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INCOME TAX ASSESSMENT ACT 1997 - SECT 197.85 Evidentiary effect of notice of liability to pay untainting tax

INCOME TAX ASSESSMENT ACT 1997 - SECT 197.85

Evidentiary effect of notice of liability to pay untainting tax

  (1)   The production of:

  (a)   a notice given under section   197 - 80; or

  (b)   a document that is signed by the Commissioner and appears to be a copy of such a notice;

is conclusive evidence that:

  (c)   the notice was duly given; and

  (d)   the amount of * untainting tax specified in the notice became due and payable by the company to which it was given on the day specified in the notice.

  (2)   Subsection   (1) does not apply in proceedings under Part   IVC of the Taxation Administration Act 1953 on a review or appeal relating to the review.

This Subdivision allows you to choose a roll - over where post - CGT shares or trust interests you own are replaced with other shares or trust interests, for example, where there is a company takeover.

You can only choose the roll - over if you would have made a capital gain from the exchange.

Method statement

Step 1.   Add up the * market value just after the * arrangement was completed (the completion time ) of all of the replacement interests issued by the replacement entity under the arrangement in exchange for the following interests (the qualifying interests ):

  (a)   original interests in the original entity;

  (b)   any interests issued by the original entity to an acquiring entity under the arrangement in respect of other original interests in the original entity cancelled under the arrangement.

Step 2.   Add to the result of step 1 the * market value at the completion time of all of the replacement interests issued by the replacement entity under any earlier arrangement for which this section applied in exchange for qualifying interests in the original entity.

Step 3.   Add up the * market value at the completion time of all of the:

  (a)   if the replacement entity is a company-- * shares * on issue by the replacement entity; and

  (b)   if the replacement entity is a company--options, rights and similar interests issued by the replacement entity that give the holder an entitlement to acquire a share in the replacement entity at or after the completion time; and

  (c)   if the replacement entity is a trust--units or other interests in the replacement entity; and

  (d)   if the replacement entity is a trust--options, rights or similar interests issued by the replacement entity that gives the holder an entitlement to acquire a unit or other interest in the replacement entity at or after the completion time.

Method statement

Step 1.   Add up:

  (a)   the * market value, at the completion time, of the original entity's * pre - CGT assets (except * trading stock); and

  (b)   the * cost bases, at the completion time, of the original entity's * post - CGT assets (except trading stock); and

  (c)   for the original entity's * CGT assets (except trading stock) that had no cost base--the maximum amount of consideration the original entity would need to receive if it were to dispose, at the completion time, of those assets without an amount being assessable income of, or deductible to, the original entity; and

  (d)   the amount worked out under steps 2 and 3.

Step 2.   For the original entity's * trading stock, add up:

  (a)   the * value of the trading stock at the start of the income year containing the completion time; and

  (b)   for * live stock acquired by natural increase during that income year but before the completion time--the * cost of that live stock; and

  (c)   the amount of any outgoing incurred in connection with acquiring an item of trading stock during that income year but before the completion time (except live stock acquired by natural increase); and

  (d)   the amount of any outgoings forming part of the cost of the trading stock incurred by the entity during its current holding of the trading stock but before the completion time.

Step 3.   For any asset of the original entity not covered by steps 1 and 2, work out the amount that would be the asset's * cost base at the completion time if it were a * CGT asset.

Step 4.   Subtract from the result of step 1 the original entity's liabilities (if any) at the completion time in respect of those assets.

Step 5.   If there is one class of * membership interests in the original entity, divide the result of step 4 by the total number of those membership interests at the completion time.

  If there are 2 or more classes of membership interests in the original entity, allocate a portion of the result of step 4 to each class in proportion to the * market value of all the membership interests in that class and divide that result by the total number of membership interests in that class at the completion time.

  (a)   a trust disposes of all of its assets to a company; and

  (b)   units and interests in the trust are replaced by shares in the company.

You can choose a roll - over if you exchange your interest as a member of an MDO for an interest as a member of another MDO.

You can only choose the roll - over if you would have made a capital gain from the exchange.

Entities can obtain CGT relief for a demerger.

Owners of ownership interests in the head entity of a demerger group can obtain a roll - over to defer CGT consequences for the CGT events that happen to their interests under the demerger (see Subdivision   125 - B).

Capital gains and capital losses made by members of the demerger group from certain CGT events that happen under the demerger are disregarded (see Subdivision   125 - C).

You can choose to obtain a roll - over if a CGT event happens to your interests in a company or trust because of a demerger of an entity from the group of which the company or trust is the head entity.

There are cost base adjustments if you receive new interests under a demerger and no CGT event happens to your original interests.

Certain capital gains and capital losses that members of a demerger group make under a demerger are disregarded.

Certain capital losses made under a demerger are reduced where the demerger results in a value shift.

  (a)   both companies are members of the same wholly - owned group; and

  (b)   at least one of the companies is a foreign resident.

Method statement

Step 1.   Work out (disregarding this section) the sum of the * capital gains and the sum of the * capital losses the holding company would make on the cancellation of its shares in the subsidiary.

Step 2.   Work out (disregarding this Subdivision):

  (a)   the sum of the * capital gains the subsidiary would make on the * disposal of its CGT roll - over assets to the holding company; and

  (b)   the sum of the * capital losses it would make except for Subdivision   170 - D on the disposal of its * CGT assets to the holding company;

  in the course of the liquidation assuming the * capital proceeds were the assets' * market values at the time of the disposal.

Step 3.   If, after subtracting the sum of the * capital losses from the sum of the * capital gains, there is an overall capital gain from step 1 and an overall capital gain from step 2, then continue. Otherwise there is no adjustment.

Step 4.   Express the number of post - CGT shares as a fraction of the total number of shares the holding company owned in the subsidiary.

Step 5.   Multiply the overall * capital gain from Step 2 by the fraction from Step 4.

Step 6.   Reduce the overall * capital gain from Step 1 by the amount from Step 5. The result is the * capital gain the holding company makes from the cancellation of its shares in the subsidiary.

This Division sets out what happens when you die and a CGT asset you owned just before dying devolves to your legal personal representative or passes to a beneficiary in your estate.

It also contains rules about what happens when a joint tenant dies.

This Division sets out the rules for these kinds of investments:

  bonus shares and units; and

  rights; and

  convertible interests; and

  shares acquired under an employee share scheme; and

  exchangeable interests; and

  exploration investments.

Most are about modifying the cost base and reduced cost base of a CGT asset.

To help small business, if the basic conditions for relief are satisfied, capital gains can be reduced by the various concessions in this Division. Those basic conditions are in Subdivision   152 - A. Some of the concessions have additional, specific conditions that must also be satisfied.

The 4 available small business concessions are:

  (a)   the 15 - year exemption (in Subdivision   152 - B);

  (b)   the 50% reduction (in Subdivision   152 - C);

  (c)   the retirement concession (in Subdivision   152 - D);

  (d)   the roll - over (in Subdivision   152 - E).

This Subdivision sets out some basic conditions for relief. If the basic conditions are satisfied, an entity may be able to reduce its capital gains using the small business concessions in this Division.

The 2 major basic conditions are:

  (a)   the entity must be a CGT small business entity or a partner in a partnership that is a CGT small business entity, or the net value of assets that the entity and related entities own must not exceed $6,000,000; and

  (b)   the CGT asset must be an active asset.

Additional basic conditions must be satisfied in the following circumstances:

  (a)   the CGT asset is a share in a company or an interest in a trust;

  (b)   the CGT event involves certain rights or interests in relation to the income or capital of a partnership.

Some of the concessions have additional, specific conditions that also must be satisfied. For example, the 15 - year exemption applies only if you have held the CGT asset for at least 15 years and you retire.

