if: (a) you transfer to another entity all of your rights and/or obligations under a *financial arrangement; or (b) all of your rights and/or obligations under a financial arrangement otherwise cease; or (c) you transfer to another entity: (i) a proportionate share of all of your rights and/or obligations under a financial arrangement; or (ii) a right or obligation that you have under a financial arrangement to a specifically identified *financial benefit; or (iii) a proportionate share of a right or obligation that you have under a financial arrangement to a specifically identified financial benefit; or (d) an *arrangement that is a *Division 230 financial arrangement ceases to be a financial arrangement. (2) Paragraphs (1)(a), (b) and (c) do not apply to a right or obligation under a *financial arrangement unless that right or obligation is one of the rights or obligations that constitute the financial arrangement. Note: See subsections 230-45(1) and 230-50(1) and (2) for the rights and/or obligations that constitute a financial arrangement. Modifications for arrangements that are assets (3) If the *financial arrangement is an asset of yours at the time the event referred to in subsection (1) occurs, paragraphs (1)(a) and (c) do not apply unless the effect of the transfer is to transfer to the other entity substantially all the risks and rewards of ownership of the interest transferred. (4) If a *financial arrangement is an asset of yours, for the purposes of applying this Subdivision to the arrangement, you are treated as transferring a right under the arrangement to another entity if: (a) you retain the right but assume a new obligation; and (b) your assumption of the new obligation has the same effect, in substance, as transferring the right to another entity; and (c) the new obligation arises only to the extent to which the right to *financial benefits under the arrangement is satisfied; and (d) you cannot sell or pledge the right (other than as security in relation to the new obligation); and (e) you must, under the new obligation, provide financial benefits you receive in relation to the right to the entity to which you owe the new obligation without delay. Historic rate rollover of derivative financial arrangement (5) For the purposes of paragraph (1)(b), all of your rights and/or obligations under a *financial arrangement that is a *derivative financial arrangement are taken to *cease if there is an historic rate rollover of the arrangement. 230-440 Exceptions Equity interests etc. (1) A balancing adjustment is not made under this Subdivision in relation to a *financial arrangement at a time if: (a) the arrangement is a financial arrangement under section 230-50 (equity interests etc.); and (b) neither Subdivision 230-C nor Subdivision 230-F apply to the arrangement immediately before that time. Financial arrangements to which hedging financial arrangement elections apply (2) Balancing adjustments are not made under this Subdivision in relation to a *financial arrangement in relation to which a *hedging financial arrangement election applies. Bad debts, margining and conversion into, or exchange for, ordinary shares (3) A balancing adjustment is not made under this Subdivision in relation to the following events: (a) a *financial arrangement being written off in whole or part as a bad debt; (b) a financial arrangement that is a *derivative financial arrangement being settled or closed out for margining purposes; (c) the ceasing of obligations or rights under a financial arrangement that is a *traditional security if: (i) the ceasing occurs because the traditional security is converted into ordinary shares in, or transferred to, a company that is the issuer of the traditional security or a *connected entity; and (ii) the traditional security was issued on the basis that it will or may convert into ordinary shares in, or be transferred to, the issuer of the traditional security or the connected entity; (d) the ceasing of obligations or rights under a financial arrangement that is a traditional security if: (i) the ceasing occurs because the traditional security is exchanged for ordinary shares in a company that is neither the issuer of the traditional security nor a connected entity; and (ii) if the ceasing of the obligations or rights occurs because of a disposal-the disposal is to the issuer of the traditional security or a connected entity; and (iii) the traditional security was issued on the basis that it will or may be exchanged for ordinary shares in the company. Note: Paragraph (a)-for the treatment of bad debts, see paragraph 230-190(3)(c). Subsidiary member leaving consolidated group or MEC group (4) A balancing adjustment is not made under this Subdivision in relation to a subsidiary member of a *consolidated group or *MEC group that has a *financial arrangement ceasing to be a member of the group. 230-445 Balancing adjustment Complete cessation or transfer (1) Use the following method statement to make the balancing adjustment if paragraph 230-435(1)(a), (b) or (d) applies: Method statement for balancing adjustment Step 1. Add up the following: (a) the total of all the *financial benefits you have received under the *financial arrangement; Note: This would include financial benefits you receive in relation to the transfer or cessation (see paragraph 230-60(2)(c)). (b) the total of the amounts that have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement; (c) the total of the other amounts that would have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement if all your losses from the arrangement were allowable as deductions; Note: The losses from the arrangement here include losses made in gaining or producing exempt income or non- assessable non-exempt income. (d) the total of the amounts that will be allowed to you as deductions after the transfer or cessation because of a balancing adjustment under subitems 104(12) to (18) of the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 to the extent to which those amounts are attributable to the arrangement; (e) the total of the amounts that will be allowed to you as deductions after the transfer or cessation because of sections 230-160 and 230-165 to the extent to which those amounts are attributable to the arrangement. Step 2. Add up the following: (a) the total of all the *financial benefits you have provided under the *financial arrangement; Note: This would include financial benefits you provide in relation to the transfer or cessation (see paragraph 230-60(1)(c)). (b) the total of the amounts that have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement; (c) the total of the other amounts that would have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement if all your gains from the arrangement were assessable; Note: The gains from the arrangement here include amounts of exempt income or non-assessable non-exempt income. (d) the total of the amounts that will be included in your assessable income after the transfer or cessation because of a balancing adjustment under subitems 104(12) to (18) of the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 to the extent to which those amounts are attributable to the arrangement. (e) the total of the amounts that will be included in your assessable income after the transfer or cessation because of sections 230-160 and 230-165 to the extent to which those amounts are attributable to the arrangement. Step 3. Compare the amount obtained under step 1 (the step 1 amount) with the amount obtained under step 2 (the step 2 amount). If the step 1 amount exceeds the step 2 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a gain you make from the *financial arrangement for the purposes of this Division. If the step 2 amount exceeds the step 1 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a loss that you make from the arrangement. If the step 1 amount and the step 2 amount are equal, no balancing adjustment is made. Proportionate transfer of all rights and/or obligations under financial arrangement (2) If subparagraph 230-435(1)(c)(i) applies, you make the balancing adjustment by applying the method statement in subsection (1) but reduce: (a) the amounts referred to in step 1; and (b) the amounts referred to in step 2; by applying the proportion referred to in subparagraph 230- 435(1)(c)(i) to them. Transfer of specifically identified right or obligation under financial arrangement (3) If subparagraph 230-435(1)(c)(ii) applies, you make the balancing adjustment by applying the method statement in subsection (1) as if the references to: (a) the amounts referred to in step 1; and (b) the amounts referred to in step 2; were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph 230-435(1)(c)(ii). Proportionate transfer of specifically identified right or obligation under financial arrangement (4) If subparagraph 230-435(1)(c)(iii) applies, you make the balancing adjustment by applying the method statement: (a) as if the references to: (i) the amounts referred to in step 1; and (ii) the amounts referred to in step 2; were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph 230-435(1)(c)(iii); and (b) by reducing those amounts by applying the proportion referred to in subparagraph 230-435(1)(c)(iii) to them. Attribution must reflect appropriate and commercially accepted valuation principles (5) Any attribution made under subsection (3) or paragraph (4)(a) must reflect appropriate and commercially accepted valuation principles that properly take into account: (a) the nature of the rights and obligations under the *financial arrangement; and (b) the risks associated with each *financial benefit, right and obligation under the arrangement; and (c) the time value of money. Income year for which gain or loss is made (6) The gain or loss you are taken to make under subsection (1), (2), (3) or (4) is a gain or loss for the income year in which the event referred to in subsection 230-435(1) occurs. Treatment of bad debts in relation to financial arrangements (7) For the purposes of applying paragraph (b) of step 1 of the method statement in subsection (1) to a *financial arrangement, a bad debt deduction in relation to the arrangement to which subsection 230-25(3) applies is taken to be a deduction for a loss from the arrangement. Subdivision 230-H-Exceptions Table of sections 230-450 Short-term arrangements where non-money amount involved 230-455 Certain taxpayers where no significant deferral 230-460 Various rights and/or obligations 230-465 Ceasing to have a financial arrangement in certain circumstances 230-470 Forgiveness of commercial debts 230-475 Clarifying exceptions 230-480 Treatment of gains in form of franked distribution etc. 230-450 Short-term arrangements where non-money amount involved This Division does not apply in relation to your gains and losses from a *financial arrangement if: (a) the arrangement is a financial arrangement under section 230- 45; and (b) either: (i) you acquired goods or other property (other than goods that are, or property that is, money or a *money equivalent) or services (other than services that are a money equivalent) from another entity and the *financial benefits you are to provide under the arrangement are consideration for those goods, that property or those services; or (ii) you provided goods or other property (other than goods that are, or other property that is, money or a money equivalent) or services (other than services that are a money equivalent) to another entity and the financial benefits you are to receive under the arrangement are consideration for those goods, that property or those services; and (c) the period between the following is not more than 12 months: (i) the time when you are to provide or receive the consideration (or a substantial proportion of it); (ii) the time when you acquired or provided the property, goods or services (or a substantial proportion of them); and (d) the arrangement is not a *derivative financial arrangement for any income year; and (e) a *fair value election does not apply to the arrangement. 230-455 Certain taxpayers where no significant deferral (1) This Division does not apply in relation to your gains or losses from a *financial arrangement for any income year if: (a) you are: (i) an individual; or (ii) a superannuation entity (within the meaning of section 10 of the Superannuation Industry (Supervision) Act 1993), a managed investment scheme (within the meaning of the Corporations Act 2001) or an entity with a similar status to such a scheme under a *foreign law relating to corporate regulation; or (iii) an *ADI, a *securitisation vehicle, an entity that is required to register under the Financial Sector (Collection of Data) Act 2001 or an entity that would be required to register under that Act if it were a corporation; or (iv) an entity other than an entity of a kind mentioned in subparagraph (i), (ii) or (iii); and (b) where subparagraph (a)(ii) applies-you satisfy subsection (2) for the income year in which you start to have the arrangement; and (c) where subparagraph (a)(iii) applies-you satisfy subsection (3) for the income year in which you start to have the arrangement; and (d) where subparagraph (iv) applies-you satisfy subsection (4) for the income year in which you start to have the arrangement; and (e) either: (i) the arrangement is to end not more than 12 months after you start to have it; or (ii) the arrangement is not a *qualifying security. (2) An entity satisfies this subsection for an income year if: (a) the value of the entity's assets (see subsection (5)) for the income year (worked out at the end of the income year) is less than $100 million if the income year is the one in which the entity comes into existence; or (b) the value of the entity's assets for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $100 million if the income year is an income year after the one in which the entity comes into existence. (3) An entity satisfies this subsection for an income year if: (a) the entity's *aggregated turnover for the income year (worked out at the end of the income year) is less than $20 million if the income year is the one in which the entity comes into existence; or (b) the entity's aggregated turnover for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $20 million if the income year is an income year after the one in which the entity comes into existence. (4) An entity satisfies this subsection for an income year if: (a) either: (i) the entity's *aggregated turnover for the income year (worked out at the end of the income year) is less than $100 million if the income year is the one in which the entity comes into existence; or (ii) the entity's aggregated turnover for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $100 million if the income year is an income year after the one in which the entity comes into existence; and (b) either: (i) the value of the entity's financial assets (see subsection (5)) for the income year (worked out at the end of the income year) is less than $100 million if the income year is the one in which the entity comes into existence; or (ii) the value of the entity's financial assets for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $100 million if the income year is an income year after the one in which the entity comes into existence; and (c) either: (i) the value of the entity's assets (see subsection (5)) for the income year (worked out at the end of the income year) is less than $300 million if the income year is the one in which the entity comes into existence; or (ii) the value of the entity's assets for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $300 million if the income year is an income year after the one in which the entity comes into existence. (5) For the purposes of subsections (2) and (4), the value of the entity's assets or financial assets is to be determined in accordance with: (a) if the entity applies *accounting standard AAS 25 in preparation of its financial reports-that accounting standard or another accounting standard prescribed by the regulations for the purposes of this paragraph; or (b) if paragraph (a) does not apply and the entity prepares its financial reports in accordance with the accounting standards- the entity's financial reports; or (c) if paragraphs (a) and (b) do not apply and the entity prepares its financial reports in accordance with an accounting standard comparable to accounting standard AAS 25 under a *foreign law- that comparable standard; or (d) if paragraphs (a), (b) and (c) do not apply-commercially accepted valuation principles. (6) Subsection (1) does not apply to your gains or losses from a *financial arrangement for an income year if: (a) you have made an election under subsection (7) in that income year or an earlier income year; and (b) you start to have the arrangement after the beginning of the income year in which you make the election. (7) An election under this subsection is an election to have this Division apply to all of the *financial arrangements that you start to have in the income year in which the election is made or a later income year. (8) An election under subsection (7) is irrevocable. (9) This section does not apply in relation to your gains or losses from a *financial arrangement that you start to have after a time if you are not an individual and you failed to satisfy subsection (2), (3) or (4) (as the case may be) for an income year ending before that time. 230-460 Various rights and/or obligations Rights and/or obligations subject to an exception (1) This Division does not apply to your gains and losses from a *financial arrangement for any income year to the extent that your rights and/or obligations under the arrangement are the subject of an exception under any of the following subsections. Note: Further exceptions are also provided for in section 230- 475. Leasing or property arrangement (2) A right or obligation arising under: (a) an *arrangement to which Division 42A (about leases of luxury cars) of Schedule 2E to the Income Tax Assessment Act 1936 applies; or (b) an arrangement to which Division 240 of this Act (about arrangements treated as a sale and loan) applies; or (c) an arrangement that relates to an asset to which Division 250 of this Act (about assets put to tax preferred use) applies; or (d) an arrangement that, in substance or effect, depends on the use of a specific asset that is: (i) real property; or (ii) goods or a personal chattel (other than money or a *money equivalent); or (iii) intellectual property; and gives a right to control the use of the asset; or (e) an arrangement that is a licence to use: (i) real property; or (ii) goods or a personal chattel (other than money or a money equivalent); or (iii) intellectual property; is the subject of an exception. Interest in partnership or trust (3) A right carried by an interest in a partnership or a trust, or an obligation that corresponds to such a right, is the subject of an exception if: (a) there is only one class of interest in the partnership or trust; or (b) the interest is an *equity interest in the partnership or trust; or (c) for a right or obligation relating to a trust-the trust is managed by a funds manager or custodian, or a responsible entity (as defined in the Corporations Act 2001) of a registered scheme (as so defined). (4) Subsection (3) does not apply if a *fair value election, or an *election to rely on financial reports, applies to the *financial arrangement. Certain insurance policies (5) A right or obligation under a *life insurance policy is the subject of an exception unless: (a) you are not a *life insurance company that is the insurer under the policy; and (b) the policy is an annuity that is a *qualifying security. (6) A right or obligation under a *general insurance policy is the subject of an exception unless: (a) you are not a *general insurance company; and (b) the policy is a *derivative financial arrangement. Certain workers' compensation arrangements (7) A right or obligation in relation to a liability for workers' compensation claims to which Division 323 of Schedule J to the Income Tax Assessment Act 1936 applies is the subject of an exception. Certain guarantees and indemnities (8) A right or obligation under a guarantee or indemnity is the subject of an exception unless: (a) the *financial arrangement is the subject of a *fair value election or an *election to rely on financial reports; or (b) the financial arrangement is a *derivative financial arrangement; or (c) the guarantee or indemnity is given in relation to a financial arrangement. Personal arrangements and personal injury (9) The following rights and obligations are the subject of an exception: (a) a right to receive, or an obligation to provide, consideration for providing personal services; (b) a right, or obligation, arising from the administration of a deceased person's estate; (c) a right to receive, or an obligation to provide, a gift under a deed; (d) a right to receive, or an obligation to provide, a *financial benefit by way of maintenance: (i) to an individual who is or has been the *spouse of the person liable to provide the benefit; or (ii) to or for the benefit of an individual who is or has been a child of the person liable to provide the benefit; or (iii) to or for the benefit of an individual who is or has been a child of an individual who is or has been a spouse of the person liable to provide the benefit; (e) a right to receive, or an obligation to provide, a financial benefit in relation to personal injury to an individual; (f) a right to receive, or an obligation to provide, a financial benefit in relation to an injury to an individual's reputation. (10) Without limiting paragraph (9)(e), that paragraph applies: (a) even if the person to whom the *financial benefit is to be provided is not the individual who was injured; and (b) even if the personal injury to the individual takes the form of: (i) a wrong to the individual; or (ii) illness of the individual. Note: The person referred to in paragraph (a) may, for example, be a relative of the individual who was injured. Superannuation and pension benefits (11) A right to receive, or an obligation to provide, *financial benefits is the subject of an exception if the right or obligation arises from a person's membership of a superannuation or pension scheme, including: (a) a right of a dependant of a member to receive financial benefits or an obligation to provide financial benefits to a dependant of a member; and (b) a right or obligation arising from an interest in: (i) a *complying superannuation fund or *non-complying superannuation fund; or (ii) a *pooled superannuation trust; or (iii) an *approved deposit fund; or (iv) an *RSA. Interest in certain foreign companies, foreign trusts and FLPs (12) A right or obligation that arises under an interest (within the meaning of Part XI of the Income Tax Assessment Act 1936) in a *FIF or *FLP is the subject of an exception. Proceeds from certain business sales (13) A right to receive, or an obligation to provide, *financial benefits arising from the sale of: (a) a business; or (b) shares in a company that operates a business; or (c) interests in a trust that operates a business; is the subject of an exception if the amounts, or the values, of those benefits are contingent only on the economic performance of the business after the sale. Infrastructure borrowings (14) A right to receive, or an obligation to provide, *financial benefits is the subject of an exception if the right or obligation arises under an *arrangement to which Division 16L of the Income Tax Assessment Act 1936 applies. Farm Management Deposits (15) A right to receive, or an obligation to provide, *financial benefits is the subject of an exception if the right or obligation is the right or obligation of an owner of a *farm management deposit that relates to the deposit. Rights and obligations to which section 121EK of the Income Tax Assessment Act 1936 applies (16) A right or obligation that arises because of a payment of an amount to which section 121EK of the Income Tax Assessment Act 1936 applies is the subject of an exception. Forestry managed investment scheme interests (17) A right or obligation under a *forestry interest in a *forestry managed investment scheme in relation to which you can claim deductions under Division 394 is the subject of an exception. Regulations may provide for exceptions (18) A right or obligation of a kind specified in the regulations for the purposes of this subsection is the subject of an exception. 