INCOME TAX ASSESSMENT ACT 1997 - SECT 247.20 Treating capital protection as a put option
INCOME TAX ASSESSMENT ACT 1997 - SECT 247.20
Treating capital protection as a put option(1) This section applies to a borrower if:
(aa) the borrower has an excess using the method statement in subsection (3) for:
(i) a * capital protected borrowing entered into after 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008 (the 2008 Budget time ); or
(ii) an extension of the capital protected borrowing; or
(a) the borrower has an amount that is reasonably attributable to the * capital protection as mentioned in subsection (2) for a capital protected borrowing entered into or extended on or after 1 July 2007 and at or before the 2008 Budget time; 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 entered into or extended at or after 9.30 am, by legal time in the Australian Capital Territory, on 16 April 2003 and before 1 July 2007.
Note: If a capital protected borrowing covered by paragraph (1)(a) or (b) is extended or otherwise changed after the 2008 Budget time, section 247 - 85 of the Income Tax (Transitional Provisions) Act 1997 applies to the capital protected borrowing.
(2) For paragraphs (1)(a) and (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 either or both of subsections (4) and (5A).
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.
(a) the * capital protected borrowing is at a fixed rate for all or part of the term of the capital protected borrowing; and
(b) that fixed rate is applicable to the capital protected borrowing for all or part of the income year;
use the rate worked out under subsection (5) at the first time an amount covered by step 1 of the method statement in subsection (3) was incurred, in any income year, during the term of the capital protected borrowing or that part of the term.
(5) The rate (the adjusted loan rate ), at a particular time, is the sum of:
(a) the Reserve Bank of Australia's Indicator Lending Rate for Standard Variable Housing Loans at that time; and
(a) the * capital protected borrowing is at a variable rate for all or part of the term of the capital protected borrowing; and
(b) a variable rate is applicable to the capital protected borrowing for all or part of the income year;
use the average of the adjusted loan rates applicable during those parts of the income year when the capital protected borrowing is at a variable rate.
(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)(a) or (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.