There are limitations on the availability of the small business concessions for CGT events J2, J5 and J6.

You do not need to satisfy the basic conditions for the retirement exemption in relation to CGT events J5 and J6.

A CGT small business entity can disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met. Capital losses are not affected.

Also, any amount of income a company or trust derives from a CGT event covered by this Subdivision is neither assessable income nor exempt income. If the company or trust makes payments to its CGT concession stakeholders that are attributable to the exempt amount, the payments will not be taken into account in determining the taxable income of the company, trust or recipient.

The main conditions are that:

  the basic conditions for relief in Subdivision   152 - A are satisfied;

  the entity continuously owned the asset for the 15 - year period leading up to the CGT event;

  if the entity is an individual, the individual retires or is permanently incapacitated;

  if the entity is a company or trust, the entity had a significant individual for a total of at least 15 years during which the entity owned the asset and the individual who was the significant individual just before the CGT event retires or is permanently incapacitated.

The Subdivision also allows time periods to continue to run if there has been a roll - over because of marriage or relationship breakdown or compulsory acquisition.

This Subdivision tells you how to apply the small business CGT concessions mentioned in step 4 of the method statement in subsection   102 - 5(1).

A capital gain is reduced by 50% if the basic conditions in Subdivision   152 - A are satisfied.

If the capital gain has already been reduced by the discount percentage, the 50% reduction under this Subdivision applies to that reduced gain.

The capital gain may be further reduced by the small business retirement exemption or a small business rollover, or both.

Alternatively, you may choose not to apply the 50% reduction and instead apply the small business retirement exemption or small business rollover.

None of these rules apply if the 15 - year exemption already applies to the capital gain, since such a gain is disregarded anyway.

You can choose to disregard a capital gain from a CGT event happening to a CGT asset of your small business if the capital proceeds from the event are used in connection with your retirement.

There is a lifetime limit of $500,000 for all choices that can be made in respect of an individual under this Subdivision.

You may choose not to apply the concession in section   152 - 205 (small business 50% reduction) before this one. For an additional concession, see also Subdivision   152 - E (small business roll - over).

You do not need to satisfy the basic conditions for this exemption in relation to CGT events J5 and J6.

A small business roll - over allows you to defer the making of a capital gain from a CGT event happening in relation to one or more small business assets if the basic conditions in Subdivision   152 - A are satisfied for the gain.

You may choose not to apply the concession in section   152 - 205 (small business 50% reduction) before this one. For an additional exemption, see also Subdivision   152 - D (small business retirement exemption).

A corporate tax entity can choose to "carry back" a tax loss it had for 2019 - 20, 2020 - 21, 2021 - 22 or 2022 - 23 against the income tax liability it had for 2018 - 19, 2019 - 20, 2020 - 21 or 2021 - 22.

The entity gets a refundable tax offset for 2020 - 21, 2021 - 22 or 2022 - 23 that is a proxy for the tax the entity would save if it deducted the loss in the income year to which the loss is "carried back".

The refundable tax offset:

  (a)   is capped at the entity's franking account balance; and

  (b)   is only available for losses for years for which the entity's turnover was less than $5 billion.

Method statement

Step 1.   Start with the amount of the * tax loss the entity * carries back to the income year.

Step 2.   Reduce the step 1 amount by the entity's * net exempt income for the income year.

  Note:   Do not reduce the step 1 amount by the entity's net exempt income to the extent the net exempt income has already been utilised: see section   960 - 20.

Step 3.   Multiply the step 2 amount by the * corporate tax rate for the * loss year.

A company that issues non - share equity interests will have a notional account called a non - share capital account . This account records contributions to the company in relation to those non - share equity interests and returns made by the company of those contributions.

A non - share distribution that represents a return of contributions is not taxed as a dividend (subject to the anti - avoidance provisions dealing with dividend substitution). In certain circumstances a company may use its share capital account as the source for such distributions.

A change in the ownership or control of a company can affect:

    whether it can deduct its tax losses of earlier income years; and

    how it calculates its taxable income and tax loss for the income year of the change; and

    whether it can deduct debts owed to it that are written off as bad.

A company cannot deduct a tax loss unless:

  (a)   it has the same owners and the same control throughout the period from the start of the loss year to the end of the income year; or

  (b)   it satisfies the business continuity test by carrying on the same business (including entering into no new kinds of transactions and conducting no new kinds of business), or by carrying on a similar business (on or after 1   July 2015).

Note:   The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see section   415 - 35.

Method statement

Step 1.   Divide the income year into periods: each change in ownership or control is a dividing point between periods.

Step 2.   Treat each period as if it were an income year and work out the notional loss or notional taxable income for that period.

Step 3.   Work out the taxable income for the year of the change by adding up:

  ï‚·   each notional taxable income; and

  ï‚·   any full year amounts (amounts of assessable income not taken into account at Step 2);

  and then subtracting any full year deductions (deductions not taken into account at Step 2).

  Note:   Do not take into account any notional loss.

In working out its net capital gain for an income year, a company cannot apply a net capital loss for an earlier income year unless:

  (a)   it has the same owners and the same control from the start of the loss year to the end of the income year; or

  (b)   it satisfies the business continuity test by carrying on the same business (including entering into no new kinds of transactions and conducting no new kinds of business), or by carrying on a similar business (on or after 1   July 2015).

Working out the company's net capital gain

Step 1.   Add up the * notional net capital gains (if any) worked out under section   165 - 108.

  Note:   A notional net capital loss for a period is not taken into account, but counts towards the company's net capital loss for the income year.

Step 2.   Add to the Step 1 amount so much of each amount included in the company's assessable income for the income year under:

  (a)   section   97 (Beneficiary of a trust estate who is not under a legal disability) of the Income Tax Assessment Act 1936 ; or

  (b)   section   98A (Non - resident beneficiaries assessable in respect of certain income) of that Act;

  as is attributable to a * capital gain that the trust made outside the income year.

  Note:   This is relevant only if the trust has an income year that starts and ends at a different time from when the company's income year starts and ends.

Step 3.   If the Step 2 amount is more than zero, reduce it by applying any unapplied * net capital losses from previous income years. (If this reduces it to zero, the company has no net capital gain for the income year.)

  Note:   To apply net capital losses: see section   102 - 15.

Step 4.   If the Step 3 amount is more than zero, it is the company's net capital gain .

Working out the company's net capital loss

Step 1.   Add up the * notional net capital losses (if any) worked out under section   165 - 108.

Step 2.   If the Step 1 amount is more than zero, it is the company's net capital loss .

Method statement

Step 1.   Work out under section   165 - 115F in respect of each * CGT asset that the company owned at the relevant time any notional capital gain or notional revenue gain or any notional capital loss or notional revenue loss that the company has at that time in respect of the asset.

  The sum of the notional capital gains is the company's unrealised capital gain at the relevant time.

  The sum of the notional capital losses is the company's unrealised capital loss at the relevant time.

  The sum of the notional revenue gains is the company's unrealised revenue gain at the relevant time.

  The sum of the notional revenue losses is the company's unrealised revenue loss at the relevant time.

Step 2.   Add up the unrealised capital gain and the unrealised revenue gain at the relevant time. The total is the unrealised gross gain at that time.

Step 3.   Add up the unrealised capital loss and the unrealised revenue loss at the relevant time. The total is the unrealised gross loss at that time.

Step 4.   If the unrealised gross loss at the relevant time exceeds the unrealised gross gain at that time, the excess is the company's preliminary unrealised net loss at that time.