230-465 Ceasing to have a financial arrangement in certain circumstances (1) This section applies if: (a) you cease to have a *financial arrangement (or part of a financial arrangement); and (b) you make a loss from ceasing to have the arrangement (or that part of the arrangement); and (c) if the arrangement is a marketable security (within the meaning of section 70B of the Income Tax Assessment Act 1936): (i) you did not acquire the arrangement in the ordinary course of trading on a securities market (within the meaning of that section); and (ii) at the time you acquired the arrangement, it was not open to you to acquire an identical financial arrangement in the ordinary course of trading on a securities market; and (d) if the arrangement is a marketable security-you did not dispose of the arrangement in the course of trading on a securities market; and (e) it would be concluded that you ceased to have the arrangement wholly or partly because there was an apprehension or belief that the other party or other parties to the arrangement were, or would be likely to be, unable or unwilling to discharge all their liabilities to pay amounts under the arrangement. (2) The amount of the loss is reduced by so much of that amount as is a loss of capital or a loss of a capital nature. Note: However, the amount by which the loss is reduced is a capital loss. (3) In applying paragraph (1)(e), you must have regard to: (a) the financial position of the other party or parties to the *financial arrangement; and (b) the perceptions of the financial position of the other party or parties to the arrangement; and (c) other relevant matters. 230-470 Forgiveness of commercial debts If a gain that you make from a *financial arrangement arises from the forgiveness of a debt (as defined in Subdivision 245-B of Schedule 2C to the Income Tax Assessment Act 1936), the gain is reduced by: (a) if section 245-90 (about agreements to forgo capital losses or revenue reductions) of that Schedule does not apply-the debt's net forgiven amount as defined in paragraph 245-85(2)(a) of that Schedule; or (b) if that section does apply-the debt's provisional net forgiven amount as defined in paragraph 245-85(2)(b) of that Schedule. Note: Section 51AAA (about a net capital gains limit) of the Income Tax Assessment Act 1936 also has the effect of preventing you from deducting losses. 230-475 Clarifying exceptions Exceptions (1) To avoid doubt, this Division does not apply to your gains and losses from a *financial arrangement for any income year to the extent that your rights and/or obligations are the subject of an exception under any of the following subsections. (2) This section is not intended to limit, expand or otherwise affect the operation of sections 230-45 to 230-55 (which tell you what is covered by the concept of financial arrangement) in relation to rights and/or obligations other than those dealt with in this section. Retirement village and residential or flexible care arrangements (3) The following rights and obligations are the subject of an exception: (a) a right or obligation arising under a *retirement village residence contract; (b) a right or obligation arising under a *retirement village services contract; (c) a right or obligation arising under an *arrangement under which *residential care or *flexible care is provided. (4) For the purposes of subsection (3): (a) a retirement village residence contract is a contract that gives rise to a right to occupy *residential premises in a *retirement village; and (b) a retirement village services contract is a contract under which a resident of a retirement village is provided with general or personal services in the retirement village. 230-480 Treatment of gains in form of franked distribution etc. (1) This section applies if a gain you make from a *financial arrangement is in the form of: (a) a *franked distribution (including a franked distribution that *flows indirectly to you); or (b) a right to receive a franked distribution (including a franked distribution that will flow indirectly to you). (2) This Division does not apply to the gain to the extent that the *franked distribution has a *franked part. Subdivision 230-I-Other provisions Table of sections 230-485 Effect of change of residence-rules for particular methods 230-490 Effect of change of residence-disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement 230-495 Effect of change of accounting standards 230-500 Comparable foreign accounting and auditing standards 230-505 Financial arrangement as consideration for provision or acquisition of a thing 230-510 Non-arm's length dealings in relation to financial arrangement 230-515 Arm's length dealings in relation to financial arrangement- adjustment to gain or loss in certain situations 230-520 Disregard gains or losses covered by value shifting regime 230-525 Consolidated financial reports 230-485 Effect of change of residence-rules for particular methods (1) The object of this section is to deal with your gains and losses for an income year in which you change residence by: (a) allocating the gains and losses to your periods of Australian and foreign residence in that income year; and (b) determining the assessability of the gains and the deductibility of the losses according to: (i) your residency in each period; and (ii) the sources of the gains and the connection of the losses with your assessable income. (2) This section applies if: (a) you are a foreign resident for part of an income year (the foreign residency period) and an Australian resident for the other part of the income year (the Australian residency period); and (b) section 230-490 does not apply in respect of the change of residence. Note: See section 230-490 if you change residence, and after the change the gains and losses you make from the arrangement are not assessable or deductible under this Division. Realisation method (3) Subsection (4) applies if: (a) you have a *financial arrangement at the time (the residence change time): (i) you cease to be an Australian resident; or (ii) you become an Australian resident; and (b) you apply the realisation method to determine the amount of a gain or loss you make from the arrangement. (4) You are taken for the purposes of this Division: (a) to have disposed of the arrangement just before the residence change time for its fair value just before that time; and (b) to have acquired the arrangement again at the residence change time for its fair value at that time. Accruals and hedging financial arrangement methods (5) Subsection (6) applies if: (a) assuming that you disregarded this section and subsection 230- 40(2), you would apply the accruals or hedging financial arrangement method to determine the amount of: (i) a gain included in your assessable income under section 230-15 for the income year; or (ii) a loss you can deduct under section 230-15 for the income year; and (b) subsection (4) does not apply in relation to any gain or loss under the arrangement. (6) Apply that method by apportioning the gain or loss on a reasonable basis between those periods so as to work out: (a) a gain or loss from the arrangement for the foreign residency period; and (b) a gain or loss from the arrangement for the Australian residency period. Fair value, foreign exchange retranslation and financial reports methods (7) Subsection (8) applies if: (a) assuming that you disregarded this section and subsection 230- 40(2), you would apply the fair value or foreign exchange retranslation method or the method of relying on your financial reports to determine the amount of: (i) a gain included in your assessable income under section 230-15 for the income year; or (ii) a loss you can deduct under section 230-15 for the income year; and (b) subsection (4) does not apply in relation to any gain or loss under the arrangement. (8) Apply that method to work out: (a) a gain or loss from the arrangement for the foreign residency period; and (b) a gain or loss from the arrangement for the Australian residency period. 230-490 Effect of change of residence-disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement (1) This section applies if: (a) you cease to be an Australian resident at a particular time (the residence change time); and (b) you have a *financial arrangement at the residence change time; and (c) at the residence change time you expect that any gains and losses you make from the arrangement after that time will not be assessable or deductible under this Division. (2) You are taken for the purposes of this Division: (a) to have disposed of the arrangement just before that time for its fair value just before that time; and (b) to have acquired the arrangement again at the residence change time for its fair value at that time. 230-495 Effect of change of accounting standards (1) This section applies if: (a) one of these methods apply to take account of a gain or loss you make from a *financial arrangement: (i) the fair value method provided for in Subdivision 230-C; or (ii) the foreign exchange retranslation method provided for in Subdivision 230-D; or (iii) the method of relying on your financial reports provided for in Subdivision 230-F; and (b) there is a change in, or in the application of, the relevant standards (as mentioned in section 230-230 (fair value method), 230-280 (foreign exchange retranslation method) or 230-420 (method of relying on financial reports)) that apply in relation to the arrangement; and (c) that change applies to a particular income year and later years; and (d) as a result of the change, those standards require you to recognise in your statement of financial position an amount (the equity amount), in order to avoid the need to increase or decrease gains or losses recognised in profit or loss from the financial arrangement in respect of previous income years. (2) If the equity amount is positive, include in your assessable income for the particular income year mentioned in paragraph (1)(c) so much of it as relates to the *financial arrangement mentioned in paragraph (1)(a). (3) If the equity amount is negative, you are entitled to a deduction for the particular income year mentioned in paragraph (1)(c) equal to so much of it as relates to the *financial arrangement mentioned in paragraph (1)(a). 230-500 Comparable foreign accounting and auditing standards The regulations may: (a) specify that particular standards that apply under a *foreign law are to be taken for the purposes of this Division to be comparable to the *accounting standards; and (b) specify that particular standards that apply under a foreign law are to be taken for the purposes of this Division to be comparable to the *auditing standards. 230-505 Financial arrangement as consideration for provision or acquisition of a thing (1) This section applies if you start or cease to have a *Division 230 financial arrangement as consideration for the provision or acquisition of a thing. (2) Work out the *market value of the thing at the time at which you (in fact) provide or acquire it. For the purposes of applying this Act to you, treat the amount: (a) you obtain for providing the thing; or (b) you provide for acquiring the thing; as being that market value. Note 1: The amount may be relevant, for example, for the purposes of applying the provisions of this Act dealing with capital gains, capital allowances or trading stock to the thing. Note 2: This subsection does not affect the financial benefits received or provided under the financial arrangement from you starting or ceasing to have it (except in the circumstances described in Note 3). However: (a) the market value of the thing will be, or form part of, those financial benefits for the purposes of section 230- 445; and (b) in the case of a non arm's length transaction, the amount of those financial benefits may be affected by section 230-510. Note 3: If the thing is itself a Division 230 financial arrangement and subsection (3) does not apply, this subsection will determine the financial benefits received or provided under the financial arrangement from you starting or ceasing to have it. (3) Subsection (2) does not apply if: (a) you start or cease to have the *financial arrangement as mentioned in subsection (1) under an arrangement (the starting or ceasing arrangement); and (b) the thing is itself a *Division 230 financial arrangement; and (c) the starting or ceasing arrangement is not itself a Division 230 financial arrangement. Example: An arrangement for exchanging a share subject to Subdivision 230-C for another share subject to Subdivision 230-C, where the arrangement itself is not a Division 230 financial arrangement. (4) For the purposes of this section: (a) treat yourself as providing a thing to another entity if: (i) you have provided, or are to provide, the thing to the other entity; or (ii) you cease to have, have ceased to have or are to cease to have, the thing; or (iii) the other entity starts to have, has started having or is to start to have, the thing; and (b) treat yourself as acquiring a thing if: (i) another entity has provided, or is to provide, the thing to you; or (ii) another entity ceases to have, has ceased to have or is to cease to have, the thing; or (iii) you start to have, have started to have or are to start to have, the thing. (5) For the purposes of this section, treat part of a *Division 230 financial arrangement as a Division 230 financial arrangement. (6) Without limiting subsection (1), the thing provided, or the thing acquired, need not be a tangible thing and may take the form of services, conferring a right, incurring an obligation or extinguishing or varying a right or obligation. (7) To avoid doubt, this section applies even if your starting or ceasing to have the *financial arrangement mentioned in subsection (1) is only part of the consideration for the provision or acquisition of the thing. (8) For the purposes of this section, treat your starting or ceasing to have the *financial arrangement mentioned in subsection (1) as consideration for the provision or acquisition of the thing if that starting or ceasing is, in substance or effect, done for the provision or acquisition of the thing. Example: Starting to have a financial arrangement in satisfaction of an obligation, where the obligation itself was incurred as consideration for the thing. 230-510 Non-arm's length dealings in relation to financial arrangement (1) This section applies if: (a) a balancing adjustment is made under Subdivision 230-G in relation to a *Division 230 financial arrangement you have; and (b) if the balancing adjustment was made because of paragraph 230- 435(1)(b) or (d) (cessations without transfer)-the arrangement is not a *debt interest or loan. Non-arm's length transaction resulting in you starting to have the arrangement (2) Subsection (3) applies if the parties to the dealing that resulted in you starting to have the arrangement were not dealing at *arm's length in relation to the dealing. (3) For the purposes of this Division: (a) disregard the amount of the *financial benefit (if any) that you provided or received in relation to you starting to have the arrangement; and (b) instead, treat yourself as having provided or received a financial benefit in relation to you starting to have the arrangement that is equal to the amount of the financial benefit that you would have provided or received if the parties to the dealing mentioned in subsection (2) were dealing at *arm's length in relation to the dealing. Non-arm's length transaction resulting in change of an amount of a financial benefit that you provided or received under the financial arrangement (4) Subsection (5) applies if the parties to a dealing that resulted in a change of an amount of a *financial benefit that you provide or receive under the *financial arrangement were not dealing at *arm's length in relation to the dealing. (5) For the purposes of this Division: (a) disregard the amount of the *financial benefit (if any) that you provide or receive under the *financial arrangement as a result of the dealing; and (b) instead, treat yourself as providing or receiving a financial benefit under the financial arrangement as a result of the dealing that is equal to the amount of the financial benefit that you would have provided or received if the parties to the dealing were dealing at *arm's length in relation to the dealing. Non-arm's length transaction resulting in balancing adjustment (6) Subsection (7) applies if the parties to the dealing that resulted in the balancing adjustment mentioned in subsection (1) being made were not dealing at *arm's length in relation to the dealing. (7) For the purposes of this Division: (a) disregard the amount of the *financial benefit (if any) that you provide or receive in relation to the balancing adjustment; and (b) instead, treat yourself as providing or receiving a financial benefit in relation to the balancing adjustment that is equal to the amount of the financial benefit that you would have provided or received if the parties to the dealing mentioned in subsection (6) were dealing at *arm's length in relation to the dealing. 230-515 Arm's length dealings in relation to financial arrangement- adjustment to gain or loss in certain situations (1) This section applies if: (a) disregarding this Division, a provision mentioned in subsection (2) makes an adjustment to an amount (including a nil amount) (the relevant amount); and (b) the relevant amount is relevant in determining the amount of a gain or loss you make from a *Division 230 financial arrangement. (2) The provisions are as follows: (a) section 52A of the Income Tax Assessment Act 1936; (b) section 73B of the Income Tax Assessment Act 1936; (c) Division 16J of Part III of the Income Tax Assessment Act 1936; (d) Division 16K of Part III of the Income Tax Assessment Act 1936; (e) subsection 245-65(2) in Schedule 2C to the Income Tax Assessment Act 1936; (f) section 775-40 of the Income Tax Assessment Act 1997. (3) In determining the amount of the gain or loss, treat the relevant amount as having been adjusted by the provision mentioned in subsection (2). (4) However, if the circumstances that give rise to the adjustment result in section 230-510 having the effect of altering the amount of the gain or loss, do not treat the relevant amount as having been adjusted under subsection (3) to the extent of that alteration. 