Step 5.   Add up the company's preliminary unrealised net loss and any * capital loss, deduction or share of a deduction disregarded under section   170 - 270 in relation to an asset referred to in paragraph   165 - 115A(1A)(b). The total is the company's unrealised net loss at the relevant time.

Method statement

Step 1.   Work out the total * market value of all * CGT assets that the company owned at the relevant time (including those it * acquired for less than $10,000), using a valuation method that would generally be regarded as appropriate in the circumstances.

Step 2.   Work out the total of the * cost bases of those * CGT assets at the relevant time.

  Note:   If a CGT asset that the company owned at the relevant time was also trading stock or a revenue asset at that time, see subsection   (3) of this section.

Step 3.   If the step 2 amount exceeds the step 1 amount, the excess is the company's preliminary unrealised net loss at the relevant time.

Step 4.   Add up the company's preliminary unrealised net loss and any * capital loss, deduction or share of a deduction disregarded under section   170 - 270 in relation to an asset referred to in paragraph   165 - 115A(1A)(b). The total is the company's unrealised net loss at the relevant time.

Method statement

Step 1.   Work out under section   165 - 115V or 165 - 115W in respect of each * CGT asset that the company owned at the relevant alteration time any notional capital loss, notional revenue loss or trading stock decrease that the company has at that time in respect of the asset.

  To the extent that a notional capital loss or a notional revenue loss in respect of an asset at the relevant alteration time reflected an amount that was counted at an earlier alteration time, do not count it again at the relevant alteration time.

Step 2.   Add up the notional capital losses and the notional revenue losses that the company had at the relevant alteration time. The total is the company's nominal unrealised loss at that time.

Step 3.   Add up the trading stock decreases that the company had at the relevant alteration time. The total is the company's overall trading stock decrease at that time.

Step 4.   The sum of the company's nominal unrealised loss and overall trading stock decrease at the relevant time is the company's adjusted unrealised loss at that time.

Method statement

Step 1.   Work out the total * market value of all * CGT assets that the company owned at the relevant alteration time (including those it * acquired for less than $10,000), using a valuation method that would generally be regarded as appropriate in the circumstances.

Step 2.   Work out the total of the * cost bases of those * CGT assets at the relevant time.

  Note:   If a CGT asset that the company owned at the relevant time was also trading stock or a revenue asset at that time, see subsection   (1C) of this section.

Step 3.   If the step 2 amount exceeds the step 1 amount, the excess is the company's adjusted unrealised loss at the relevant time.

Method statement

Step 1.   Work out whether the item's * market value immediately before the alteration time was less than:

  (a)   if there was no earlier alteration time in the income year in which that alteration time occurred--the item's value under subsection   70 - 40(1) at the start of that income year or its cost if subsection   70 - 40(2) applies; or

  (b)   if there was an earlier alteration time or there were earlier alteration times in that income year--the item's market value immediately before that earlier alteration time or the later or latest of those earlier alteration times, as the case may be, or its cost if the company did not own it at that time.

Step 2.   If the item's * market value immediately before the alteration time was less than:

  (a)   the item's value or cost referred to in paragraph   (a) in step 1; or

  (b)   its market value or cost (as applicable) in paragraph   (b) in step 1;

  as the case requires, the difference is the trading stock decrease for the item.

  To the extent (if any) to which the difference reflects an amount counted at an earlier alteration time, do not count that amount again.

Method statement

Step 1.   Add up the amount or value of each thing covered by subsection   (5). (If the total exceeds the realised loss, reduce the total by the excess.)

Step 2.   Reduce the step 1 amount by so much of the realised loss as it is reasonable to conclude is attributable to none of these:

  (a)   a notional capital loss, or a notional revenue loss, that the company has at that last alteration time in respect of a * CGT asset;

  (b)   a trading stock decrease in relation to that time for a CGT asset that was * trading stock of the company at that time.

  (a)   if the debt was incurred in an earlier income year--the company had the same owners and the same control throughout the period from the day on which the debt was incurred to the end of the income year in which it writes off the debt as bad; or

  (b)   if the debt was incurred in the current year--the company had the same owners and the same control during the income year both before and after the debt was incurred;

or, if there has been a change of ownership or control, the company satisfies the business continuity test by carrying on the same business (including entering into no new kinds of transactions and conducting no new kinds of business), or by carrying on a similar business (on or after 1   July 2015).

  Note:   The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see section   415 - 40.

This Division modifies the way the rules in Division   165 apply to a widely held or eligible Division   166 company by making it easier for the company to apply the rules.

If the company has maintained the same owners as between certain points of time, it does not need to prove it has maintained the same owners throughout the periods in between.

In certain cases, special concessional tracing rules deem entities to hold voting, dividend or capital stakes in the company so that the company does not have to trace through to the ultimate beneficial owners of the stakes.

This Subdivision has the tests to work out whether a widely held or eligible Division   166 company has maintained the same owners as between different times. (Subdivision   166 - E has rules which make it easier for the company to satisfy these tests.)

This Subdivision also defines when there has been a corporate change in the company.

This Subdivision has rules which make it easier for a widely held or eligible Division   166 company to satisfy the ownership tests in Subdivision   166 - D.

Special concessional tracing rules deem entities to hold the following stakes in the company so that the company does not have to trace through to the beneficial owners of the stakes:

  (a)   stakes of less than 10% in the company;

  (b)   stakes of between 10% and 50% that are held by widely held companies;

  (c)   stakes that are held by complying superannuation funds, complying approved deposit funds, special companies and managed investment schemes;

  (d)   stakes in interposed foreign listed companies that are held as bearer shares;

  (e)   stakes in interposed foreign listed companies that are held by depository entities.

This Division modifies the way conditions relating to this Part apply to companies whose shares:

  (a)   do not all carry the same rights to dividends or capital distributions; or

  (b)   do not all carry the same voting rights, or do not carry all of the voting rights in the company.

If a condition of the continuity of ownership test cannot be worked out for a company:

  (a)   because of its unequal share structure; or

  (b)   because of a holding company's unequal share structure;

an entity can choose to reconsider that condition in up to 3 ways.

The first way involves disregarding debt interests.

The second way involves disregarding debt interests and secondary share classes.

The third way involves disregarding those shares, and treating the remaining shares as carrying certain percentages of the rights to receive dividends and capital distributions.

The second way can only be tried after the first way, while the third way can only be tried after the second way.

Companies whose shares:

  (a)   do not all carry the same voting rights; or

  (b)   do not carry all of the voting rights in the company;

may test the possession of voting rights similarly to companies whose shares are all of a single class with the same rights.

Method statement

Step 1.   Add together the * income company's assessable income and * net exempt income (if any) for the * deduction year.

Step 2.   Subtract the * income company's deductions for the * deduction year, except deductions for amounts of * tax losses transferred to the income company (by the * loss company or any other company).

Step 3.   Subtract the * income company's deductions for the * deduction year for amounts of * tax losses transferred to the income company (by the * loss company or any other company) by agreements made before the agreement by which the first amount is transferred.

Method statement

Step 1.   Add together the * income company's * net assessable film income and * net exempt film income (if any) for the * deduction year.

Step 2.   Subtract the * income company's deductions for the * deduction year for amounts of * film losses transferred to the income company (by the * loss company or any other company) by agreements made before the agreement by which the first amount is transferred.

Method statement

Step 1.   Identify each * bundle of losses that, on the assumption in subsection   170 - 42(2) or (4) (as appropriate), would have included the * tax loss or * film loss (as appropriate).

  Note 1:   There will be 2 or more bundles of losses identified if both of the conditions in subsections   170 - 42(2) and (4) are met.