230-520 Disregard gains or losses covered by value shifting regime (1) Disregard a gain or loss under this Division from a *financial arrangement to the extent that it is attributable to: (a) a shifting of value that has consequences under Division 723; or (b) a *value shift that has consequences under Division 725; or (c) an *indirect value shift that has consequences under Division 727; or (d) a shifting of value that has consequences analogous to those under Division 723, 725 or 727 under a repealed provision of this Act or of the Income Tax Assessment Act 1936. (2) Determine whether a shifting of value has the consequences mentioned in paragraph (1)(a) or (d) on the assumption that a *realisation event in respect of all or part of the *financial arrangement happens in the income year for the gain or loss. 230-525 Consolidated financial reports For the purposes of this Division, treat a financial report prepared by another entity as being prepared by you if: (a) the other entity is a *connected entity of yours; and (b) the report is a consolidated financial report that deals with both your affairs and the affairs of the connected entity; and (c) the report properly reflects your affairs. Subdivision 230-J-Additional operation of Division Table of sections 230-530 Additional operation of Division 230-530 Additional operation of Division Foreign currency (1) This Division also applies to foreign currency as if the currency were a right that constituted a *financial arrangement. Non-equity shares (2) This Division also applies to a *non-equity share in a company as if the share were a right that constituted a *financial arrangement. Commodities held by traders (3) This Division also applies to a commodity that you hold as if the commodity were a right that constituted a *financial arrangement if: (a) you are an entity that trades or deals both in: (i) that commodity; and (ii) financial arrangements whose values change in response to changes in the price or value of that commodity; and (b) you hold that commodity for the purposes of dealing in the commodity; and (c) a *fair value election or an *election to rely on financial reports applies to financial arrangements that you start to have when you start to have the commodity; and (d) the commodity is an asset that you are required (whether or not as a result of a choice you make) by: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards that apply to the preparation of the financial report under a *foreign law; to classify or designate, in your financial reports, as at fair value through profit or loss. Offsetting commodity contracts held by traders (4) This Division also applies to a contract to which you are a party as if the contract were a *financial arrangement if: (a) you have a right to receive or an obligation to provide a commodity under the contract; and (b) you have a practice of dealing in the commodity through the performance of offsetting contracts to receive and provide the commodity; and (c) you do not have, as your sole or dominant purpose for entering into the contract, the purpose of receiving or delivering the commodity as part of your expected purchase, sale or usage requirements; and (d) a *fair value election or an *election to rely on financial reports applies to financial arrangements that you start to have when you enter into the contract; and (e) the contract is an asset or liability that you are required (whether or not as a result of a choice you make) by: (i) the *accounting standards; or (ii) if those standards do not apply to the preparation of the financial report-comparable accounting standards that apply to the preparation of the financial report under a *foreign law; to classify or designate, in your financial reports, as at fair value through profit or loss. Division 240-Arrangements treated as a sale and loan Table of Subdivisions Guide to Division 240 240-A Application and scope of Division 240-B The notional sale and notional loan 240-C Amounts to be included in notional seller's assessable income 240-D Deductions allowable to notional buyer 240-E Notional interest and arrangement payments 240-F The end of the arrangement 240-G Adjustments if total amount assessed to notional seller differs from amount of finance charge 240-H Application of Division 16E to certain arrangements 240-I Provisions applying to hire purchase agreements Guide to Division 240 240-1 What this Division is about For income tax purposes, some arrangements (such as hire purchase agreements) are recharacterised as a sale of property, combined with a loan, by the notional seller to the notional buyer, to finance the purchase price. 240-3 How the recharacterisation affects the notional seller Effect of notional sale (1) The consideration for the notional sale is either the price stated as the cost or value of the property or its arm's length value. If the notional seller is disposing of the property as trading stock, the normal consequences of disposing of trading stock follow. In particular, the notional seller will be assessed on the sale price. (2) Where the property is not trading stock the notional seller's assessable income will include any profit made by the notional seller on the notional sale or on the sale of the property after a notional re-acquisition. Effect of notional loan (3) The notional seller's assessable income will include notional interest over the period of the loan. Other effects (4) These effects displace the income tax consequences that would otherwise arise from the arrangement. For example, the actual payments to the notional seller are not included in its assessable income. Also, the notional seller loses the right to deduct amounts under Division 40 (about capital allowances). 240-7 How the recharacterisation affects the notional buyer Effect of notional purchase (1) The cost of the acquisition is either the price stated as the cost or value of the property or its arm's length value. If the notional buyer is acquiring the property as trading stock, the normal consequences of acquiring trading stock follow. In particular, the notional buyer can usually deduct the purchase price. (2) If the property is not trading stock, the notional buyer may be able to deduct amounts for the expenditure under Division 40 (about capital allowances). Effect of notional loan (3) The notional buyer may be able to deduct notional interest payments over the period of the loan. Other effects (4) These effects displace the income tax consequences that would otherwise arise from the arrangement. For example, the notional buyer cannot deduct the actual payments to the notional seller. Subdivision 240-A-Application and scope of Division Table of sections Operative provisions 240-10 Application of this Division 240-15 Scope of Division Operative provisions 240-10 Application of this Division An *arrangement is treated as a notional sale and *notional loan if: (a) the arrangement is listed in the table below; and (b) the arrangement relates to the kind of property listed in the table; and (c) any conditions listed in the table are satisfied. Special provisions that apply to particular arrangements are also listed in the table. |This Division applies to: | | |*Arrangement|That relate|If these |Special | | |s of this |to this |conditions |provisions: | | |kind: |kind of |are | | | | |property: |satisfied: | | |1 |*Hire |Any goods |None |See | | |purchase | | |Subdivision 2| | |agreement | | |40-I | 240-15 Scope of Division This Division has effect for the purposes of this Act and for the purposes of the Income Tax Assessment Act 1936 other than: (a) Parts 3-1 and 3-3 of this Act (capital gains tax); and (b) Division 11A of Part III of the Income Tax Assessment Act 1936 (certain payments to non-residents etc.). Subdivision 240-B-The notional sale and notional loan Table of sections Operative provisions 240-17 Who is the notional seller and the notional buyer? 240-20 Notional sale of property by notional seller and notional acquisition of property by notional buyer 240-25 Notional loan by notional seller to notional buyer Operative provisions 240-17 Who is the notional seller and the notional buyer? (1) An entity is the notional seller if it is a party to the *arrangement and: (a) actually owns the property; or (b) is the owner of the property because of a previous operation of this Division. (2) An entity is the notional buyer if it is a party to the *arrangement and, under the arrangement, has the *right to use the property. Example: If the arrangement is a hire purchase agreement, the finance provider will be the notional seller and the hirer will be the notional buyer. 240-20 Notional sale of property by notional seller and notional acquisition of property by notional buyer (1) The *notional seller is taken to have disposed of the property by way of sale to the *notional buyer, and the notional buyer is taken to have acquired it, at the start of the *arrangement. (2) The *notional buyer is taken to own the property until: (a) the *arrangement ends; or (b) the notional buyer becomes the *notional seller under a later arrangement to which this Division applies. 240-25 Notional loan by notional seller to notional buyer (1) On entering into the *arrangement, the *notional seller is taken to have made a loan (the notional loan) to the *notional buyer. (2) The notional loan is for a period: (a) starting at the start of the *arrangement; and (b) ending on the day on which the arrangement is to cease to have effect or, if the arrangement is of indefinite duration, on the day on which it would be reasonable to conclude, having regard to the terms and conditions of the arrangement, that the arrangement will cease to have effect. (3) The notional loan is of an amount (the notional loan principal) equal to the consideration for the sale of the property less any amount paid, or credited by the *notional seller as having been paid, by the *notional buyer to the notional seller, at or before the start of the *arrangement, for the cost of the property. Note: Section 240-80 affects the amount of the notional loan principal where the arrangement is an extension or renewal of another arrangement. (4) The notional loan is subject to payment of a charge (the finance charge). (5) The consideration for the sale of the property by the *notional seller, and the cost of the acquisition of the property by the *notional buyer, are each taken to have been: (a) if an amount is stated to be the cost or value of the property for the purposes of the *arrangement and the notional seller and the notional buyer were dealing with each other at *arm's length in connection with the arrangement-the amount so stated; or (b) otherwise-the amount that could reasonably have been expected to have been paid by the notional buyer for the purchase of the property if: (i) the notional seller had actually sold the property to the notional buyer at the start of the arrangement; and (ii) the notional seller and the notional buyer were dealing with each other at arm's length in connection with the sale. (6) The *notional loan principal is taken to be repaid, and the *finance charge is taken to be paid, by the making of the payments under the *arrangement. Subdivision 240-C-Amounts to be included in notional seller's assessable income Guide to Subdivision 240-C 240-30 What this Subdivision is about This Subdivision provides for the inclusion in the notional seller's assessable income of: (a) amounts (notional interest) on account of the finance charge for the notional loan that the notional seller is taken to have made to the notional buyer; and (b) any profit made by the notional seller: (i) on the notional sale of the property to the notional buyer; or (ii) on a sale of the property after any notional re- acquisition of the property by the notional seller. Table of sections Operative provisions 240-35 Amounts to be included in notional seller's assessable income 240-40 Arrangement payments not to be included in notional seller's assessable income Operative provisions 240-35 Amounts to be included in notional seller's assessable income Notional interest (1) The *notional seller's assessable income of an income year includes the *notional interest for *arrangement payment periods, and parts of arrangement payment periods, in the income year. Profit on notional sale (2) If the property is not *trading stock of the *notional seller and the consideration for the notional sale of the property exceeds the cost of the acquisition of the property by the notional seller, the excess is included in the notional seller's assessable income of the income year of the notional sale. Profit on actual sale after notional re-acquisition (3) If: (a) the *notional seller is taken under this Division to have re- acquired the property from the *notional buyer; and (b) the notional seller afterwards sells the property; and (c) the consideration for the sale exceeds the cost of the re- acquisition; the excess is included in the notional seller's assessable income of the income year in which the sale occurred. 240-40 Arrangement payments not to be included in notional seller's assessable income (1) The *arrangement payments that the *notional seller receives, or is entitled to receive, under the *arrangement: (a) are not to be included in the *notional seller's assessable income of any income year; but (b) are not taken to be *exempt income of the notional seller. (2) However, those *arrangement payments are taken into account in calculating *notional interest that is included in the *notional seller's assessable income under section 240-35. (3) A loss or outgoing incurred by the *notional seller in deriving any such *arrangement payments is not taken to be a loss or outgoing incurred by the notional seller in relation to gaining or producing *exempt income. Subdivision 240-D-Deductions allowable to notional buyer Guide to Subdivision 240-D 240-45 What this Subdivision is about This Subdivision provides that the notional buyer may, in certain circumstances, be entitled to deductions for the notional interest for the notional loan that the notional seller is taken to have made to the notional buyer. Table of sections Operative provisions 240-50 Extent to which deductions are allowable to notional buyer 240-55 Arrangement payments not to be deductions Operative provisions 240-50 Extent to which deductions are allowable to notional buyer (1) The *notional buyer is only entitled to deduct *notional interest for an income year to the extent that the notional buyer would, apart from this Division, have been entitled to deduct *arrangement payments for that income year if no part of those payments were capital in nature. (2) The *notional buyer is entitled to deduct *notional interest for *arrangement payment periods, and parts of arrangement payment periods, in the income year. 240-55 Arrangement payments not to be deductions The *notional buyer is not entitled to deduct *arrangement payments that the *notional buyer makes under the *arrangement, but those payments are taken into account in calculating *notional interest that may be deducted under section 240-50. Subdivision 240-E-Notional interest and arrangement payments Table of sections Operative provisions 240-60 Notional interest 240-65 Arrangement payments 240-70 Arrangement payment periods Operative provisions 240-60 Notional interest (1) The *notional interest for an *arrangement payment period is worked out as follows: Calculating *notional interest Step 1. Add the *notional interest from previous *arrangement payment periods to the *notional loan principal. Step 2. Subtract any *arrangement payments that have already been made or that are due but that have not been made. The result is the outstanding notional loan principal as at the start of the *arrangement payment period. Step 3. Work out the implicit interest rate. It is the rate of compound interest for the *arrangement payment period at which the *notional loan principal equals the sum of: (a) the present value of the *arrangement payments payable by the *notional buyer under the *arrangement; and (b) the present value of any *termination amounts. Step 4. Multiply the outstanding *notional loan principal by the implicit interest rate. The result is the notional interest for the *arrangement payment period. (2) If only part of an *arrangement payment period occurs during an income year, the *notional interest for that part of the arrangement payment period is so much of the notional interest for that arrangement payment period as may appropriately be related to that income year in accordance with generally accepted accounting principles. (3) In calculating the implicit interest rate, if any of the relevant amounts are not known at the start of the *arrangement, a reasonable estimate of the amount is to be made and is to be used for the purposes of calculating the implicit interest rate for each income year of the *notional seller. (4) If a reasonable estimate cannot be made at that time, an estimate of the amount is to be made at the end of each income year of the *notional seller for the purposes of calculating the implicit interest rate for each income year of the notional seller. 240-65 Arrangement payments An arrangement payment is an amount that the *notional buyer is required to pay under the *arrangement but does not include: (a) an amount in the nature of a penalty payable for failure to make a payment on time; or (b) a *termination amount. 240-70 Arrangement payment periods (1) An *arrangement payment period is a period for which a payment under the *arrangement is allocated or expressed to be payable. (2) However, if a period exceeds 6 months, the period is not an *arrangement payment period but each of the following parts of the period is a separate arrangement payment period: (a) the part of the period beginning at the start of that period and ending 6 months later; (b) each part of the period: (i) beginning immediately after a part of the period that is an arrangement payment period under paragraph (a) or under a previous application of this paragraph; and (ii) ending 6 months after the start of that later part or at the end of the period, whichever first occurs. Subdivision 240-F-The end of the arrangement Table of sections Operative provisions 240-75 When is the end of the arrangement? 240-78 Termination amounts 240-80 What happens if the arrangement is extended or renewed 240-85 What happens if an amount is paid by or on behalf of the notional buyer to acquire the property 240-90 What happens if the notional buyer ceases to have the right to use the property Operative provisions 240-75 When is the end of the arrangement? (1) If the *arrangement is stated to cease to have effect at a particular time, it is taken for the purposes of this Division to end (even if it is extended or renewed) at the earlier of: (a) that time; or (b) the time at which the arrangement ceases to have effect (whether because the arrangement is terminated or for any other reason). Note: Section 240-80 deals with extensions and renewals. (2) An *arrangement is taken to have ended if it is extended or renewed. (3) If the *arrangement is of indefinite duration, it ends at the time at which the arrangement ceases to have effect even if the *arrangement is renewed. Note: Section 240-80 deals with extensions and renewals. (4) An *arrangement is taken to have ended if it is reasonable to conclude, having regard to the terms and conditions of the *arrangement, that the arrangement has ceased to have effect. (5) An *arrangement is also taken to have ended if the property has been lost or destroyed. 240-78 Termination amounts A termination amount is an amount payable because an *arrangement ends and includes: (a) if, at the end of the arrangement, the *notional buyer acquires the property from the *notional seller-an amount payable to the notional seller for the acquisition; or (b) if, at the end of the arrangement, the property is lost or destroyed-any amounts paid to the notional seller (whether by the notional buyer or another entity) as a result of the loss or destruction of the property; or (c) otherwise-the value of the property at the end of the arrangement. 240-80 What happens if the arrangement is extended or renewed (1) This section sets out what happens if, after the end of the *arrangement, the *notional buyer and *notional seller extend or renew the *arrangement. (2) This Division applies as if the original *arrangement has ended and the extended arrangement or renewed arrangement is a separate arrangement (the new arrangement). (3) There is not, however, taken to be any disposal or acquisition as a result of the original arrangement ending or of the new arrangement starting and the *notional buyer does not cease to own the property. (4) Also, the *notional loan principal for the new loan is: (a) if the *arrangement as extended or renewed states an amount as the cost or value of the property for the purposes of the extension or renewal and the *notional seller and the *notional buyer were dealing with each other at *arm's length in connection with the extension or renewal-the amount so stated; or (b) otherwise-the amount that could reasonably have been expected to have been paid by the notional buyer for the purchase of the property if: (i) the notional seller had actually sold the property to the notional buyer when the arrangement was extended or renewed; and (ii) the notional seller and notional buyer were dealing with each other at arm's length in connection with the sale. (5) Subdivision 240-G applies to the *notional loan for the original arrangement. For that purpose, the *notional loan principal for the new arrangement is taken to be a *termination amount paid to the *notional seller under the original arrangement. 240-85 What happens if an amount is paid by or on behalf of the notional buyer to acquire the property If, at or after the end of the *arrangement, an amount is paid to the *notional seller by, or on behalf of, the *notional buyer to acquire the property, the following provisions have effect: (a) the amount paid is not included in the notional seller's assessable income; (b) the notional buyer cannot deduct the payment; (c) the notional buyer is taken to continue to own the property; (d) the transfer to the notional buyer of legal title to the property is not taken to be a disposal of the property by the notional seller. 