  Note 2:   There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph   170 - 42(4) if the conditions in subsections   170 - 30(1) and (2) are met in relation to the loss company and the income company because of multiple applications of section   170 - 33 each involving a different first link company.

Step 2.   For each * bundle identified, work out how much of the * tax loss or * film loss (as appropriate) the * income company would have been able to deduct in the * deduction year assuming that:

  (a)   the loss could have been deducted in that year only after the deduction in that year of any other losses of that * sort that would have been included in the bundle, other than losses (the transferable losses ) that could be transferred from the * loss company to the income company for that year; and

  (b)   if the bundle would have included 2 or more transferable losses of that sort--those losses could have been deducted only in the order in which the loss company incurred them.

  Note 1:   If the assumption in subsection   170 - 42(2) is relevant to the bundle, it would have included losses incurred by the income company and transferred (or taken to be transferred) to the company (from itself) under Subdivision   707 - A.

  Note 2:   If the assumption in paragraph   170 - 42(4) is relevant to the bundle, it would have included losses actually incurred by the first link company and transferred (by one or more transfers under Subdivision   707 - A) to the income company.

Step 3.   Total every result of step 2 for the * tax loss or * film loss (as appropriate).

Method statement

Step 1.   Work out what, apart from the operation of this section, would have been the gain company's * net capital gain for the application year.

Step 2.   Subtract each amount that:

  (a)   the gain company can apply under section   170 - 115 in working out its * net capital gain for the application year; and

  (b)   was transferred to the gain company (by the loss company or any other company) by an agreement made before the agreement by which the first amount is transferred.

Method statement

Step 1.   Identify each * bundle of losses that, on the assumption in subsection   170 - 142(2) or (4) (as appropriate), would have included the * net capital loss.

  Note 1:   There will be 2 or more bundles of losses identified if both of the conditions in subsections   170 - 142(2) and (4) are met.

  Note 2:   There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph   170 - 142(4) if the conditions in subsections   170 - 130(1) and (2) are met in relation to the loss company and the gain company because of multiple applications of section   170 - 133 each involving a different first link company.

Step 2.   For each * bundle identified, work out how much of the * net capital loss the gain company would have been able to apply in working out its * net capital gain for the application year assuming that:

  (a)   the loss could have been applied in that year only after the application in that year of any other losses of that * sort that would have been included in the bundle, other than losses (the transferable losses ) that could be transferred from the * loss company to the gain company for that year; and

  (b)   if the bundle would have included 2 or more transferable losses of that sort--those losses could have been applied only in the order in which the loss company made them.

  Note 1:   If the assumption in subsection   170 - 142(2) is relevant to the bundle, it would have included losses made by the gain company and transferred (or taken to be transferred) to the company (from itself) under Subdivision   707 - A.

  Note 2:   If the assumption in paragraph   170 - 142(4) is relevant to the bundle, it would have included losses actually made by the first link company and transferred (by one or more transfers under Subdivision   707 - A) to the gain company.

Step 3.   Total every result of step 2 for the * net capital loss.

  (a)   the cost base and reduced cost base of direct and indirect equity interests held by group companies in the loss company, or in the income company or gain company; and

  (b)   the reduced cost base of direct and indirect debt interest held by group companies in the loss company; and

  (c)   the cost base and reduced cost base of direct and indirect debt interests held by group companies in the income company or gain company.

  (a)   is a company that is also a member of the linked group; or

  (b)   is a connected entity of the originating company or an * associate of such a connected entity;

The Commissioner can reverse the effect of schemes that, in order to avoid tax, bring together in the same company:

  ï‚·   assessable income; and

  ï‚·   tax losses, current year deductions, or deductions for bad debts, that apart from the scheme would not be fully used.

This Subdivision contains rules about the income tax treatment of:

  ï‚·   pooled development funds (PDFs)

  ï‚·   shares in PDFs.

This Subdivision contains rules about the income tax treatment of limited partnerships that become, or cease to be, venture capital limited partnerships, early stage venture capital limited partnerships, Australian venture capital funds of funds or venture capital management partnerships.

It also allows the Commissioner to determine how to take account of limited partnerships having income years of less than 12 months when they become, or cease to be, venture capital limited partnerships, early stage venture capital limited partnerships, Australian venture capital funds of funds or venture capital management partnerships.

The business, assets and liabilities of each sub - fund of a CCIV are taken to constitute the trust estate of a separate trust (a CCIV sub - fund trust), of which the CCIV is the trustee and the members of the sub - fund are the beneficiaries.

This Subdivision sets out further rules to facilitate the CCIV, and the sub - fund and its members, being taxed on this basis, including:

  modifications of the rules for determining whether the CCIV sub - fund trust is a managed investment trust (under Division   275) and an attribution managed investment trust (under Division   276); and

  Note:   These modifications also affect whether the trust is a withholding MIT under Subdivision   12 - H in Schedule   1 to the Taxation Administration Act 1953 .

  rules to support the application of Division   6 or 6C of Part   III of the Income Tax Assessment Act 1936 , to the extent that Division applies to the trust; and

  rules to support the application to the trust of relevant rules about trust losses and capital gains.

  (a)   applies to certain amounts transferred to a company's share capital account (see Subdivision   197 - A); and

  (b)   provides for a franking debit to arise if such an amount is transferred to the share capital account (see Subdivision   197 - B); and

  (c)   provides for the tainting of the share capital account if such an amount is transferred, for how the account may be untainted, and for consequences that flow from untainting the account (see Subdivision   197 - C).

 

Commonwealth Coat of Arms of Australia

Income Tax Assessment Act 1997

No.   38, 1997

Compilation No.   248

Compilation date:   1 January 2024

Includes amendments:   Act No. 40, 2023, Act No. 61, 2023, Act No. 69, 2023, Act No. 101, 2023 and Act No. 103, 2023

Registered:   15 January 2024

This compilation is in 12 volumes

Volume 1:   sections   1 - 1 to 36 12 pt">- 55

Volume 2:   sections   40 - 1 to 67 - 30

Volume 3:   sections   70 - 1 to 121 12 pt">- 35

Volume 4:   sections   122 - 1 to 197 12 pt">- 85

Volume 5:   sections   200 - 1 to 253 - 15

Volume 6:   sections   275 - 1 to 313 12 pt">- 85

Volume 7:   sections   315 - 1 to 420 - 70

Volume 8:   sections   615 - 1 to 721 - 40

Volume 9:   sections   723 - 1 to 880 12p t">- 205

Volume 10:   sections   900 - 1 to 995 - 1

Volume 11:   Endnotes 1 to 3

Volume 12:   Endnote 4

Each volume has its own contents

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 1 January 2024 (the compilation date ).

The notes at the end of this compilation (the endnotes ) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the Register for the compiled law.

Self - repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

 

 

 

Contents

Chapter   3--Specialist liability rules

Part   3 - 6--The imputation system

Division   200--Guide to Part   3 - 6

Guide to Division   200   1

200 - 1   What this Division is about

200 - 5   The imputation system

200 - 10   Franking a distribution

200 - 15   The franking account

200 - 20   How a distribution is franked

200 - 25   A corporate tax entity must not give its members credit for more tax than the entity has paid

200 - 30   Benchmark rule

200 - 35   Effect of receiving a franked distribution

200 - 40   An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members

200 - 45   Special rules for franking by some entities

Division   201--Objects and application of Part   3 - 6

201 - 1   Objects

201 - 5   Application of this Part

Division   202--Franking a distribution

Subdivision   202 - A--Franking a distribution

Guide to Subdivision   202 - A

202 - 1   What this Subdivision is about

Operative provisions

202 - 5   Franking a distribution

Subdivision   202 - B--Who can frank a distribution?