240-90 What happens if the notional buyer ceases to have the right to use the property (1) This section applies if, at the end of the *arrangement: (a) the arrangement is not extended or renewed in the way mentioned in subsection 240-80(1); and (b) no amount is paid to the *notional seller by, or on behalf of, the *notional buyer to acquire the property; and (c) the property is not lost or destroyed. (2) The property is taken to have been disposed of by the *notional buyer by way of sale back to the *notional seller, and to have been acquired by the *notional seller, at the end of the *arrangement. (3) The consideration for the sale of the property by the *notional buyer, and the cost of the acquisition of the property by the *notional seller, are each taken to be equal to the *market value of the property at the end of the *arrangement. (4) Subsection (5) applies where the property is a *car and if it: (a) had been bought from the *notional seller, when this Division first applied to an *arrangement in respect of the car, by the *notional buyer for a price equal to the *notional loan principal; and (b) had been first used by the notional buyer for any purpose in the *financial year in which that time occurred; the cost of the car, for the purpose of working out its decline in value for that person under Division 40, would have been limited by section 40-230. (5) Where an associate of the *notional buyer acquires the *car, the *cost of the car for the purposes of the application of Division 40 to the associate is taken to be whichever is the lesser of: (a) the sum of: (i) the amount that would have been the *adjustable value of the car at that time for the purposes of the application of that Division to the notional buyer if the notional buyer were not taken under this Division to have disposed of the car; and (ii) any amount that is included in the notional buyer's assessable income under section 40-285 because the notional buyer is taken to have disposed of the car; or (b) the cost of the acquisition of the car by the associate. Subdivision 240-G-Adjustments if total amount assessed to notional seller differs from amount of finance charge Guide to Subdivision 240-G 240-100 What this Subdivision is about This Subdivision provides for adjustments if the sum of the amounts included in the notional seller's assessable income are greater or less than the finance charge, worked out at the end of the arrangement, for the notional loan. Table of sections Operative provisions 240-105 Adjustments for notional seller 240-110 Adjustments for notional buyer Operative provisions 240-105 Adjustments for notional seller (1) This section applies at the end of the *arrangement. (2) If the sum of: (a) all amounts (other than *termination amounts) that were paid or payable to the *notional seller under the *arrangement; and (b) any termination amounts paid or payable to the notional seller; exceeds the amount worked out using the formula in subsection (4), the excess is included in the notional seller's assessable income of the income year in which the arrangement ends. Note: Subsection 240-80(5) provides that the amount of a notional loan that is taken to be made by an extended or renewed arrangement is a termination amount paid under the previous arrangement. (3) If the amount worked out using the formula in subsection (4) exceeds: (a) all amounts (other than *termination amounts) that were paid or payable to the *notional seller under the *arrangement; and (b) any termination amounts paid or payable to the notional seller; the notional seller is entitled to deduct the excess in the income year in which the arrangement ends. Note: Subsection 240-80(5) provides that the amount of a notional loan that is taken to be made by an extended or renewed arrangement is a termination amount paid under the previous arrangement. (4) The formula for the purposes of subsections (2) and (3) is: [pic] where: assessed notional interest means the *notional interest that has been or is to be included in the *notional seller's assessable income of any income year. 240-110 Adjustments for notional buyer (1) If: (a) an amount is included in the *notional seller's assessable income of an income year under subsection 240-105(2); or (b) an amount would have been so included if the notional seller had been subject to tax on assessable income; the *notional buyer is entitled to deduct a corresponding amount in the notional buyer's income year. (2) If: (a) the *notional seller is entitled to deduct an amount for an income year under subsection 240-105(3); or (b) the notional seller would have been so entitled if the *notional seller had been subject to tax on assessable income; a corresponding amount is included in the notional buyer's assessable income for the notional buyer's income year. (3) The *notional buyer is entitled to a deduction, and is required to include an amount in his or her assessable income only to the extent (if any) that the notional buyer would, apart from this Division, have been entitled to deduct *arrangement payments if no part of those payments were capital in nature. Subdivision H-Application of Division 16E to certain arrangements 240-112 Division 16E applies to certain arrangements (1) Division 16E of Part III of the Income Tax Assessment Act 1936 applies in relation to an arrangement (the assignment arrangement) between the notional seller and another person (the holder) to transfer the right to payments (the Division 240 payments) under an arrangement that is treated as a sale and loan by this Division (the sale and loan arrangement). (2) In applying Division 16E, the following assumptions are to be made: (a) the assignment arrangement is the qualifying security; (b) the notional seller is the issuer; (c) the qualifying security is issued when the assignment arrangement is entered into; (d) the issue price is consideration provided to the notional seller under the assignment arrangement; (e) the Division 240 payments are payments made by the notional seller under the assignment arrangement; (f) no part of the payments represent periodic interest. (3) This Subdivision does not apply if the assignment arrangement gives rise to a termination of the sale and loan arrangement for the purposes of this Division. (4) To avoid doubt, Division 6A of Part III of the Income Tax Assessment Act 1936 does not apply to an assignment arrangement to which this Subdivision applies. Subdivision 240-I-Provisions applying to hire purchase agreements Table of sections Operative provisions 240-115 Another person, or no person taken to own property in certain cases Operative provisions 240-115 Another person, or no person taken to own property in certain cases (1) This section sets out special modifications of the effect of this Division that apply in relation to a *hire purchase agreement unless: (a) the notional buyer would have been the owner or the *quasi- owner of the property if the *arrangement had been a sale of the property; and (b) it is reasonably likely that the right, obligation or contingent obligation to acquire the property will be exercised by, or in respect of, the notional buyer. Note: An example of a contingent obligation is a put option. (2) The modifications also apply if the *notional buyer: (a) disposes of his or her interest in the property; or (b) enters into a lease covered by Division 42A of Schedule 2E to the Income Tax Assessment Act 1936 under which he or she leases the property to another person. Modifications (3) For the purpose of the *capital allowance provisions, if, apart from the operation of this Division, an entity other than the *notional seller would own the property that is the subject of an agreement covered by this section, that entity is taken to be the owner of the property. (4) For the purpose of the *capital allowance provisions, if, apart from the operation of this Division, the *notional seller would own the property that is the subject of an agreement covered by this section, no entity is taken to be the owner of the property. Division 243-Limited recourse debt Table of Subdivisions Guide to Division 243 243-A Circumstances in which Division operates 243-B Working out the excessive deductions 243-C Amounts included in assessable income and deductions 243-D Special provisions Guide to Division 243 243-10 What this Division is about This Division tells you when you must include an additional amount in your assessable income at the termination of a limited recourse debt arrangement. It also tells you what the additional amount is. Basically, the Division applies where the capital allowance deductions that have been obtained for expenditure that is funded by the debt and the deductions are excessive having regard to the amount of the debt that was repaid. The reason for the adjustment is to ensure that, where you have not been fully at risk in relation to an amount of expenditure, you do not get a net deduction if you fail to pay that amount. Subdivision 243-A-Circumstances in which Division operates Table of sections Operative provisions 243-15 When does this Division apply? 243-20 What is limited recourse debt? 243-25 When is a debt arrangement terminated? 243-30 What is the financed property and the debt property? Operative provisions 243-15 When does this Division apply? (1) This Division applies if: (a) *limited recourse debt has been used to wholly or partly finance or refinance expenditure; and (b) at the time that the debt *arrangement is terminated, the debt has not been paid in full by the debtor; and (c) the debtor can deduct an amount as a *capital allowance for the income year in which the termination occurs, or has deducted or can deduct an amount for an earlier income year, in respect of the expenditure or the *financed property. Note: This Division does not apply to certain limited recourse debts that are used to refinance limited recourse debt to which this Division has applied (see subsection 243-50(4)). (2) However, unless the net *capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid (see section 243-35), no amount is included in the debtor's assessable income under this Division although future deductions may be reduced. (3) In working out if the debt has been paid in full, and in working out the unpaid amount of the debt, the following amounts are to be treated as if they were not payments in respect of the debt: (a) any reduction in the debt as a result of the *financed property being surrendered or returned to the creditor at the termination of the debt; (b) any payment to reduce the debt that is funded directly or indirectly by *non-arm's length limited recourse debt or by proceeds from the disposal of the debtor's interest in the financed property. However, any amounts accrued that are interest, *notional interest or in the nature of interest are taken not to be unpaid. (4) In working out if the debt has been paid in full, and in working out the unpaid amount of the debt, payments are to be attributed first to the payment of any accrued amounts that are interest, *notional interest or in the nature of interest. (5) A *notional loan is taken to be debt that has been used to wholly or partly finance or refinance expenditure. Note: Notional loans arise under Division 240. 243-20 What is limited recourse debt? (1) A limited recourse debt is an obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) where the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are limited wholly or predominantly to any or all of the following: (a) rights (including the right to money payable) in relation to any or all of the following: (i) the *debt property or the use of the debt property; (ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property; (iii) the loss or disposal of the whole or a part of the debt property or of the debtor's interest in the debt property; (b) rights in respect of a mortgage or other security over the debt property or other property; (c) rights that arise out of any *arrangement relating to the financial obligations of an end-user of the *financed property towards the debtor, and are financial obligations in relation to the financed property. (2) An obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) is also a limited recourse debt if it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are capable of being limited in the way mentioned in subsection (1). In reaching this conclusion, have regard to: (a) the assets of the debtor (other than assets that are indemnities or guarantees provided in relation to the debt); (b) any *arrangement to which the debtor is a party; (c) whether all of the assets of the debtor would be available for the purpose of the discharge of the debt (other than assets that are security for other debts of the debtor or any other entity); (d) whether the debtor and creditor are dealing at *arm's length in relation to the debt. (3) An obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) is also a limited recourse debt if there is no *debt property and it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are capable of being limited. In reaching this conclusion, have regard to: (a) the assets of the debtor (other than assets that are indemnities or guarantees provided in relation to the debt); (b) any *arrangement to which the debtor is a party; (c) whether all of the assets of the debtor would be available for the purpose of the discharge of the debt (other than assets that are security for other debts of the debtor or any other entity); (d) whether the debtor and creditor are dealing at *arm's length in relation to the debt. (4) A *notional loan under a *hire purchase agreement is also a limited recourse debt. Note: Notional loans arise under Division 240. (5) However, an obligation that is covered by subsection (1) is not a limited recourse debt if the creditor's recourse is not in practice limited due to the creditor's rights in respect of a mortgage or other security over property of the debtor (other than the financed property) the value of which exceeds, or is likely to exceed, the amount of the debt. (6) Also, an obligation that is covered by subsection (1), (2) or (3) is not a limited recourse debt if, having regard to all relevant circumstances, it would be unreasonable for the obligation to be treated as limited recourse debt. (7) A *limited recourse debt is a non-arm's length limited recourse debt if the debtor and creditor do not deal with each other at arm's length in relation to the debt. 243-25 When is a debt arrangement terminated? (1) A debt arrangement is taken to have terminated if: (a) it is actually terminated; or (b) the debtor's obligation to repay the debt is waived, novated or otherwise varied so as to reduce, transfer or extinguish the debt; or (c) an agreement is entered into to waive, novate or otherwise vary the debtor's obligation to repay the debt so as to reduce, transfer or extinguish the debt; or (d) the creditor ceases to have an entitlement to recover the debt from the debtor (other than as a result of an arm's length assignment of some or all of the creditor's rights under the debt arrangement); or (e) the debtor ceases to be the owner or the *quasi-owner of some or all of the *debt property because that property is surrendered to the creditor because of the debtor's failure to pay the whole or a part of the debt; or (f) the debtor ceases to be the owner of a beneficial interest in some or all of the debt property because the interest is surrendered to the creditor because of the debtor's failure to pay the whole or a part of the debt; or (g) the debt becomes a bad debt. (2) However, a debt arrangement that is a *notional loan is not taken to have terminated merely because it has been renewed or extended. Note: Notional loans arise under Division 240. Under that Division, they are taken to have ended if they are renewed or extended. (3) Where a debt is terminated under paragraph (1)(b) or (c) as a result of the debt being reduced, the remaining debt is taken to be a new debt to which section 243-15 applies. 243-30 What is the financed property and the debt property? (1) Property is the financed property if the expenditure referred to in paragraph 243-15(1)(a) is on the property, is on the acquisition of the property, results in the creation of the property or is otherwise connected with the property. (2) If the debt agreement is a *notional loan, the property that is the subject of the agreement is the financed property. Note: Notional loans arise under Division 240. (3) Property is the debt property if: (a) it is the *financed property; or (b) the property is provided as security for the debt. Subdivision 243-B-Working out the excessive deductions Table of sections Operative provisions 243-35 Working out the excessive deductions Operative provisions 243-35 Working out the excessive deductions (1) The *capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid if the amount worked out under subsection (2) exceeds the amount worked out under subsection (4). (2) This is how to work out the total net *capital allowance deductions: Working out the total net capital allowance deductions Step 1. Add up all of the debtor's *capital allowance deductions in respect of the expenditure or the *financed property (including deductions because of balancing adjustments) for the income year in which the termination occurs or an earlier income year. Note: The amount of a capital allowance deduction may be reduced under section 707-415. Step 2. Deduct from that any amount that is included in the assessable income of the debtor of any income year by virtue of a provision of this Act (other than this Division) as a result of the disposal of the *financed property the effect of which is to reverse a deduction covered by Step 1. Step 3. Deduct from the result an amount equal to the sum of any amounts included in the entity's assessable income as a result of an earlier application of this Division to the debt. Step 4. Add to the result an amount equal to the sum of any deductions to which the entity is entitled under section 243- 45 (repayments of the original debt after termination) or 243-50 (repayments of the replacement debt) because of payments in respect of the debt. (3) The reference in step 2 of the method statement in subsection (2) to an amount that is included in the assessable income of a taxpayer as a result of the disposal of the *financed property includes a reference to an amount that is included under section 26AG of the Income Tax Assessment Act 1936 as a result of the disposal of the financed property. Note: Division 20 deals with amounts included to reverse the effect of past deductions. (4) This is how to work out the total net capital allowance deductions that would otherwise be allowable taking into account the amount of the debt that is unpaid: Working out the total net capital allowance deductions that would otherwise be allowable Work out the amount that would be worked out under subsection (2) if the deductions and the amounts included in assessable income had been calculated using the following assumptions: (1) The original expenditure in respect of which deductions were calculated was reduced by the amount of the debt that was unpaid by the debtor when the debt was terminated. (In calculating the amount unpaid the following are to be disregarded: (a) any reduction in the amount as a result of the *financed property being surrendered or returned to the creditor at the termination of the debt; (b) any reduction in the amount to the extent that it is funded directly or indirectly by *non-arm's length limited recourse debt or by the consideration for the disposal of the debtor's interest in the financed property.) (2) Deductions for income years after the income year in which the termination occurred were also taken into account. (3) The original expenditure in respect of which deductions were calculated was increased by any amount that is paid by the debtor as consideration for another person assuming a liability under the debt. (This assumption does not apply to the extent that the consideration is funded directly or indirectly by *non- arm's length limited recourse debt or by the consideration for the disposal of the debtor's interest in the *financed property.) (4) Step 2 were omitted from subsection (2). Subdivision 243-C-Amounts included in assessable income and deductions Table of sections Operative provisions 243-40 Amount included in debtor's assessable income 243-45 Deduction for later payments in respect of debt 243-50 Deduction for payments for replacement debt 243-55 Effect of Division on later capital allowance deductions 243-57 Effect of Division on later capital allowance balancing adjustments 243-58 Adjustment where debt only partially used for expenditure Operative provisions 243-40 Amount included in debtor's assessable income The debtor's assessable income for the income year in which the termination occurs is to include the excess referred to in subsection 243-35(1). Note: Section 243-60 applies in relation to certain partnership debts. 243-45 Deduction for later payments in respect of debt (1) This section applies if: (a) an amount was included in the debtor's assessable income under section 243-40 or a deduction was reduced under section 243-55; and (b) the debtor makes a payment to the creditor, after the termination of the debt arrangement, in respect of the debt (other than an amount to the extent to which it is a payment of interest, of *notional interest or in the nature of interest). (2) This is how to work out the amount of the deduction: Working out the amount of the deduction Step 1. Work out the amount that would be worked out under subsection 243-35(2) if the debt were terminated immediately before the payment. Step 2. Work out the amount that would have been worked out under subsection 243-35(4) at that time if the payment had been taken into account. Step 3. The amount of the deduction is the amount (if any) by which the amount worked out under Step 2 exceeds the amount worked out under Step 1. (3) The amount can be deducted for the income year in which the payment is made. Limit on deductions (4) The total amounts deducted under this section in respect of a debt, and under section 243-50 in respect of a replacement debt, cannot exceed the sum of: (a) any amounts included in the debtor's assessable income under this Division in respect of the original debt; and (b) any amount by which deductions in respect of the original debt were reduced under section 243-55. 243-50 Deduction for payments for replacement debt Payments where debt refinanced (1) This section applies if: (a) an amount was included in the debtor's assessable income under section 243-40 or a deduction was reduced under section 243-55; and (b) an amount funded by a *non-arm's length limited recourse debt (the replacement debt) was disregarded in calculations under subsection 243-35(4); and (c) the debtor makes a payment, after the termination of the original debt arrangement, in respect of the replacement debt (other than to the extent to which it is a payment of interest, of *notional interest or in the nature of interest). (2) This is how to work out the amount of the deduction: Working out the amount of the deduction Step 1. Work out the amount that would be worked out under subsection 243-35(2) if the replacement debt were terminated immediately before the payment. Step 2. Work out the amount that would have been worked out under subsection 243-35(4) at that time if the payment had been made in respect of the original debt and it had been taken into account. Step 3. The amount of the deduction is the amount (if any) by which the amount worked out under Step 2 exceeds the amount worked out under Step 1. (3) The amount can be deducted for the income year in which the payment is made. Division not to apply to termination of replacement debt (4) This Division does not apply to termination of the replacement debt referred to in paragraph (1)(b). Limit on deductions (5) The total amounts deducted under section 243-45 in respect of the original debt, or under this section in respect of the replacement debt, cannot exceed the sum of: (a) any amounts included in the debtor's assessable income under this Division in respect of the original debt; and (b) any amount by which deductions in respect of the original debt were reduced under section 243-55. 243-55 Effect of Division on later capital allowance deductions (1) This section applies where this Division (other than section 243-65) has applied in relation to a debt and the debtor is entitled to a *capital allowance deduction in respect of the expenditure or the *financed property in relation to a time or period after the termination of the debt. (2) The *capital allowance deduction is reduced if the amount that would have been worked out under subsection 243-35(2) would have exceeded the amount worked out under subsection 243-35(4) if the following assumptions were applied in both subsections: Assumptions to be applied (1) That the debt was terminated at the time, or at the end of the period, referred to in subsection (1) of this section. (2) That the amount unpaid at the time, or at the end of the period, is reduced by any amounts paid under a replacement debt. (3) The debtor's *capital allowance deductions in respect of the expenditure or the *financed property were increased by the amount of the capital allowance deduction referred to in subsection (1) of this section. (3) The deduction is to be reduced by the amount of the excess. 243-57 Effect of Division on later capital allowance balancing adjustments (1) This section applies where this Division (other than section 243-65) has applied in relation to a debt and an amount is later included in the assessable income of an entity by virtue of a provision of this Act (other than this Division) as a result of the disposal of the *financed property the effect of which is to reverse a deduction covered by Step 1 in subsection 243-35(2). (2) Any amount that would be included in the debtor's assessable income is reduced if the amount that would have been worked out under subsection 243-35(4) would have exceeded the amount worked out under subsection 243-35(2) if the following assumptions were applied in both subsections: Assumptions to be applied (1) That the debt was terminated at the time of the disposal of the *financed property, referred to in subsection (1) of this section. (2) The amount in Step 2 in subsection 243-35(2) were increased by the amount that would otherwise be included in the debtor's assessable income. (3) The amount worked out under subsection 243-35(4) were reduced by any amount by which: (a) the amount arising as a result of the disposal that is taken into account for the purposes of the provision mentioned in subsection (1); exceeds: (b) the unpaid amount of the debt immediately before the time of the disposal of the *financed property, referred to in subsection (1). (3) The amount is to be reduced by the amount of the excess. 243-58 Adjustment where debt only partially used for expenditure If the debt is only partially used to finance the expenditure, or the property, in respect of which the *capital allowance deductions referred to in Step 1 in subsection 243-35(2) are allowed, the amount of any deduction, any reduction in a deduction or any amount included in assessable income is to be so much as is reasonable taking into account the proportion of the debt that is used for that purpose. Subdivision 243-D-Special provisions Table of sections Operative provisions 243-60 Application of Division to partnerships 243-65 Application where partner reduces liability 243-70 Application of Division to companies ceasing to be 100% subsidiary 243-75 Application of Division where debt forgiveness rules also apply Operative provisions 243-60 Application of Division to partnerships This Division applies to a partnership in respect of the partnership's debts and in respect of debts of a partner, and references to a debtor include a reference to a partnership. 243-65 Application where partner reduces liability (1) This section applies to a debt in relation to a partner in a partnership if: (a) in connection with an *arrangement, the partner's liability to pay the debt is reduced or eliminated and the partner's interest in the partnership ceases or is varied or transferred; and (b) an excess would have been worked out under subsection 243-35(1) if, at the time when the debt is reduced or eliminated, the debt had been terminated and remained unpaid and this section had not applied. (2) If this section applies to a debt in relation to a partner in a partnership, an amount is to be included in his or her assessable income. (3) This is how to work out the amount to be included: Working out the amount included Step 1. Work out which income years the partner was a member of the partnership and the partnership was entitled to a *capital allowance deduction in respect of the expenditure or the *financed property (including deductions because of balancing adjustments). Step 2. For each of those income years, work out the proportion of net income of the partnership or the partnership loss (as the case requires) that was included in the assessable income of the partner or which the partner could deduct. Step 3. For each of those income years, multiply the *capital allowance deductions in respect of the expenditure or the *financed property (including deductions because of balancing adjustments) of the partnership by the corresponding proportion worked out under Step 2. Sum all of the amounts. Step 4. Divide the sum by the total of the *capital allowance deductions in respect of the expenditure or the *financed property (including deductions because of balancing adjustments) of the partnership for all of those income years. Step 5. Work out the amount that would have been included in the partnership's assessable income under section 243-40 if the debt had been terminated and remained unpaid and this section had not applied. Step 6. Multiply the amount worked out in Step 5 by the factor worked out in Step 4. The result is the amount to be included in the partner's assessable income. 243-70 Application of Division to companies ceasing to be 100% subsidiary (1) This section applies to a company if: (a) the company ceases to be a *100% subsidiary in relation to at least one other company; and (b) at that time, the company is the debtor for a *limited recourse debt that has not been paid in full by the company; and (c) the creditor's rights under the debt are transferred or assigned to another entity. (2) If this section applies, this Division applies as if the debt were terminated, and refinanced with *non-arm's length limited recourse debt, at the time the company ceased to be a *100% subsidiary of that other company. 243-75 Application of Division where debt forgiveness rules also apply (1) This section is to remove doubt about how this Division and Schedule 2C to the Income Tax Assessment Act 1936 apply where both apply to the same debt. (2) Where both apply: (a) this Division is to be applied first and is to be applied disregarding any operation of that Schedule; and (b) any amounts included in assessable income under this Division are taken into account under paragraph 245-85(1)(a) of that Schedule. Division 247-Capital protected borrowings Guide to Division 247 247-1 What this Division is about Capital protection provided under a relevant capital protected borrowing to the extent that it is not provided by an explicit put option is treated (for the borrower) as if it were a put option. An amount attributable to capital protection under any relevant capital protected borrowing is treated (for the borrower) as a payment for a put option. Table of sections Operative provisions 247-5 Object of Division 247-10 What capital protected borrowing and capital protection are 247-15 Application of this Division 247-20 Treating capital protection as a put option 247-25 Number of put options 247-30 Exercise or expiry of option Operative provisions 247-5 Object of Division The object of this Division is to ensure that amounts for *capital protection under all relevant *capital protected borrowings are treated (for the borrower) under this Act as a payment for a put option. 247-10 What capital protected borrowing and capital protection are (1) An *arrangement under which a *borrowing is made, or credit is provided, is a capital protected borrowing if the borrower is wholly or partly protected against a fall in the *market value of a thing (the protected thing) to the extent that: (a) the borrower uses the amount borrowed or credit provided to acquire the protected thing; or (b) the borrower uses the protected thing as security for the borrowing or provision of credit. (2) That protection is called capital protection. 247-15 Application of this Division (1) This Division applies to a *capital protected borrowing only if the protected thing is a beneficial interest in: (a) a *share, a unit in a unit trust or a stapled security; or (b) an entity that holds a beneficial interest in a share, unit in a unit trust or stapled security either directly, or indirectly through one or more interposed entities. (2) This Division applies only to borrowers under *capital protected borrowings. (3) This Division does not apply to a *capital protected borrowing under which a *share or stapled security is acquired under an *employee share scheme. (4) This Division does not apply to a *capital protected borrowing entered into before 1 July 2007 (except to the extent that it is extended on or after that day) unless the *share, unit in a unit trust or stapled security is listed for quotation in the official list of an *approved stock exchange. (5) This Division does not apply to a *capital protected borrowing entered into on or after 1 July 2007 if: (a) the protected thing is a beneficial interest in: (i) a *share, unit or stapled security that is not listed for quotation in the official list of an *approved stock exchange; or (ii) an entity that holds a beneficial interest in a share, unit in a unit trust or stapled security either directly, or indirectly through one or more interposed entities, that is not so listed; and (b) one of these conditions is satisfied: (i) for a non-listed share-the company is not a *widely held company; (ii) for a non-listed unit-the trust is not a widely held unit trust as defined in section 272-105 in Schedule 2F to the Income Tax Assessment Act 1936; (iii) for a non-listed stapled security-any company involved is not a widely held company and any trust involved is not such a widely held unit trust. 247-20 Treating capital protection as a put option (1) This section applies to a borrower if: (a) the borrower has an excess using the method statement in subsection (3) for a *capital protected borrowing entered into on or after 1 July 2007; or (b) the borrower has an amount that is reasonably attributable to the *capital protection as mentioned in subsection (2) for a capital protected borrowing, or an extension of a capital protected borrowing, entered into at or after 9.30 am, by legal time in the Australian Capital Territory, on 16 April 2003 and before 1 July 2007. (2) For paragraph (1)(b), the amount that is reasonably attributable to the *capital protection is worked out under Division 247 of the Income Tax (Transitional Provisions) Act 1997. (3) This is the method statement. Method statement Step 1. Work out the total amount incurred by the borrower under or in respect of the *capital protected borrowing for the income year, ignoring amounts that are not in substance for *capital protection or interest. Step 2. Work out the total interest that would have been incurred for the income year on a *borrowing or provision of credit of the same amount as under the *capital protected borrowing at the rate applicable under subsection (4) or (5). Step 3. If the step 1 amount exceeds the step 2 amount, the excess is reasonably attributable to the *capital protection for the income year. Example: Amounts that would be ignored under step 1 include amounts that are in substance the repayment of a loan or credit, the payment of an application fee or brokerage commission and the payment of stamp duty or other tax. (4) If the *capital protected borrowing is at a fixed rate for all or part of the term of the *borrowing, use the Reserve Bank of Australia's Indicator Rate for Personal Unsecured Loans-Variable Rate (the benchmark rate) at the time the first of the amounts referred to in step 1 of the method statement in subsection (3) was incurred during the term of the borrowing or the relevant part of the term. (5) If the *capital protected borrowing is at a variable rate for all or part of the term of the *borrowing, use the average of the benchmark rates published by the Reserve Bank of Australia during the term of the borrowing or the relevant part of the term. (6) If this section applies to a borrower, this Act applies as if: (a) the borrower's excess from the method statement in subsection (3); or (b) the amount that is reasonably attributable to *capital protection as mentioned in paragraph (1)(b); (reduced by any amount the borrower incurred under or in respect of the *capital protected borrowing for an explicit put option) were incurred only for a put option granted by the lender or by another entity under the *arrangement. 247-25 Number of put options (1) If a *capital protected borrowing specifies more than one occasion on which the *capital protection can be invoked, this Act applies as if there were a separate put option for each of those occasions. So much of the amount to which subsection 247-20(6) applies as is reasonably attributable to each option is taken to have been incurred for that option. (2) However, if a borrower may invoke the *capital protection under a *capital protected borrowing at any time up to the end of a period, or only at the end of a period, for which there is capital protection, this Act applies as if there were a single put option for that period. 247-30 Exercise or expiry of option (1) If the *capital protection under a *capital protected borrowing is invoked: (a) the borrower is taken to have exercised the put option; and (b) any interest in a *share, unit in a unit trust or stapled security that is acquired by the lender or another entity under the *arrangement as a result of that capital protection being invoked is taken to have been disposed of by the borrower as a result of the exercise of the option. (2) If the *capital protection under a *capital protected borrowing is not invoked on or before the last occasion on which it could have been, the put option is taken to have expired. Note: If a borrower under a capital protected borrowing holds the protected things on capital account, the exercise or expiry of the put option may give rise to a capital gain or capital loss: see sections 104-25 (CGT event C2) and 134-1 (exercise of options). Division 250-Assets put to tax preferred use Table of Subdivisions Guide to Division 250 250-A Objects 250-B When this Division applies to you and an asset 250-C Denial of, or reduction in, capital allowance deductions 250-D Deemed loan treatment of financial benefits provided for tax preferred use 250-E Taxation of deemed loan 250-F Treatment of asset when Division ceases to apply to the asset 250-G Objections against determinations and decisions by the Commissioner Guide to Division 250 250-1 What this Division is about This Division denies or reduces certain capital allowance deductions that would otherwise be available to you in relation to an asset if the asset is put to a tax preferred use in certain circumstances. If the capital allowance deductions are denied or reduced, certain financial benefits in relation to the tax preferred use of the asset are assessed only to the extent of a notional gain component. This component is worked out on the basis of treating the arrangements under which the asset is put to a tax preferred use, and financial benefits are provided in relation to that tax preferred use, as a loan. Subdivision 250-E then applies to determine the amounts that are to be assessed. Subdivision 250-A-Objects Table of sections 250-5 Main objects 250-5 Main objects The main objects of this Division are: (a) to deny or reduce your *capital allowance deductions in respect of an asset if the asset is put to a *tax preferred use and you have insufficient economic interest in the asset; and (b) if your capital allowance deductions are denied or reduced, to treat the *arrangement for the tax preferred use of the asset as a loan that is taxed as a financial arrangement (on a compounding accruals basis). Subdivision 250-B-When this Division applies to you and an asset Table of sections Overall test 250-10 When this Division applies to you and an asset 250-15 General test 250-20 First exclusion-small business entities 250-25 Second exclusion-financial benefits under minimum value limit 250-30 Third exclusion-certain short term or low value arrangements 250-35 Exceptions to section 250-30 250-40 Fourth exclusion-sum of present values of financial benefits less that amount otherwise assessable 250-45 Fifth exclusion-Commissioner determination Tax preferred use of asset 250-50 End user of an asset 250-55 Tax preferred end user 250-60 Tax preferred use of an asset 250-65 Arrangement period for tax preferred use 250-70 New tax preferred use at end of arrangement period if tax preferred use continues 250-75 What constitutes a separate asset for the purposes of this Division 250-80 Treatment of particular arrangements in the same way as leases Financial benefits in relation to tax preferred use 250-85 Financial benefits in relation to tax preferred use of an asset 250-90 Financial benefit provided directly or indirectly 250-95 Expected financial benefits in relation to an asset put to tax preferred use 250-100 Present value of financial benefit that has already been provided Discount rate to be used in working out present values 250-105 Discount rate to be used in working out present values Predominant economic interest 250-110 Predominant economic interest 250-115 Limited recourse debt test 250-120 Right to acquire asset test 250-125 Effectively non-cancellable, long term arrangement test 250-130 Meaning of effectively non-cancellable arrangement 250-135 Level of expected financial benefits test 250-140 When to retest predominant economic interest under section 250-135 Overall test 250-10 When this Division applies to you and an asset This Division applies to you and an asset at a particular time if: (a) the general test in section 250-15 is satisfied in relation to you and the asset; and (b) none of the exclusions in sections 250-20, 250-25, 250-30, 250- 40 and 250-45 apply. 250-15 General test This Division applies to you and an asset at a particular time if: (a) the asset is being *put to a tax preferred use; and (b) the *arrangement period for the *tax preferred use of the asset is greater than 12 months; and (c) *financial benefits in relation to the tax preferred use of the asset have been, will be or can reasonably be expected to be, *provided to you (or a *connected entity) by: (i) a *tax preferred end user (or a connected entity); or (ii) any *tax preferred entity (or a connected entity); or (iii) any entity that is a foreign resident; and (d) disregarding this Division, you would be entitled to a *capital allowance in relation to: (i) a decline in the value of the asset; or (ii) expenditure in relation to the asset; and (e) you lack a *predominant economic interest in the asset at that time. 250-20 First exclusion-small business entities This Division does not apply to you and an asset if: (a) you are a *small business entity for the income year in which the *arrangement period for the *tax preferred use of the asset starts; and (b) you choose to deduct amounts under Subdivision 328-D for the asset for that income year. 250-25 Second exclusion-financial benefits under minimum value limit (1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if, at the start of the *arrangement period, the total of the nominal values of all the *financial benefits that have been, or will be or can reasonably be expected to be, provided to you (or a *connected entity): (a) by *members of the tax preferred sector; and (b) in relation to the *tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed $5 million. (2) The amount referred to in subsection (1) is indexed annually. Note: Subdivision 960-M shows you how to index amounts. 