Guide to Subdivision   202 - B

202 - 10   What this Subdivision is about

Operative provisions

202 - 15   Franking entities

202 - 20   Residency requirement when making a distribution

Subdivision   202 - C--Which distributions can be franked?

Guide to Subdivision   202 - C

202 - 25   What this Subdivision is about

202 - 30   Frankable distributions

Operative provisions

202 - 35   Object

202 - 40   Frankable distributions

202 - 45   Unfrankable distributions

202 - 47   Distributions of certain ADI profits following restructure

Subdivision   202 - D--Amount of the franking credit on a distribution

Guide to Subdivision   202 - D

202 - 50   What this Subdivision is about

202 - 55   What is the maximum franking credit for a frankable distribution?

Operative provisions

202 - 60   Amount of the franking credit on a distribution

202 - 65   Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution

Subdivision   202 - E--Distribution statements

Guide to Subdivision   202 - E

202 - 70   What this Subdivision is about

Operative provisions

202 - 75   Obligation to give a distribution statement

202 - 80   Distribution statement

202 - 85   Changing the franking credit on a distribution by amending the distribution statement

Division   203--Benchmark rule

Guide to Division   203   18

203 - 1   What this Division is about

203 - 5   Benchmark rule

203 - 10   Benchmark franking percentage

Operative provisions

203 - 15   Object

203 - 20   Application of the benchmark rule

203 - 25   Benchmark rule

203 - 30   Setting a benchmark franking percentage

203 - 35   Franking percentage

203 - 40   Franking periods--where the entity is not a private company

203 - 45   Franking period--private companies

203 - 50   Consequences of breaching the benchmark rule

203 - 55   Commissioner's powers to permit a departure from the benchmark rule

Division   204--Anti - streaming rules

Subdivision   204 - A--Objects and application

204 - 1   Objects

204 - 5   Application

Subdivision   204 - B--Linked distributions

Guide to Subdivision   204 - B

204 - 10   What this Subdivision is about

Operative provisions

204 - 15   Linked distributions

Subdivision   204 - C--Substituting tax - exempt bonus share for franked distributions

Guide to Subdivision   204 - C

204 - 20   What this Subdivision is about

Operative provisions

204 - 25   Substituting tax - exempt bonus shares for franked distributions

Subdivision   204 - D--Streaming distributions

Guide to Subdivision   204 - D

204 - 26   What this Subdivision is about

Operative provisions

204 - 30   Streaming distributions

204 - 35   When does a franking debit arise if the Commissioner makes a determination under paragraph   204 - 30(3)(a)

204 - 40   Amount of the franking debit

204 - 41   Amount of the exempting debit

204 - 45   Effect of a determination about distributions to favoured members

204 - 50   Assessment and notice of determination

204 - 55   Right to review where a determination made

Subdivision   204 - E--Disclosure requirements

Guide to Subdivision   204 - E

204 - 65   What this Subdivision is about

Operative provisions

204 - 70   Application of this Subdivision

204 - 75   Notice to the Commissioner

204 - 80   Commissioner may require information where the Commissioner suspects streaming

Division   205--Franking accounts, franking deficit tax liabilities and the related tax offset

Guide to Division   205   43

205 - 1   What this Division is about

205 - 5   Franking accounts, franking deficit tax liabilities and the related tax offset

Operative provisions

205 - 10   Each entity that is or has been a corporate tax entity has a franking account

205 - 15   Franking credits

205 - 20   Paying a PAYG instalment, income tax or diverted profits tax

205 - 25   Residency requirement for an event giving rise to a franking credit or franking debit

205 - 30   Franking debits

205 - 35   Refund of income tax or diverted profits tax

205 - 40   Franking surplus and deficit

205 - 45   Franking deficit tax

205 - 50   Deferring franking deficit

205 - 70   Tax offset arising from franking deficit tax liabilities

Division   207--Effect of receiving a franked distribution

Guide to Division   207   67

207 - 5   Overview

Subdivision   207 - A--Effect of receiving a franked distribution generally

Guide to Subdivision   207 - A

207 - 10   What this Subdivision is about

Operative provisions

207 - 15   Applying the general rule

207 - 20   General rule--gross - up and tax offset

Subdivision   207 - B--Franked distribution received through certain partnerships and trustees

Guide to Subdivision   207 - B

207 - 25   What this Subdivision is about

Gross - up and tax offset

207 - 30   Applying this Subdivision

207 - 35   Gross - up--distribution made to, or flows indirectly through, a partnership or trustee

207 - 37   Attributable franked distribution--trusts

207 - 45   Tax offset--distribution flows indirectly to an entity

Key concepts  

207 - 50   When a franked distribution flows indirectly to or through an entity

207 - 55   Share of a franked distribution

207 - 57   Share of the franking credit on a franked distribution

207 - 58   Specifically entitled to an amount of a franked distribution

207 - 59   Franked distributions within class treated as single franked distribution

Subdivision   207 - C--Residency requirements for the general rule

Guide to Subdivision   207 - C

207 - 60   What this Subdivision is about

207 - 65   Satisfying the residency requirement

Operative provisions

207 - 70   Gross - up and tax offset under section   207 - 20

207 - 75   Residency requirement

Subdivision   207 - D--No gross - up or tax offset where distribution would not be taxed

Guide to Subdivision   207 - D

207 - 80   What this Subdivision is about

Operative provisions

207 - 85   Applying this Subdivision

207 - 90   Distribution that is made to an entity

207 - 95   Distribution that flows indirectly to an entity

Subdivision   207 - E--Exceptions to the rules in Subdivision   207 - D

Guide to Subdivision   207 - E

207 - 105   What this Subdivision is about

Operative provisions

207 - 110   Effect of non - assessable income on gross up and tax offset

Exempt institutions

207 - 115   Which exempt institutions are eligible for a refund?

207 - 117   Residency requirement

207 - 119   Entity not treated as exempt institution eligible for refund in certain circumstances

207 - 120   Entity may be ineligible because of a distribution event

207 - 122   Entity may be ineligible if distribution is in the form of property other than money

207 - 124   Entity may be ineligible if other money or property also acquired

207 - 126   Entity may be ineligible if distributions do not match trust share amounts

207 - 128   Reinvestment choice

207 - 130   Controller's liability

207 - 132   Treatment of benefits provided by an entity to a controller

207 - 134   Entity's present entitlement disregarded in certain circumstances

207 - 136   Review of certain decisions

Subdivision   207 - F--No gross - up or tax offset where the imputation system has been manipulated

Guide to Subdivision   207 - F

207 - 140   What this Subdivision is about

Operative provisions

207 - 145   Distribution that is made to an entity

207 - 150   Distribution that flows indirectly to an entity

207 - 155   When is a distribution made as part of a dividend stripping operation?

207 - 157   Distribution washing

207 - 158   Distributions entitled to a foreign income tax deduction

207 - 159   Distributions funded by capital raising

207 - 160   Distribution that is treated as an interest payment

Division   208--Exempting entities and former exempting entities

Guide to Division   208   121

208 - 5   What is an exempting entity?

208 - 10   Former exempting entities

208 - 15   Distributions by exempting entities and former exempting entities

Subdivision   208 - A--What are exempting entities and former exempting entities?

208 - 20   Exempting entities

208 - 25   Effective ownership of entity by prescribed persons

208 - 30   Accountable membership interests

208 - 35   Accountable partial interests

208 - 40   Prescribed persons

208 - 45   Persons who are taken to be prescribed persons

208 - 50   Former exempting companies

Subdivision   208 - B--Franking with an exempting credit

Guide to Subdivision   208 - B

208 - 55   What this Subdivision is about

Operative provisions

208 - 60   Franking with an exempting credit

Subdivision   208 - C--Amount of the exempting credit on a distribution

Guide to Subdivision   208 - C

208 - 65   What this Subdivision is about

Operative provisions

208 - 70   Amount of the exempting credit on a distribution

Subdivision   208 - D--Distribution statements

Guide to Subdivision   208 - D

208 - 75   Guide to Subdivision   208 - D

Operative provisions

208 - 80   Additional information to be included by a former exempting entity or exempting entity

Subdivision   208 - E--Distributions to be franked with exempting credits to the same extent

Guide to Subdivision   208 - E

208 - 85   What this Subdivision is about

Operative provisions

208 - 90   All frankable distributions made within a franking period must be franked to the same extent with an exempting credit

208 - 95   Exempting percentage

208 - 100   Consequences of breaching the rule in section   208 - 90

Subdivision   208 - F--Exempting accounts and franking accounts of exempting entities and former exempting entities

Guide to Subdivision   208 - F

208 - 105   What this Subdivision is about

Operative provisions

208 - 110   Exempting account

208 - 115   Exempting credits

208 - 120   Exempting debits

208 - 125   Exempting surplus and deficit

208 - 130   Franking credits arising because of status as exempting entity or former exempting entity

208 - 135   Relationships that will give rise to a franking credit under item   5 of the table in section   208 - 130

208 - 140   Membership of the same effectively wholly - owned group

208 - 145   Franking debits arising because of status as exempting entity or former exempting entity

208 - 150   Residency requirement

208 - 155   Eligible continuing substantial member

208 - 160   Distributions that are affected by a manipulation of the imputation system

208 - 165   Amount of the exempting credit or franking credit arising because of a distribution franked with an exempting credit

208 - 170   Where a determination under paragraph   177EA(5)(b) of the Income Tax Assessment Act 1936 affects part of the distribution

208 - 175   When does a distribution franked with an exempting credit flow indirectly to an entity?

208 - 180   What is an entity's share of the exempting credit on a distribution?

208 - 185   Minister may convert exempting surplus to franking credit of former exempting entity previously owned by the Commonwealth

Subdivision   208 - G--Tax effects of distributions by exempting entities

Guide to Subdivision   208 - G

208 - 190   What this Subdivision is about

Operative provisions

208 - 195   Division   207 does not generally apply

208 - 200   Distributions to exempting entities

208 - 205   Distributions to employees acquiring shares under eligible employee share schemes

208 - 215   Eligible employee share schemes

Subdivision   208 - H--Tax effect of a distribution franked with an exempting credit

Guide to Subdivision   208 - H

208 - 220   What this Subdivision is about

Operative provisions

208 - 225   Division   207 does not generally apply

208 - 230   Distributions to exempting entities and former exempting entities

208 - 235   Distributions to employees acquiring shares under eligible employee share schemes

208 - 240   Distributions to certain individuals

Division   210--Venture capital franking

Guide to Division   210   169

210 - 1   Purpose of venture capital franking

210 - 5   How is this achieved?

210 - 10   What is a venture capital credit?

210 - 15   What does the PDF have to do to distribute the credits?

210 - 20   Limits on venture capital franking

Subdivision   210 - A--Franking a distribution with a venture capital credit

Guide to Subdivision   210 - A

210 - 25   What this Subdivision is about

Operative provisions

210 - 30   Franking a distribution with a venture capital credit

Subdivision   210 - B--Participating PDFs

Guide to Subdivision   210 - B

210 - 35   What this Subdivision is about

Operative provisions

210 - 40   What is a participating PDF

Subdivision   210 - C--Distributions that are frankable with a venture capital credit

Guide to Subdivision   210 - C

210 - 45   What this Subdivision is about

Operative provisions

210 - 50   Which distributions can be franked with a venture capital credit?

Subdivision   210 - D--Amount of the venture capital credit on a distribution

Guide to Subdivision   210 - D

210 - 55   What this Subdivision is about

Operative provisions

210 - 60   Amount of the venture capital credit on a distribution

Subdivision   210 - E--Distribution statements

Guide to Subdivision   210 - E

210 - 65   What this Subdivision is about

Operative provisions

210 - 70   Additional information to be included when a distribution is franked with a venture capital credit

Subdivision   210 - F--Rules affecting the allocation of venture capital credits

Guide to Subdivision   210 - F

210 - 75   What this Subdivision is about

Operative provisions

210 - 80   Draining the venture capital surplus when a distribution frankable with venture capital credits is made

210 - 81   Distributions to be franked with venture capital credits to the same extent

210 - 82   Consequences of breaching the rule in section   210 - 81

Subdivision   210 - G--Venture capital sub - account

Guide to Subdivision   210 - G

210 - 85   What this Subdivision is about

210 - 90   The venture capital sub - account

210 - 95   Venture capital deficit tax

Operative provisions

210 - 100   Venture capital sub - account

210 - 105   Venture capital credits

210 - 110   Determining the extent to which a franking credit is reasonably attributable to a particular payment of tax

210 - 115   Participating PDF may elect to have venture capital credits arise on its assessment day

210 - 120   Venture capital debits

210 - 125   Venture capital debit where CGT limit is exceeded

210 - 130   Venture capital surplus and deficit

210 - 135   Venture capital deficit tax

210 - 140   Effect of a liability to pay venture capital deficit tax on franking deficit tax

210 - 145   Effect of a liability to pay venture capital deficit tax on the franking account

210 - 150   Deferring venture capital deficit

Subdivision   210 - H--Effect of receiving a distribution franked with a venture capital credit

Guide to Subdivision   210 - H

210 - 155   What this Subdivision is about

210 - 160   The significance of a venture capital credit

210 - 165   Recipients for whom the venture capital credit is not significant

Operative provisions

210 - 170   Tax offset for certain recipients of distributions franked with venture capital credits

210 - 175   Amount of the tax offset

210 - 180   Application of Division   207 where the recipient is entitled to a tax offset under section   210 - 170

Division   214--Administering the imputation system

Guide to Division   214   191

214 - 1   Purpose of the system

214 - 5   Key features

Subdivision   214 - A--Franking returns

Guide to Subdivision   214 - A

214 - 10   What this Subdivision is about

Operative provisions

214 - 15   Requirement to give franking return--general

214 - 20   Notice to a specific corporate tax entity

214 - 25   Content and form of a franking return

214 - 30   Franking account balance

214 - 35   Venture capital sub - account balance

214 - 40   Meaning of franking tax

214 - 45   Effect of a refund on franking returns

Subdivision   214 - B--Franking assessments

Guide to Subdivision   214 - B

214 - 55   What this Subdivision is about

Operative provisions

214 - 60   Commissioner may make a franking assessment

214 - 65   Commissioner taken to have made a franking assessment on first return

214 - 70   Part - year assessment

214 - 75   Validity of assessment

214 - 80   Objections

Subdivision   214 - C--Amending franking assessments

Guide to Subdivision   214 - C

214 - 90   What this Subdivision is about

Operative provisions

214 - 95   Amendments within 3 years of the original assessment

214 - 100   Amended assessments are treated as franking assessments

214 - 105   Further return as a result of a refund affecting a franking deficit tax liability

214 - 110   Later amendments--on request

214 - 115   Later amendments--failure to make proper disclosure

214 - 120   Later amendments--fraud or evasion

214 - 125   Further amendment of an amended particular

214 - 135   Amendment on review etc.