250-30 Third exclusion-certain short term or low value arrangements Certain short term or low value arrangements generally excluded (1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if: (a) the *arrangement period for the *tax preferred use of the asset does not exceed: (i) 5 years if the asset is real property and the tax preferred use of the asset is a lease; or (ii) 3 years in any other case; or (b) at the start of the arrangement period, the total of the nominal values of all the *financial benefits that have been, will be or can reasonably be expected to be, provided to you (or a *connected entity): (i) by *members of the tax preferred sector; and (ii) in relation to the tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed: (iii) $50 million if the asset is real property and the tax preferred use of the asset is a lease; or (iv) $30 million in any other case; or (c) at the start of the arrangement period, the total of the values of all the assets that are put to a tax preferred use under the arrangement does not exceed: (i) $40 million if the asset is real property and the tax preferred use of the asset is a lease; or (ii) $20 million in any other case. This subsection has effect subject to section 250-35. (2) The amounts referred to in paragraphs (1)(b) and (c) are indexed annually. Note: Subdivision 960-M shows you how to index amounts. 250-35 Exceptions to section 250-30 Debt interests (1) Section 250-30 does not apply if the *arrangement (either alone or together with any arrangement in relation to the *tax preferred use of the asset or the provision of *financial benefits in relation to the tax preferred use of the asset) is a *debt interest. (2) In applying subsection (1), disregard subsection 974-130(4). Member of tax preferred sector having certain rights in relation to the asset (3) Section 250-30 does not apply if: (a) a *member of the tax preferred sector has: (i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or (ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; or (iii) a residual or reversionary interest in the asset that will arise or become exercisable at or after the end of the *arrangement period; and (b) the consideration for the purchase, acquisition or transfer of the right, obligation or interest is not fixed as the *market value of the asset at the time of the purchase, acquisition or transfer. To avoid doubt, this subsection does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time. Member of tax preferred sector providing financing (4) Section 250-30 does not apply if a *member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement). Finance leases, non-cancellable operating leases, service concessions and similar arrangements (5) Section 250-30 does not apply if an *arrangement in relation to the *tax preferred use of the asset, or the provision of *financial benefits in relation to the tax preferred use of the asset, is or involves: (a) a finance lease; or (b) a non-cancellable operating lease; or (c) a service concession or similar arrangement; that generally accepted accounting principles, as in force at the start of the *arrangement period, require to be included as an asset or a liability in your balance sheet. Financial benefits irregular, not based on comparable market-based rates or not reflecting value of tax preferred use of asset (6) Section 250-30 does not apply if the *financial benefits that have been, or are to be provided, to you (or a *connected entity) by *members of the tax preferred sector in relation to the *tax preferred use of the asset: (a) are not provided on a regular periodic basis (and at least annually); or (b) are not based on comparable market-based rates; or (c) do not reflect the value of the tax preferred use of the asset. Special rules if tax preferred use is a lease or hire of the asset (7) If the *tax preferred use of the asset is a lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250-30 does not apply if: (a) the asset is so specialised that the *end user could not carry out one or more of its functions effectively without the asset; and (b) you would be unlikely to be able to re-lease, re-hire or resell the asset to another person who is not a *member of the tax preferred end user group. Note: For particular arrangements that are treated as leases, see section 250-80. Special rules if tax preferred use is not a lease or hire of the asset (8) If the *tax preferred use of the asset is not the lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250-30 does not apply if: (a) a *member of the tax preferred sector has a right, if particular circumstances occur, to manage, or to assume control over, the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); or (b) the asset is so specialised that it is unlikely that it could effectively be put to any use other than the tax preferred use; or (c) neither you (nor a *connected entity) has effective day to day control and physical possession of the asset. Note: For particular arrangements that are treated as leases, see section 250-80. 250-40 Fourth exclusion-sum of present values of financial benefits less than amount otherwise assessable (1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if, when that *tax preferred use of the asset starts, the Division 250 assessable amount is less than the alternative assessable amount. (2) For the purposes of subsection (1), the Division 250 assessable amount is the sum of the present values of all the amounts that would be likely to be included in your assessable income under this Division in relation to the *tax preferred use of the asset if this Division applied to you and the asset. (3) This is how to work out the alternative assessable amount for the purposes of subsection (1): Method statement Step 1. Add up the present values of the amounts that would be included in your assessable income in relation to the *financial benefits *provided in relation to the tax preferred use of the asset during the *arrangement period if this Division did not apply to you and the asset. Step 2. Add up the present values of the amounts that you would be able to deduct in relation to the asset, or expenditure in relation to the asset, under Division 40 or Division 43 in relation to the *arrangement period if this Division did not apply to you and the asset. Step 3. Deduct the amount obtained in Step 2 from the amount obtained in Step 1. The result is the alternative assessable amount. (4) To avoid doubt, the amounts referred to in subsections (2) and (3) are all the amounts that would be likely to be included in your assessable income, or deducted, for all the income years during the whole, or a part, of which the asset is *put to the tax preferred use. (5) The point in time to be used in determining, for the purposes of this section: (a) the present value of an amount that is included in your assessable income for an income year; or (b) the present value of an amount that you would be able to deduct for an income year; is the end of the income year. 250-45 Fifth exclusion-Commissioner determination This Division does not apply to you and an asset at a particular time if: (a) you request the Commissioner to make a determination under this subsection; and (b) the Commissioner determines that it is unreasonable that the Division should apply to you and the asset at that time, having regard to: (i) the circumstances because of which this Division would apply to you and the asset; and (ii) any other relevant circumstances. Tax preferred use of asset 250-50 End user of an asset (1) An entity (other than you) is an end user of an asset if the entity (or a *connected entity): (a) uses, or effectively controls the use of, the asset; or (b) will use, or effectively control the use of, the asset; or (c) is able to use, or effectively control the use of, the asset; or (d) will be able to use, or effectively control the use of, the asset. (2) The control referred to in subsection (1) may be direct or indirect. (3) For the purposes of subsection (1), disregard any temporary control of the asset that is for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service. (4) To avoid doubt, an entity is taken to be an end user of an asset if the entity (or a *connected entity) holds rights as a lessee under a lease of the asset. Note: For particular arrangements that are treated as leases, see section 250-80. 250-55 Tax preferred end user An *end user of an asset is a tax preferred end user if: (a) the end user (or a *connected entity) is a *tax preferred entity; or (b) the end user is an entity that is a foreign resident. 250-60 Tax preferred use of an asset (1) An asset is put to a tax preferred use at a particular time if: (a) an *end user (or a *connected entity) holds, at that time, rights as lessee under a lease of the asset; and (b) either or both of the following subparagraphs is satisfied at that time: (i) the asset is, or is to be, used by or on behalf of an end user who is a *tax preferred end user because of paragraph 250- 55(a) (tax preferred entity); (ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250-55(b) (non-resident). If this subsection applies, the tax preferred use of the asset is the lease referred to in paragraph (a). Note: For particular arrangements that are treated as leases, see section 250-80. (2) An asset is also put to a tax preferred use at a particular time if: (a) at that time the asset is, or is to be, used (whether or not by you) wholly or partly in connection with: (i) the production, supply, carriage, transmission or delivery of goods; or (ii) the provision of services or facilities; and (b) either or both of the following subparagraphs is satisfied at that time: (i) some or all of the goods, services or facilities are, or are to be, produced for or supplied, carried, transmitted or delivered to or for an *end user who is a *tax preferred end user because of paragraph 250-55(a) (tax preferred entity) but is not an *exempt foreign government agency; (ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250-55(b) (foreign resident). If this subsection applies, the tax preferred use of the asset is the production, supply, carriage, transmission, delivery or provision referred to in paragraph (a). (3) To avoid doubt, the facilities referred to in subsection (2) include: (a) hospital or medical facilities; or (b) prison facilities; or (c) educational facilities; or (d) *land transport facilities; or (e) other transport facilities; or (f) the supply of water, gas or electricity; or (g) housing or accommodation; or (h) premises from which to operate a *business or other undertaking. (4) If the asset is being *put to a tax preferred use: (a) the members of the tax preferred end user group are: (i) the *tax preferred end user; and (ii) the *connected entities of the tax preferred end user; and (b) the members of the tax preferred sector are: (i) the tax preferred end user (and connected entities); and (ii) any *tax preferred entity (or a connected entity); and (iii) any entity that is a foreign resident. 250-65 Arrangement period for tax preferred use Start of the arrangement period (1) The arrangement period for a particular *tax preferred use of an asset starts when that tax preferred use of the asset starts. End of the arrangement period (2) Subject to subsection (3), the arrangement period for a particular *tax preferred use of an asset is taken to end on the day that is the date on which the tax preferred use of the asset may reasonably be expected, or is likely, to end. (3) The arrangement period for the *tax preferred use of the asset ends when this Division ceases to apply to you and the asset if that happens before the day referred to in subsection (2). (4) In determining when a particular *tax preferred use of an asset is likely to end: (a) regard must be had to: (i) the terms of, and any other circumstances relating to, any *arrangement dealing with that tax preferred use of the asset; and (ii) the terms of, and any other circumstances relating to, any arrangement dealing with the *provision of *financial benefits in relation to that tax preferred use of the asset; and (b) it must be assumed that any right that an entity has to renew or extend such an arrangement will not be exercised (unless it is reasonable to assume that the right will be exercised because of the commercial consequences for the entity (or a *connected entity) of not exercising the right). Tax preferred uses of asset by entity and connected entity (5) For the purposes of this section: (a) the *tax preferred use of an asset by an entity; and (b) the tax preferred use of the asset by a *connected entity of that entity; are taken to constitute a single tax preferred use of the asset. 250-70 New tax preferred use at end of arrangement period if tax preferred use continues If: (a) this Division applies to you and an asset because the asset is *put to a tax preferred use; and (b) the *arrangement period for the *tax preferred use of the asset ends on a particular date (the termination date); and (c) the asset continues to be put to the tax preferred use after the termination date; the tax preferred use of the asset after the termination date is taken to be a separate and distinct tax preferred use of the asset from the tax preferred use of the asset before the termination date. Note: This means, among other things, that there is a new arrangement period for the tax preferred use after the termination date and that the arrangement is retested under section 250-15 against circumstances as they stand immediately after the termination date. 250-75 What constitutes a separate asset for the purposes of this Division (1) This Division applies to: (a) an improvement to land; or (b) a fixture on land; whether the improvement or fixture is removable or not, as if it were an asset separate from the land. (2) Whether a particular composite item is itself an asset or whether its components are separate assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case. Example 1: A car is made up of many separate components, but usually the car is an asset rather than each component. Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate assets. (3) This Division applies to a renewal or extension of an asset that is a right as if the renewal or extension were a continuation of the original right. (4) This Division applies to an asset (the underlying asset) in which: (a) you have an interest; and (b) one or more other entities also have an interest; as if your interest in the underlying asset were itself the underlying asset. 250-80 Treatment of particular arrangements in the same way as leases This Division applies to an *arrangement that: (a) in substance or effect, depends on the use of a specific asset that is: (i) real property; or (ii) goods or a personal chattel (other than money or a money equivalent); and (b) gives a right to control the use of the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); and (c) is not a lease; in the same way as it applies to a lease. Note: Even if this section applies to treat an arrangement in relation to an asset as a lease, the requirements in section 250-50 still need to be satisfied before an entity can be an end user of the asset. Financial benefits in relation to tax preferred use 250-85 Financial benefits in relation to tax preferred use of an asset (1) For the purposes of this Division, the *financial benefits provided in relation to a tax preferred use of an asset include (but are not limited to): (a) a financial benefit provided in relation to: (i) bringing the asset into a state, condition or location in which it can be *put to the tax preferred use; or (ii) the start of the *tax preferred use of the asset; and (b) a financial benefit provided in relation to the end of the tax preferred use of the asset; and (c) a financial benefit provided in relation to the termination or expiration of an *arrangement that deals with: (i) the tax preferred use of the asset; or (ii) the provision of financial benefits in relation to the tax preferred use of the asset; and (d) a financial benefit provided in relation to the purchase or acquisition of the asset by, or transfer of the asset to, the *tax preferred end user (or a *connected entity). (2) Without limiting paragraph (1)(b), if the asset has a *guaranteed residual value: (a) the amount of the guaranteed residual value is taken to be a *financial benefit provided in relation to the tax preferred use of the asset; and (b) that financial benefit is taken to be provided when the relevant payment is made in relation to the guaranteed residual value. (3) The asset has a guaranteed residual value if there is an *arrangement that provides to the effect that if: (a) on or after the end of the *arrangement period, you (or a *connected entity) sell or otherwise dispose of the asset to any person; and (b) you (or a connected entity) receives in respect of the sale or disposal: (i) no consideration; or (ii) consideration that is less than an amount (the guaranteed amount) specified in, or ascertainable under, the provision; a *member of the tax preferred sector will pay to you (or a connected entity), or to someone else for your benefit (or for the benefit of a connected entity), an amount equal to: (c) the guaranteed amount if subparagraph (b)(i) applies; or (d) the amount by which the guaranteed amount exceeds the consideration if subparagraph (b)(ii) applies. The amount of the guaranteed residual value is taken to be the guaranteed amount. (4) If: (a) an asset is *put to a tax preferred use; and (b) an entity is an *end user of the asset because the entity manages the asset or the use to which the asset is put; any *financial benefit that the entity (or a *connected entity) provides that is calculated by reference to the receipts, revenue or income generated by the use of the asset is also taken to be a financial benefit provided in relation to the tax preferred use of the asset. (5) For the purposes of this Division (other than this subsection), a *financial benefit provided by a *member of the tax preferred sector is taken not to be provided in relation to the tax preferred use of an asset to the extent to which the financial benefit merely passes on, or represents: (a) financial benefits provided in relation to the use of the asset; or (b) something derived from the use of the asset; by someone who is not a member of the tax preferred sector. (6) For the purposes of this Division, disregard a *financial benefit *provided in relation to the tax preferred use of the asset to the extent to which it consists solely of routine maintenance of the asset. (7) For the purposes of this Division, if a *financial benefit is provided in relation to the use of a number of assets, a separate financial benefit of an amount or value that is reasonably attributable to each asset is taken to be provided in relation to each asset. (8) To avoid doubt, a *financial benefit may be provided in relation to a tax preferred use of an asset even though it is provided before the *tax preferred use of the asset starts. (9) For the purposes of this Division: (a) a *financial benefit that is not an amount: (i) is taken to become due and payable when the entity providing the financial benefit becomes liable to provide the financial benefit; and (ii) is taken to be paid when it is provided; and (b) a financial benefit that is paid without becoming due and payable is taken to have become due and payable on the day on which it was paid. 250-90 Financial benefit provided directly or indirectly For the purposes of this Division, a person (the provider) is taken to provide a *financial benefit to a person (the recipient) in relation to a *tax preferred use of an asset whether the financial benefit is provided to the recipient: (a) directly; or (b) indirectly (including indirectly through an entity that is not a *connected entity of the recipient and is not a connected entity of the provider). 250-95 Expected financial benefits in relation to an asset put to tax preferred use For the purposes this Division, the expected financial benefits at a particular time in relation to an asset that is *put to a tax preferred use are the *financial benefits that, at that time: (a) have been; or (b) will, assuming normal operating conditions, be; or (c) can, assuming normal operating conditions, reasonably be expected to be; *provided in relation to the tax preferred use of the asset by a *member of the tax preferred sector to someone who is not a member of the tax preferred sector. Note: Paragraphs 250-85(1)(b), (c) and (d) provide for certain benefits provided in relation to the end of the tax preferred use of the asset or in relation to the purchase, disposal or transfer of the asset to be treated as financial benefits provided in relation to the tax preferred use of the asset. 250-100 Present value of financial benefit that has already been provided For the purposes of this Division, the present value of a *financial benefit at a particular time is the nominal amount or value of the financial benefit if the financial benefit has been provided before that time. Discount rate to be used in working out present values 250-105 Discount rate to be used in working out present values (1) For the purposes of section 250-40, the discount rate to be used in working out the present value of a future amount is: (a) the average, expressed as a decimal fraction, of the assessed secondary market yields in respect of 10-year non-rebate Treasury bonds published by the Reserve Bank during the *financial year in which the relevant *arrangement period starts; or (b) if no assessed secondary market yield in respect of bonds of that kind was published by the Reserve Bank during the year-the decimal fraction determined by the Treasurer for the purposes of the definition of long-term bond rate in section 2 of the Petroleum Resource Rent Tax Assessment Act 1987 in relation to the financial year in which the relevant arrangement period starts. (2) For the purposes of section 250-135 and Subdivisions 250-C and 250-D, the discount rate to be used in working out the present value of a future amount is a rate that reflects a constant periodic rate of return (worked out on a compounding basis) on the investment in: (a) the asset referred to in subparagraph 250-15(d)(i) if that subparagraph applies; or (b) the expenditure referred to in paragraph 250-15(d)(ii) if that subparagraph applies; that is implicit in the *arrangements under which the asset is *put to a tax preferred use and *financial benefits are *provided in relation to that tax preferred use. Predominant economic interest 250-110 Predominant economic interest You lack a predominant economic interest in an asset at a particular time only if one or more of the following sections apply to you and the asset at that time: (a) section 250-115 (limited recourse debt test); (b) section 250-120 (right to acquire asset test); (c) section 250-125 (effectively non-cancellable, long term arrangement test); (d) section 250-135 (level of expected financial benefits test). 250-115 Limited recourse debt test (1) You lack a predominant economic interest in an asset at a particular time if more than the allowable percentage of the cost of your acquiring or constructing the asset is financed (directly or indirectly) by a *limited recourse debt or debts. (2) For the purposes of subsection (1): (a) the amount of a *limited recourse debt is to be reduced by the value of any * debt property (other than the *financed property) that is provided as security for the debt; and (b) if the limited recourse debt finances the acquisition or construction of 2 or more assets, only the amount of the debt that is reasonably attributable to the asset referred to in subsection (1) is to be taken into account. (3) For the purposes of subsection (1), the allowable percentage is: (a) 80% if the asset is taken to be *put to a tax preferred use because of subparagraph 250-60(1)(b)(i) or (2)(b)(i) (end use by *tax preferred entities); or (b) 55% if the asset is taken to be put to a tax preferred use because of subparagraph 250-60(1)(b)(ii) or (2)(b)(ii) (end use by foreign residents). (4) This section does not apply to the asset if: (a) you are a *corporate tax entity; and (b) the *tax preferred use of the asset is not the lease or hire of the asset (and is not the use of the asset under a lease or hire arrangement); and (c) the asset is *put to the tax preferred use wholly or principally in Australia; and (d) no *member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement). (5) Paragraph (4)(b) does not apply if: (a) the asset is real property (or an interest in real property); and (b) the *tax preferred use of the asset is a lease; and (c) the space within the property that is occupied by tenants who are *members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants. (6) This section also does not apply to the asset if: (a) you hold the asset as a trustee; and (b) the asset is real property (or an interest in real property); and (c) the *tax preferred use of the asset is a lease; and (d) the space within the property that is occupied by tenants who are *members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants; and (e) the asset is *put to the tax preferred use wholly or principally in Australia; and (f) no member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement). 250-120 Right to acquire asset test (1) You lack a predominant economic interest in an asset at a particular time if, at that time: (a) the asset is to be transferred to a *member of the tax preferred sector after the end of the *arrangement period; and (b) the consideration for the transfer is not fixed as the *market value of the asset at the time of the transfer. (2) You also lack a predominant economic interest in an asset at a particular time if, at that time: (a) a *member of the tax preferred end user group has, or will have: (i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or (ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; and (b) the consideration for the purchase, acquisition or transfer is not fixed as the *market value of the asset at the time of the purchase, acquisition or transfer. To avoid doubt, this section does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time. 250-125 Effectively non-cancellable, long term arrangement test (1) You lack a predominant economic interest in an asset at a particular time if: (a) any *arrangement that relates to: (i) the *tax preferred use of the asset; or (ii) the *financial benefits to be *provided by the *members of the tax preferred sector in relation to the tax preferred use of the asset; is *effectively non-cancellable (see section 250-130); and (b) the *arrangement period for the tax preferred use of the asset is: (i) greater than 30 years; or (ii) if the arrangement period is less than or equal to 30 years-75% or more of that part of the asset's *effective life that remains when the tax preferred use of the asset starts. (2) Disregard section 40-102 in working out the asset's *effective life for the purposes of subparagraph (1)(b)(ii). 250-130 Meaning of effectively non-cancellable arrangement (1) An *arrangement that relates to *financial benefits to be *provided by a *member of the tax preferred sector in relation to the tax preferred use of an asset is effectively non-cancellable if: (a) the arrangement can be cancelled only with: (i) your permission; or (ii) the permission of a *connected entity of yours; or (iii) an agent or entity acting on your behalf (or on behalf of a connected entity of yours); or (b) the arrangement can be cancelled without the permission of an entity referred to in paragraph (a) but, if the arrangement were cancelled, the member of the tax preferred sector or another member of the tax preferred sector: (i) would be required to enter into a new arrangement for the *provision of financial benefits in relation to the tax preferred use of the asset; or (ii) would incur a penalty and the magnitude of the penalty would be such as to discourage cancellation. (2) For these purposes, if a *member of the tax preferred sector defaults under an *arrangement and the arrangement is cancelled, the arrangement is to be taken to have been cancelled without the permission of an entity referred to in paragraph (1)(a). 250-135 Level of expected financial benefits test Effective guarantee or indemnity for value of asset (1) You lack a predominant economic interest in an asset at a particular time if the asset has a *guaranteed residual value at that time. Likely financial benefits exceeding 70% limit (2) You also lack a predominant economic interest in an asset at a particular time if, at that time: (a) the *arrangement under which the asset is *put to the tax preferred use (either alone or together with any other arrangement in relation to the *tax preferred use of the asset or the *provision of *financial benefits in relation to the tax preferred use of the asset) is a *debt interest; or (b) the sum of the present values of the *expected financial benefits that *members of the tax preferred sector have provided, or are or are reasonably likely to provide, to you (or a *connected entity) in relation to the tax preferred use of the asset exceeds 70% of: (i) the *market value of the asset if subparagraph 250-15(d)(i) applies; or (ii) so much of the market value of the asset as is attributable to the expenditure referred to subparagraph 250-15(d)(ii) if that subparagraph applies. 250-140 When to retest predominant economic interest under section 250-135 Purpose for applying section (1) This section applies for the purposes of working out whether this Division applies to you and to an asset that is *put to a tax preferred use. No need to keep retesting if section 250-135 does not apply at start of tax preferred use of asset (2) If section 250-135 does not apply to you and the asset at the time when the *tax preferred use of the asset starts, that section is taken, subject to subsection (4), to continue not to apply to you and the asset. Note: This subsection means that if section 250-135 does not apply to the arrangement when the tax preferred use of the asset starts, the arrangement does not need to be retested against section 250-135 until a change of the kind referred to in subsection (4) occurs. No need to keep retesting if section 250-135 does not apply when you do something to increase value of expected financial benefits (3) If: (a) you (or a *connected entity), or a *member of the tax preferred sector, do something, or omit to do something, at a particular time that increases the value of the *expected financial benefits in relation to the *tax preferred use of the asset; and (b) section 250-135 does not apply to the asset at that time; that section is taken, subject to subsection (4), to continue not to apply to you and the asset. Note: This subsection means that if the arrangement is retested against section 250-135 at a particular time and section 250- 135 does not apply to the arrangement on that retesting, the arrangement does not need to be again retested against section 250-135 until a change of the kind referred to in subsection (4) occurs. Retesting when you do something to increase the value of expected financial benefits (4) Subsection (2) or (3) ceases to apply to you and the asset if you (or a *connected entity), or a *member of the tax preferred sector, do something, or omit to do something, that increases the value of the *expected financial benefits in relation to the *tax preferred use of the asset. Certain financial benefits ignored when retesting (5) For the purposes of reapplying section 250-135 to the asset, disregard *financial benefits provided before subsection (2) or (3) of this section ceased to apply to the asset. Note: If: (a) subsection (2) or (3) ceases to apply to the asset at a particular time under this subsection; and (b) the asset is retested at that time against section 250- 135; and (c) on the retesting, that section is found to apply to the asset at that time; subsection (3) will start to apply to the asset again from that time because paragraph (3)(b) will have been satisfied. Clarification that retesting only required if you do something to increase value of expected benefits (6) To avoid doubt, subsection (2) or (3) does not cease to apply merely because the value of the *expected financial benefits in relation to the asset increase because of something other than action taken, or an omission made, by you (or a *connected entity) or a *member of the tax preferred sector. Note: This subsection means that retesting under subsection (4) is not triggered by an increase in the value of expected financial benefits that happens because of external circumstances (circumstances external to activities and omissions of yours, your connected entities and members of the tax preferred sector). Subdivision 250-C-Denial of, or reduction in, capital allowance deductions Table of sections 250-145 Denial of capital allowance deductions 250-150 Apportionment rule 250-145 Denial of capital allowance deductions (1) If this Division applies to you and an asset at a particular time, any condition that needs to be satisfied for you to be able to deduct an amount under a *capital allowance provision in relation to: (a) a decline in the value of the asset; or (b) expenditure in relation to the asset; is taken not to be satisfied at that time. (2) This section has effect subject to section 250-150. 250-150 Apportionment rule (1) This section applies if: (a) this Division applies to you and an asset that is *put to a tax preferred use; and (b) it is reasonable to expect that, during the *arrangement period for the *tax preferred use of the asset, particular *financial benefits will be provided to you (or a *connected entity); and (c) it is reasonable to expect that those financial benefits: (i) will be provided in relation to a use of the asset that is not that tax preferred use and is not a private use; or (ii) will be *provided in relation to that tax preferred use of the asset but will not be attributable, directly or indirectly, to financial benefits that are provided by *members of the tax preferred sector; and (d) the amount or value of those financial benefits is known or can reasonably be estimated; and (e) you choose to have this section apply to the asset. In applying paragraph (c), disregard financial benefits that are provided under an *arrangement that is a *debt interest. (2) A choice under paragraph (1)(e) in relation to an asset: (a) must be made before the due date for you to lodge your *income tax return for the income year in which the *arrangement period for the *tax preferred use of the asset starts; and (b) must be made for the whole of the arrangement period for the tax preferred use of the asset; and (c) must extend to all assets that are, or are to be, *put to a tax preferred use under the *arrangement under which the asset is put to that use; and (d) is irrevocable. The choice may extend to an asset referred to in paragraph (c) even if it is likely that paragraphs (1)(b) and (c) will not apply to that asset. (3) If this section applies, section 250-145 applies to you and the asset only to the extent of the *disallowed capital allowance percentage. (4) Subject to subsection (6), the disallowed capital allowance percentage is the following ratio (expressed as a percentage): [pic] (5) The Commissioner may, before the due date for you to lodge your *income tax return for the income year to which the *arrangement period for the *tax preferred use of the asset starts, approve an alternative method for working out the *disallowed capital allowance percentage for you and the asset. (6) If the Commissioner approves an alternative method under subsection (5), the disallowed capital allowance percentage is the percentage worked out in accordance with that alternative method. Subdivision 250-D-Deemed loan treatment of financial benefits provided for tax preferred use Table of sections 250-155 Arrangement treated as loan 250-160 Financial benefits that are subject to deemed loan treatment 250-180 End value of asset 250-185 Financial benefits subject to deemed loan treatment not assessed 250-155 Arrangement treated as loan Loan with characteristics provided for in this section taken to exist (1) If this Division applies to you and an asset at a particular time in an income year, a *financial arrangement in the form of a loan (with the characteristics provided for in this section) is taken to exist at that time for the purposes of working out your taxable income for that income year. Note: See Subdivision 250-E for the taxation treatment of the financial arrangement. Lender (2) You are taken to be the lender in relation to the loan. Amount lent and unpaid at the start of the arrangement period (3) The amount worked out under subsection (4) is taken to be the amount that you have lent, and that the borrower has not repaid, at the start of the *arrangement period. (4) The amount is worked out by taking: (a) the amount that, at the start of the *arrangement period, is: (i) the *adjustable value of the asset if subparagraph 250-15(d)(i) applies; or (ii) the amount worked out under subsection (5) if subparagraph 250- 15(d)(ii) applies; or (b) if section 250-150 applies-the amount that, at the start of the arrangement period, is the *disallowed capital allowance percentage of: (i) the adjustable value of the asset if subparagraph 250-15(d)(i) applies; or (ii) the amount worked out under subsection (5) if subparagraph 250- 15(d)(ii) applies; and deducting the sum of all *financial benefits that are *subject to deemed loan treatment and that have become due and payable before the start of the arrangement period. (5) If subparagraph 250-15(d)(ii) applies, the amount worked out under this subsection for the purposes of subsection (4) is: |Item |If the expenditure |the amount is ... | | |referred to in that | | | |subparagraph is ... | | |1 |capital expenditure |the amount of the | | |under Division 40 |capital expenditure in | | | |respect of which a | | | |deduction has not been | | | |allowed (disregarding | | | |this Division) under the| | | |relevant Subdivision of | | | |Division 40 | |2 |capital expenditure |the *undeducted | | |under Division 43 |construction expenditure| | | |in relation to the | | | |capital expenditure | Amounts paid to you by borrower under the loan (6) Any *financial benefit that: (a) a person provides; and (b) is *subject to deemed loan treatment; is taken to be an amount that the borrower pays you under the loan. Note 1: Section 250-160 tells you which financial benefits are subject to the deemed loan treatment. Note 2: These benefits may be ones that are provided either to you or to a connected entity. Period of the loan (7) The *arrangement period is taken to be the period of the loan. Applying Subdivision 250-E to the loan (8) For the purposes of applying Subdivision 250-E to the loan: (a) you are taken to have an overall gain from the loan and that overall gain is taken to be sufficiently certain at the time when you start to have the loan; and (b) the amount of that overall gain is taken to be the sum of the *financial benefits that are *subject to the deemed loan treatment less the amount worked out under subsection (4); and (c) you are taken: (i) to start to have the loan at the start of the *arrangement period; and (ii) to cease to have the loan at the end of the arrangement period; and (d) any right that you (or a connected entity) have to a financial benefit that is subject to deemed loan treatment is taken to be a right that you have under the loan; and (e) if a *connected entity transfers to another person a right to a financial benefit subject to deemed loan treatment: (i) you are taken to transfer the right to that other person; and (ii) any consideration that the connected entity receives in relation to the transfer is taken to be consideration that you receive in relation to the transfer; and (f) if a right that a connected entity has to a financial benefit subject to deemed loan treatment ceases and the connected entity receives consideration in relation to that cessation-you are taken to receive that consideration in relation to the cessation; and (g) you are taken to start to have the loan, or to cease to have the loan, as consideration for something if you start to have the rights to the financial benefits that are subject to deemed loan treatment, or cease to have those rights, as consideration for that thing; and (h) in applying sections 250-265 to 250-275: (i) the amount that you are taken, under subsections (3), (4) and (5), to have lent are the only financial benefits that you provide under the loan; and (ii) the financial benefits you have received under the loan are taken to include financial benefits that are subject to deemed loan treatment that a person is, at the end of the arrangement period, liable to provide to you. (9) If, under subsection 250-160(2), a particular percentage of a reasonable estimate of the *end value of the asset was taken to be a *financial benefit that is *subject to the deemed loan treatment, subsection 250-275(1) applies to the loan at the end of the *arrangement period as if you had received under the loan a financial benefit equal to the relevant percentage of the end value of the asset. 250-160 Financial benefits that are subject to deemed loan treatment General rule (1) Subject to subsections (3) and (4), a *financial benefit is subject to deemed loan treatment if: (a) the financial benefit: (i) has been; or (ii) will, assuming normal operating conditions, be; or (iii) can, assuming normal operating conditions, reasonably be expected to be; provided to you (or a *connected entity); and (b) the financial benefit has been, will be or can reasonably be expected to be *provided directly or indirectly by a *member of the tax preferred sector in relation to the *tax preferred use of the asset; and (c) the right to receive, or the obligation to provide, the financial benefit is *cash settlable; and (d) the financial benefit has not been, will not be or can be expected not to be provided by one of your connected entities. Note: Paragraph (d) stops a financial benefit passing between you and any of your connected entities from being counted twice. End value also taken to be financial benefit subject to deemed loan treatment (2) The relevant percentage of a reasonable estimate of the *end value of the asset is also taken to be a *financial benefit that is subject to deemed loan treatment if: (a) the asset is not to be purchased or acquired by, or transferred to, a *member of the tax preferred sector at the end of the *arrangement period under a legally enforceable *arrangement; or (b) the asset: (i) is, or is to become, a *privatised asset; or (ii) would be, or would become, a privatised asset if it were a *depreciating asset; or (iii) would be a privatised asset if the asset were a depreciating asset and paragraphs 58-5(2)(a) and 58-5(4)(a) were not limited to acquisitions of depreciating assets that occurred on or after 1 July 2001. The relevant percentage is the *disallowed capital allowance percentage if section 250-150 applies. Otherwise it is 100%. Note: See section 250-180 for how to work out the end value of the asset. Financial benefits only subject to deemed loan treatment to the extent to which they represent a return on investment (3) The *financial benefit is subject to deemed loan treatment only to the extent to which it reasonably represents a return of, or on, an investment in the asset (as distinct, for example, from representing consideration for the provision of services or the recovery of production costs), having regard to: (a) the *market value of the asset; and (b) the discount rate applicable under subsection 250-105(2); and (c) your costs in relation to funding your interest in the asset; and (d) any other relevant matter. The regulations may provide rules to be applied in determining the extent to which a financial benefit reasonably represents a return of or on an investment in the asset. Only financial benefits provided after Division starts applying to you and the asset (4) If the *tax preferred use of the asset starts before this Division starts applying to you and the asset, only *financial benefits provided after this Division starts applying to you and the asset are subject to deemed loan treatment. 