214 - 140   Notice of amendments

Subdivision   214 - D--Collection and recovery

Guide to Subdivision   214 - D

214 - 145   What this Subdivision is about

Operative provisions

214 - 150   Due date for payment of franking tax

214 - 155   General interest charge

214 - 160   Refunds of amounts overpaid

Subdivision   214 - E--Records

Guide to Subdivision   214 - E

214 - 170   What this Subdivision is about

Operative provisions

214 - 175   Record keeping

Division   215--Consequences of the debt/equity rules

Subdivision   215 - A--Application of the imputation system to non - share equity interests

215 - 1   Application of the imputation system to non - share equity interests

Subdivision   215 - B--Non - share dividends that are unfrankable to some extent

Guide to Subdivision   215 - B

215 - 5   What this Subdivision is about

215 - 10   Certain non - share dividends by ADIs unfrankable

215 - 15   Non - share dividends are unfrankable if profits are unavailable

215 - 20   Working out the available frankable profits

215 - 25   Anticipating available frankable profits

Division   216--Cum dividend sales and securities lending arrangements

Subdivision   216 - A--Circumstances where a distribution to a member of a corporate tax entity is treated as having been made to someone else

216 - 1   When a distribution made to a member of a corporate tax entity is treated as having been made to someone else

216 - 5   First situation (cum dividend sales)

216 - 10   Second situation (securities lending arrangements)

216 - 15   Distribution closing time

Subdivision   216 - B--Statements to be made where there is a cum dividend sale or securities lending arrangement

216 - 20   Cum dividend sale--statement by securities dealer

216 - 25   Cum dividend sale--statement by party

216 - 30   Securities lending arrangements--statement by borrower

Division   218--Application of imputation rules to co - operative companies

218 - 5   Application of imputation rules to co - operative companies

Division   219--Imputation for life insurance companies

Guide to Division   219   220

219 - 1   What this Division is about

Subdivision   219 - A--Application of imputation rules to life insurance companies

219 - 10   Application of imputation rules to life insurance companies

Subdivision   219 - B--Franking accounts of life insurance companies

219 - 15   Franking credits

219 - 30   Franking debits

219 - 40   Residency requirement

219 - 45   Assessment day

219 - 50   Amount attributable to shareholders' share of income tax liability

219 - 55   Adjustment resulting from an amended assessment

219 - 70   Tax offset under section   205 - 70

219 - 75   Working out franking credits and franking debits where a tax offset under section   205 - 70 is applied

Division   220--Imputation for NZ resident companies and related companies

Guide to Division   220   237

220 - 1   What this Division is about

Subdivision   220 - A--Objects of this Division

220 - 15   Objects

220 - 20   What is an NZ resident ?

Subdivision   220 - B--NZ company treated as Australian resident for imputation system if company chooses

220 - 25   Application of provisions of Part   3 - 6 outside this Division

220 - 30   What is an NZ franking company ?

220 - 35   Making an NZ franking choice

220 - 40   When is an NZ franking choice in force?

220 - 45   Revoking an NZ franking choice

220 - 50   Cancelling an NZ franking choice

Subdivision   220 - C--Modifications of other Divisions of this Part

Franking NZ franking companies' distributions

220 - 100   Residency requirement for franking

220 - 105   Unfrankable distributions by NZ franking companies

220 - 110   Maximum franking credit under section   202 - 60

NZ franking companies' franking accounts etc.

220 - 205   Franking credit for payment of NZ franking company's withholding tax liability

220 - 210   Effect of franked distribution to NZ franking company or flowing indirectly to NZ franking company

220 - 215   Effect on franking account if NZ franking choice ceases to be in force

Franking accounts of NZ franking company and some of its 100% subsidiaries

220 - 300   NZ franking company's franking account affected by franking accounts of some of its 100% subsidiaries

Effect of NZ franking company making distribution that is non - assessable and non - exempt

220 - 350   Providing for a franking credit to arise

Effects of supplementary dividend from NZ franking company

220 - 400   Gross - up and tax offset for distribution from NZ franking company reduced by supplementary dividend

220 - 405   Franked distribution and supplementary dividend flowing indirectly

220 - 410   Franking credit reduced if tax offset reduced

Rules about exempting entities

220 - 500   Publicly listed post - choice NZ franking company and its 100% subsidiaries are not exempting entities

220 - 505   Post - choice NZ franking company is not automatically prescribed person

220 - 510   Parent company's status as prescribed person sets status of all other members of same wholly - owned group

NZ franking companies' exempting accounts

220 - 605   Effect on exempting account if NZ franking choice ceases to be in force

Tax effect of distribution franked by NZ franking company with an exempting credit

220 - 700   Tax effect of distribution franked by NZ franking company with an exempting credit

Joint and several liability for NZ resident company's unmet franking liabilities

220 - 800   Joint and several liability for NZ resident company's franking tax etc.

Part   3 - 10--Financial transactions

Division   230--Taxation of financial arrangements

Guide to Division   230   262

230 - 1   What this Division is about

230 - 5   Scope of this Division

Subdivision   230 - A--Core rules

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

Subdivision   230 - B--The accruals/realisation methods

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 - 172   Applying accruals method to loss resulting from impairment

230 - 175   Running balancing adjustments

Realisation method

230 - 180   Realisation method

Reassessment and re - estimation

230 - 185   Reassessment

230 - 190   Re - estimation

230 - 192   Re - estimation--impairments and reversals

230 - 195   Balancing adjustment if rate of return maintained on re - estimation

230 - 200   Re - estimation if balancing adjustment on partial disposal

Subdivision   230 - C--Fair value method

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

Subdivision   230 - D--Foreign exchange retranslation method

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

Subdivision   230 - E--Hedging financial arrangements method

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 hedging financial 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   Commissioner may determine that requirement met

230 - 385   Consequences of failure to meet requirements

Subdivision   230 - F--Reliance on financial reports

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

Subdivision   230 - G--Balancing adjustment on ceasing to have a financial arrangement

230 - 435   When balancing adjustment made

230 - 440   Exceptions

230 - 445   Balancing adjustment

Subdivision   230 - H--Exceptions

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 - 481   Registered emissions units

Subdivision   230 - I--Other provisions

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 principles or 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 - 522   Adjusting a gain or loss that gives rise to a hybrid mismatch

230 - 525   Consolidated financial reports

230 - 527   Elections--reporting documents of foreign ADIs

Subdivision   230 - J--Additional operation of Division

230 - 530   Additional operation of Division

Division   235--Particular financial transactions

Guide to Division   235   414

235 - 1   What this Division is about

Subdivision   235 - I--Instalment trusts

Guide to Subdivision   235 - I

235 - 805   What this Subdivision is about

Operative provisions

235 - 810   Object of this Subdivision

235 - 815   Application of Subdivision

235 - 820   Look - through treatment for instalment trusts

235 - 825   Meaning of instalment trust and instalment trust asset

235 - 830   What trusts are covered--instalment trust arrangements

235 - 835   Requirement for underlying investments to be listed or widely held

235 - 840   What trusts are covered--limited recourse borrowings by regulated superannuation funds

235 - 845   Interactions with other provisions

Division   240--Arrangements treated as a sale and loan

Guide to Division   240   421

240 - 1   What this Division is about

240 - 3   How the recharacterisation affects the notional seller

240 - 7   How the recharacterisation affects the notional buyer

Subdivision   240 - A--Application and scope of Division

Operative provisions

240 - 10   Application of this Division

240 - 15   Scope of Division

Subdivision   240 - B--The notional sale and notional loan

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

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

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

Subdivision   240 - D--Deductions allowable to notional buyer

Guide to Subdivision   240 - D

240 - 45   What this Subdivision is about

Operative provisions

240 - 50   Extent to which deductions are allowable to notional buyer

240 - 55   Arrangement payments not to be deductions

Subdivision   240 - E--Notional interest and arrangement payments

Operative provisions

240 - 60   Notional interest

240 - 65   Arrangement payments

240 - 70   Arrangement payment periods

Subdivision   240 - F--The end of the arrangement

Operative provisions

240 - 75   When is the end of the arrangement?