250-180 End value of asset (1) The end value of an asset is worked out in accordance with this section. (2) If the asset has a *guaranteed residual value, the end value of the asset is: (a) the amount of the guaranteed residual amount if subparagraph 250-15(d)(i) applies; or (b) so much of the amount referred to in paragraph (a) as is attributable to the expenditure referred to in subparagraph 250- 15(d)(ii) if that subparagraph applies. (3) If the asset does not have a *guaranteed residual value and is a *depreciating asset, the end value of the asset is: (a) if subparagraph 250-15(d)(i) applies-the amount that would have been the *adjustable value of the asset at the end of the *arrangement period if: (i) this Division had not applied to you and the asset; and (ii) the decline in the asset's value were worked out on the basis of the asset's *effective life and using the *prime cost method; or (b) if subparagraph 250-15(d)(ii) applies-so much of the amount referred to in paragraph (a) as is attributable to the expenditure referred to in that subparagraph. (4) Disregard section 40-102 in working out the asset's *effective life for the purposes of subparagraph (3)(a)(ii). (5) If neither subsection (2) nor subsection (3) applies and an estimate of the value of the asset is recognised for accounting purposes, the end value of the asset is: (a) the value of the relevant asset at the end of the *arrangement period that would be recognised for accounting purposes if subparagraph 250-15(d)(i) applies; or (b) so much of the value of referred to in paragraph (a) as is attributable to the expenditure referred to subparagraph 250- 15(d)(ii) if that subparagraph applies. The end value must not, however, exceed the amount worked out under subsections 250-155(4) and (5) (amount taken to have been lent). (6) If none of subsections (2), (3) and (5) apply to the asset, the end value of the asset is: (a) a reasonable estimate of the *market value of the asset at the end of the *arrangement period if subparagraph 250-15(d)(i) applies; or (b) so much of the estimate referred to in paragraph (a) as is attributable to the expenditure referred to in subparagraph 250- 15(d)(ii) if that subparagraph applies. The end value must not, however, exceed the amount worked out under subsections 250-155(4) and (5) (amount taken to have been lent). 250-185 Financial benefits subject to deemed loan treatment not assessed A *financial benefit is not included in your assessable income if the financial benefit: (a) is *provided to you in relation to the tax preferred use of the asset; and (b) is provided directly or indirectly by a *member of the tax preferred sector; and (c) is *subject to deemed loan treatment. The financial benefit is not assessable income and is not *exempt income. Subdivision 250-E-Taxation of deemed loan Table of sections Guide to Subdivision 250-E 250-190 What this Subdivision is about Application and objects of Subdivision 250-195 Application of Subdivision 250-200 Objects of this Subdivision Tax treatment of gains and losses from financial arrangements 250-205 Gains are assessable and losses deductible 250-210 Gain or loss to be taken into account only once under this Act Method to be applied to take account of gain or loss 250-215 Methods for taking gain or loss into account General rules 250-220 Consistency in working out gains or losses (integrity measure) 250-225 Rights and obligations include contingent rights and obligations The accruals method 250-230 Application of accruals method 250-235 Overview of the accruals method 250-240 Applying accruals method to work out period over which gain or loss is to be spread 250-245 How gain or loss is spread 250-250 Allocating gain or loss to income years 250-255 When to re-estimate 250-260 Re-estimation if balancing adjustment on partial disposal Balancing adjustment 250-265 When balancing adjustment made 250-270 Exception for subsidiary member leaving consolidated group 250-275 Balancing adjustment Other provisions 250-280 Financial arrangement received or provided as consideration Guide to Subdivision 250-E 250-190 What this Subdivision is about This Subdivision is about the tax treatment of gains and losses from the financial arrangement that you are taken to have under section 250-155. You recognise gains and losses from the financial arrangement, as appropriate, over the life of the financial arrangement and ignore distinctions between income and capital. You use a compounding accruals method to recognise the gain or loss. A change in circumstances may cause a re-estimation of gains and losses that the accruals method is being applied to. A balancing adjustment is made if you transfer particular rights or obligations or particular rights or obligations cease. Application and objects of Subdivision 250-195 Application of Subdivision This Subdivision applies for the purposes of working out the amount of the gain or loss that is to be included in your assessable income or allowed as a deduction in relation to the *financial arrangement that is taken to exist under section 250- 155. 250-200 Objects of this Subdivision The objects of this Subdivision are: (a) to properly recognise gains and losses from the *financial arrangement by allocating them to appropriate periods of time; and (b) to minimise tax deferral. Tax treatment of gains and losses from financial arrangements 250-205 Gains are assessable and losses deductible Gains (1) Your assessable income includes a gain you make from the *financial arrangement. Losses (2) You can deduct a loss you make from the *financial arrangement, but only to the extent that: (a) you make it in gaining or producing your assessable income; or (b) you necessarily make it in carrying on a *business for the purpose of gaining or producing your assessable income. 250-210 Gain or loss to be taken into account only once under this Act Purpose of this section (1) The purpose of this section is to ensure that your gains that are assessable under this Subdivision, and your losses that are deductible under this Subdivision, are taken into account only once under this Act in working out your taxable income. Gain or loss (2) If a gain or loss is, or is to be, included in your assessable income or allowable as a deduction to you for an income year under this Subdivision, the gain or loss is not to be (to any extent): (a) included in your assessable income; or (b) allowable as a deduction to you; under any other provisions of this Act for the same or any other income year. Associated financial benefits (3) If the amount or value of a *financial benefit is taken into account in working out whether you make, or the amount of, a gain or loss that is, or is to be, included in your assessable income or allowable as a deduction for you for an income year under this Subdivision, the benefit is not to be (to any extent): (a) included in your assessable income; or (b) allowable as a deduction to you; under any other provision of this Act for the same or any other income year. Method to be applied to take account of gain or loss 250-215 Methods for taking gain or loss into account The methods that can be applied to take account of a gain or loss you make from the *financial arrangement you have are: (a) the accruals method provided for in sections 250-235 to 250- 255; or (b) a balancing adjustment provided for in sections 250-265 to 250- 275. A gain or loss is not taken into account under the method referred to in paragraph (a) to the extent to which the gain or loss is taken into account under sections 250-265 to 250-275. General rules 250-220 Consistency in working out gains or losses (integrity measure) Object of section (1) The object of this section is to stop you obtaining an inappropriate tax benefit from not working out your gains and losses in a consistent manner. Consistent treatment for particular financial arrangement (2) If: (a) this Subdivision provides that a particular method applies to gains or losses you make from the *financial arrangement; and (b) that method allows you to choose the particular manner in which you apply that method; you must use that manner consistently for the arrangement for all income years. Consistent treatment for financial arrangements of essentially the same nature (3) If: (a) this Subdivision provides that a particular method applies to gains or losses you make from 2 or more *financial arrangements; and (b) that method allows you to choose the particular manner in which you apply that method; you must use that same manner consistently for all of those financial arrangements that are essentially of the same nature. 250-225 Rights and obligations include contingent rights and obligations To avoid doubt: (a) a right is treated as a right for the purposes of this Division even it is subject to a contingency; and (b) an obligation is treated as an obligation for the purpose of this Division even if it is subject to a contingency. The accruals method 250-230 Application of accruals method The accruals method provided for in sections 250-235 to 250-255 applies to a gain or loss you make from the *financial arrangement if: (a) the gain or loss is an overall gain or loss from the arrangement; and (b) the gain or loss is sufficiently certain at the time when you start to have the arrangement. 250-235 Overview of the accruals method If the accruals method applies to a gain or loss you make from the *financial arrangement: (a) you use section 250-240 to work out the period over which the gain or loss is to be spread; and (b) you use section 250-245 to work out how to allocate the gain or loss to particular intervals within the period over which the gain or loss is to be spread; and (c) if an interval to which part of the gain or loss is allocated straddles 2 income years, you use section 250-250 to work out how to allocate that part of the gain or loss allocated between those 2 income years. 250-240 Applying accruals method to work out period over which gain or loss is to be spread If you have a sufficiently certain overall gain or loss from the *financial arrangement, the period over which the gain or loss is to be spread is the period that: (a) starts when you start to have the arrangement; and (b) ends when you will cease to have the arrangement. In applying paragraph (b), you must assume that you will continue to have the arrangement for the rest of its life. 250-245 How gain or loss is spread How to spread gain or loss (1) This section tells you how to spread a gain or loss to which the accruals method applies. Compounding accruals or approximation (2) The gain or loss is to be spread using: (a) compounding accruals (with the intervals to which parts of the gain or loss are allocated complying with subsection (3)); or (b) a method whose results approximate those obtained using the method referred to in paragraph (a) (having regard to the length of the period over which the gain or loss is to be spread). Intervals to which parts of gain or loss allocated (3) The intervals to which parts of the gain or loss are allocated must: (a) not exceed 12 months; and (b) all be of the same length. Paragraph (b) does not apply to the first and last intervals. These may be shorter than the other intervals. Assumption of continuing hold arrangement for the rest of its life (4) The gain or loss is to be spread assuming that you will continue to have the *financial arrangement for the rest of its life. 250-250 Allocating gain or loss to income years (1) You are taken, for the purposes of section 250-205, to make, for an income year, a gain or loss equal to a part of a gain or loss if: (a) that part of the gain or loss is allocated to an interval under section 250-245; and (b) that interval falls wholly within that income year. (2) If: (a) a part of a gain or loss is allocated to an interval under section 250-245; and (b) that interval straddles 2 income years; you are taken, for purposes of section 250-205, to make a gain or loss equal to so much of that part of the gain or loss as is allocated between those income years on a reasonable basis. (3) If: (a) a *consolidated group or *MEC group has a *financial arrangement; and (b) a subsidiary member of the group ceases to be a member of the group at a particular time (the exit time); and (c) immediately after the exit time, the subsidiary member has the financial arrangement; an income year of the group is taken, for the purposes of applying this section to the group and the financial arrangement, to end at the exit time. 250-255 When to re-estimate When re-estimation necessary (1) You re-estimate a gain or loss from the *financial arrangement under subsection (4) if circumstances arise that materially affect: (a) the amount or value; or (b) the timing; of *financial benefits that were taken into account in working out the amount of the gain or loss. You must re-estimate the gain or loss as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph (b). (2) Without limiting subsection (1), the following are circumstances of the kind referred to in paragraph (1)(b): (a) a material change in market conditions that are relevant to the amount or value of the *financial benefits to be received or provided under the *financial arrangement; (b) cash flows that were previously estimated becoming known and the difference between the cash flows that become known and the cash flows that were previously estimated is not insignificant; (c) a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt. (3) You do not re-estimate a gain or loss from a *financial arrangement under subsection (4) merely because of any one or more of the following: (a) a change in the credit rating, or the creditworthiness, of a party or parties to the financial arrangement; (b) the impairment (within the meaning of the *accounting standards) of the arrangement or a debt that forms part of the arrangement. Nature of re-estimation (4) Making a re-estimation in relation to a gain or loss under this subsection involves: (a) a fresh determination of the amount of the gain or loss; and (b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of the redetermined gain or loss that has not already been allocated to intervals ending before the re-estimation is made to intervals ending after the re-estimation is made. Basis for re-estimation (5) You may make the fresh allocation of the gain or loss under subsection (4) on either of the following bases: (a) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return; (b) adjusting the rate of return and maintaining the amount to which you apply the rate of return. The object to be achieved by both bases is allow you to bring the remainder of the gain or loss based on the new estimates properly to account over the remainder of the period over which you spread the gain or loss. (6) If you adopt a particular basis under subsection (5) for a gain or loss from the *financial arrangement, you must use the same basis for all the re-estimations you make under this section in relation to your gains and losses from all your financial arrangements. Balancing adjustment if rate of return maintained (7) If you make a fresh allocation of the gain or loss on the basis referred to in paragraph (5)(a), you must make the following balancing adjustment: (a) if you re-estimate a gain and the amount to which you apply the rate of return increases-you make a gain from the *financial arrangement, for the income year in which you make the re- estimation, equal to the amount of the increase; (b) if you re-estimate a gain and the amount to which you apply the rate of return decreases-you make a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the decrease; (c) if you re-estimate a loss and the amount to which you apply the rate of return increases-you make a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the increase; (d) if you re-estimate a loss and the amount to which you apply the rate of return decreases-you make a gain from the arrangement, the income year in which you make the re-estimation, equal to the amount of the decrease. 250-260 Re-estimation if balancing adjustment on partial disposal Re-estimation if balancing adjustment on partial disposal (1) You also re-estimate a gain or loss from a *financial arrangement under subsection (2) if a balancing adjustment is made in relation to the financial arrangement under sections 250-265 to 250-275 because you transfer to another person: (a) a proportionate share of all of your rights and/or obligations under a *financial arrangement; or (b) a right or obligation that you have under a financial arrangement to a specifically identified *financial benefit; or (c) a proportionate share of a right or obligation that you have under a financial arrangement to a specifically identified financial benefit. You must re-estimate the gain or loss as soon as reasonably practicable after the transfer occurs. Nature of re-estimation (2) Making a re-estimation in relation to a gain or loss under this subsection involves: (a) a fresh determination of the amount of the gain or loss disregarding: (i) *financial benefits; and (ii) amounts of the gain or loss that have already been allocated to intervals ending before the re-estimation is made; to the extent to which they are reasonably attributable to the proportionate share, or the right or obligation, referred to in paragraph (1)(b); and (b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of that gain or loss that has not already been allocated to intervals ending before the re-estimation is made to intervals ending after the re-estimation is made. Basis for re-estimation (3) You make the fresh allocation of the gain or loss under subsection (2) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return. The object to be achieved by the fresh allocation is allow you to bring the remainder of the redetermined gain or loss properly to account over the remainder of the period over which you spread the gain or loss. Balancing adjustment 250-265 When balancing adjustment made When balancing adjustment made (1) A balancing adjustment is made under section 250-275 if: (a) you transfer to another person all of your rights and/or obligations under the *financial arrangement; or (b) all of your rights and/or obligations under the financial arrangement otherwise substantially cease; or (c) you transfer to another person: (i) a proportionate share of all of your rights and/or obligations under the financial arrangement; or (ii) a right or obligation that you have under the financial arrangement to a specifically identified *financial benefit; or (iii) a proportionate share of a right or obligation that you have under the financial arrangement to a specifically identified financial benefit. Modifications for arrangements that are assets (2) The following modifications are made if the *financial arrangement is an asset of yours at the time the event referred to in subsection (1) occurs: (a) paragraphs (1)(a) and (c) do not apply unless the effect of the transfer is to transfer to the other person substantially all the risks and rewards of ownership of the interest transferred; (b) for the purposes of applying section 250-275 to the arrangement, you are treated as transferring a right under the arrangement to another person if: (i) you retain the right but assume a new obligation; and (ii) your assumption of the new obligation has the same effect, in substance, as transferring the right to another person; and (iii) the new obligation arises only to the extent to which the right to *financial benefits under the financial arrangement is satisfied; and (iv) you cannot sell or pledge the right (other than as security in relation to the new obligation); and (v) you must, under the new obligation, provide financial benefits you receive in relation to the right to the person to whom you owe the new obligation without delay. 250-270 Exception for subsidiary member leaving consolidated group A balancing adjustment is not made under section 250-275 in relation to a subsidiary member of a*consolidated group or a *MEC group that has the *financial arrangement ceasing to be a member of the group. 250-275 Balancing adjustment Complete cessation or transfer (1) Use the following method statement to make the balancing adjustment if paragraph 250-265(1)(a) or (b) applies: Method statement for balancing adjustment Step 1. Add up the following: (a) the total of all the *financial benefits provided to you under the *financial arrangement; (b) the amount or value of any other consideration you receive in relation to the transfer or cessation referred to in subsection 250-265(1); (c) the total of the amounts that have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement; (d) the total of the other amounts that would have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement if all your losses from the arrangement were allowable as deductions. Step 2. Add up the following: (a) the total of all the *financial benefits you have provided under the *financial arrangement; (b) the amount or value of any other consideration you provide in relation to the transfer or cessation referred to in subsection 250-265(1); (c) the total of the amounts that have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement; (d) the total of the other amounts that would have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement if all your gains from the arrangement were assessable. Step 3. Compare the amount obtained under Step 1 (the Step 1 amount) with the amount obtained under Step 2 (the Step 2 amount). If the Step 1 amount exceeds the Step 2 amount, an amount equal to the excess is taken, as a balancing