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

Subdivision   240 - G--Adjustments if total amount assessed to notional seller differs from amount of interest

Guide to Subdivision   240 - G

240 - 100   What this Subdivision is about

Operative provisions

240 - 105   Adjustments for notional seller

240 - 110   Adjustments for notional buyer

Subdivision   240 - H--Application of Division   16E to certain arrangements

240 - 112   Division   16E applies to certain arrangements

Subdivision   240 - I--Provisions applying to hire purchase agreements

Operative provisions

240 - 115   Another person, or no person taken to own property in certain cases

Division   242--Leases of luxury cars

Guide to Division   242   441

242 - 1   What this Division is about

Subdivision   242 - A--Notional sale and loan

Guide to Subdivision   242 - A

242 - 5   What this Subdivision is about

Operative provisions

242 - 10   Application

242 - 15   Notional sale and acquisition

242 - 20   Consideration for notional sale, and cost, of car

242 - 25   Notional loan by lessor to lessee

Subdivision   242 - B--Amount to be included in lessor's assessable income

Guide to Subdivision   242 - B

242 - 30   What this Subdivision is about

Operative provisions

242 - 35   Amount to be included in lessor's assessable income

242 - 40   Treatment of lease payments

Subdivision   242 - C--Deductions allowable to lessee

Guide to Subdivision   242 - C

242 - 45   What this Subdivision is about

Operative provisions

242 - 50   Extent to which deductions are allowable to lessee

242 - 55   Lease payments not deductible

Subdivision   242 - D--Adjustments if total amount assessed to lessor differs from amount of interest

Guide to Subdivision   242 - D

242 - 60   What this Subdivision is about

Operative provisions

242 - 65   Adjustments for lessor

242 - 70   Adjustments for lessee

Subdivision   242 - E--Extension, renewal and final ending of the lease

Guide to Subdivision   242 - E

242 - 75   What this Subdivision is about

Operative provisions

242 - 80   What happens if the term of the lease is extended or the lease is renewed

242 - 85   What happens if an amount is paid by the lessee to acquire the car

242 - 90   What happens if the lessee stops having the right to use the car

Division   243--Limited recourse debt

Guide to Division   243   456

243 - 10   What this Division is about

Subdivision   243 - A--Circumstances in which Division operates

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?

Subdivision   243 - B--Working out the excessive deductions

Operative provisions

243 - 35   Working out the excessive deductions

Subdivision   243 - C--Amounts included in assessable income and deductions

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

Subdivision   243 - D--Special provisions

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

Division   245--Forgiveness of commercial debts

Guide to Division   245   473

245 - 1   What this Division is about

245 - 2   Simplified outline of this Division

Subdivision   245 - A--Debts to which operative rules apply

Guide to Subdivision   245 - A

245 - 5   What this Subdivision is about

Application of Division

245 - 10   Commercial debts

245 - 15   Non - equity shares

245 - 20   Parts of debts

Subdivision   245 - B--What constitutes forgiveness of a debt

Guide to Subdivision   245 - B

245 - 30   What this Subdivision is about

Operative provisions

245 - 35   What constitutes forgiveness of a debt

245 - 36   What constitutes forgiveness of a debt if the debt is assigned

245 - 37   What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt

245 - 40   Forgivenesses to which operative rules do not apply

245 - 45   Application of operative rules if forgiveness involves an arrangement

Subdivision   245 - C--Calculation of gross forgiven amount of a debt

Guide to Subdivision   245 - C

245 - 48   What this Subdivision is about

Working out the value of a debt

245 - 50   Extent of forgiveness if consideration is given

245 - 55   General rule for working out the value of a debt

245 - 60   Special rule for working out the value of a non - recourse debt

245 - 61   Special rule for working out the value of a previously assigned debt

Working out if an amount is offset against the value of the debt

245 - 65   Amount offset against amount of debt

Working out the gross forgiven amount

245 - 75   Gross forgiven amount of a debt

245 - 77   Gross forgiven amount shared between debtors

Subdivision   245 - D--Calculation of net forgiven amount of a debt

Guide to Subdivision   245 - D

245 - 80   What this Subdivision is about

Operative provisions

245 - 85   Reduction of gross forgiven amount

245 - 90   Agreement between companies under common ownership for creditor to forgo capital loss or deduction

Subdivision   245 - E--Application of net forgiven amounts

Guide to Subdivision   245 - E

245 - 95   What this Subdivision is about

General operative provisions

245 - 100   Subdivision not to apply to calculation of attributable income

245 - 105   How total net forgiven amount is applied

Reduction of tax losses

245 - 115   Total net forgiven amount is applied in reduction of tax losses

245 - 120   Allocation of total net forgiven amount in respect of tax losses

Reduction of net capital losses

245 - 130   Remaining total net forgiven amount is applied in reduction of net capital losses

245 - 135   Allocation of remaining total net forgiven amount in respect of net capital losses

Reduction of expenditure

245 - 145   Remaining total net forgiven amount is applied in reduction of expenditure

245 - 150   Allocation of remaining total net forgiven amount in respect of expenditures

245 - 155   How expenditure is reduced--straight line deductions

245 - 157   How expenditure is reduced--diminishing balance deductions

245 - 160   Amount applied in reduction of expenditure included in assessable income in certain circumstances

Reduction of cost bases of assets

245 - 175   Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets

245 - 180   Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets

245 - 185   Relevant cost bases of investments in associated entities are reduced last

245 - 190   Reduction of the relevant cost bases of a CGT asset

Unapplied total net forgiven amount

245 - 195   No further consequences if there is any remaining unapplied total net forgiven amount

Subdivision   245 - F--Special rules relating to partnerships

Guide to Subdivision   245 - F

245 - 200   What this Subdivision is about

Operative provisions

245 - 215   Unapplied total net forgiven amount of a partnership is transferred to partners

Subdivision   245 - G--Record keeping

245 - 265   Keeping and retaining records

Division   247--Capital protected borrowings

Guide to Division   247   506

247 - 1   What this Division is about

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

Division   250--Assets put to tax preferred use

Guide to Division   250   512

250 - 1   What this Division is about

Subdivision   250 - A--Objects

250 - 5   Main objects

Subdivision   250 - B--When this Division applies to you and an asset

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 than 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

Subdivision   250 - C--Denial of, or reduction in, capital allowance deductions

250 - 145   Denial of capital allowance deductions

250 - 150   Apportionment rule

Subdivision   250 - D--Deemed loan treatment of financial benefits provided for tax preferred use

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

Subdivision   250 - E--Taxation of deemed loan

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

Subdivision   250 - F--Treatment of asset when Division ceases to apply to the asset

250 - 285   Treatment of asset after Division ceases to apply to the asset

250 - 290   Balancing adjustment under Subdivision   40 - D in some circumstances

Subdivision   250 - G--Objections against determinations and decisions by the Commissioner

250 - 295   Objections against determinations and decisions by the Commissioner

Division   253--Financial claims scheme for account - holders with insolvent ADIs

Subdivision   253 - A--Tax treatment of entitlements under financial claims scheme

Guide to Subdivision   253 - A

253 - 1   What this Subdivision is about

Operative provisions

253 - 5   Payment of entitlement under financial claims scheme treated as payment from ADI

253 - 10   Disposal of rights against ADI to APRA and meeting of financial claims scheme entitlement have no CGT effects

253 - 15   Cost base of financial claims scheme entitlement and any remaining part of account that gave rise to entitlement

 

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