Source: https://www.legislation.gov.au/Details/C2016C00680/Html/Volume_9
Timestamp: 2019-09-17 14:13:32
Document Index: 199855523

Matched Legal Cases: ['art 4', 'art 5', 'art 5', 'art 6', 'art 6', 'art 4', 'arts 3', 'art 3', 'art 3', 'art 3', 'arts 3', 'art 3']

Chapter 4—International aspects of income tax 1
Part 4‑5—General 1
Division 768—Foreign non‑assessable income and gains 1
Subdivision 768‑A—Returns on foreign investment 1
Guide to Subdivision 768‑A 1
768‑1..................... What this Subdivision is about........................................... 1
Foreign equity distributions on participation interests 2
768‑5..................... Foreign equity distributions on participation interests......... 2
768‑10................... Meaning of foreign equity distribution............................... 3
768‑15................... Participation test—minimum 10% participation.................. 3
Subdivision 768‑B—Some items of income that are exempt from income tax 4
768‑100................. Foreign government officials in Australia........................... 4
768‑105................. Compensation arising out of Second World War................ 6
768‑110................. Foreign residents deriving income from certain activities in Australia’s exclusive economic zone or on or above Australia’s continental shelf..................................... 8
Subdivision 768‑G—Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies 8
Guide to Subdivision 768‑G 8
768‑500................. What this Subdivision is about........................................... 8
Operative provisions 10
768‑505................. Reducing a capital gain or loss from certain CGT events in relation to certain voting interests 10
Active foreign business asset percentage 10
768‑510................. Active foreign business asset percentage.......................... 10
768‑515................. Choices to apply market value method or book value method 12
768‑520................. Market value method—choice made under subsection 768‑515(1) 12
768‑525................. Book value method—choice made under subsection 768‑515(2) 14
768‑530................. Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies............................................. 18
768‑533................. Foreign company that is a FIF using CFC calculation method—treatment as AFI subsidiary under this Subdivision....................................................................... 21
768‑535................. Modified rules for foreign wholly‑owned groups............ 22
Types of assets of a foreign company 24
768‑540................. Active foreign business assets of a foreign company....... 24
768‑545................. Assets included in the total assets of a foreign company.. 26
Voting percentages in a company 27
768‑550................. Direct voting percentage in a company............................. 27
768‑555................. Indirect voting percentage in a company........................... 28
768‑560................. Total voting percentage in a company............................... 28
Subdivision 768‑R—Temporary residents 29
Guide to Subdivision 768‑R 29
768‑900................. What this Subdivision is about......................................... 29
Operative provisions 30
768‑905................. Objects.............................................................................. 30
768‑910................. Income derived by temporary resident.............................. 30
768‑915................. Certain capital gains and capital losses of temporary resident to be disregarded 31
768‑950................. Individual becoming an Australian resident...................... 32
768‑955................. Temporary resident who ceases to be temporary resident but remains an Australian resident 32
768‑960................. Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules 33
768‑970................. Modification of rules for accruals system of taxation of certain non‑resident trust estates 33
768‑980................. Interest paid by temporary resident................................... 33
Division 770—Foreign income tax offsets 34
Guide to Division 770 34
770‑1..................... What this Division is about............................................... 34
770‑5..................... Object............................................................................... 34
Subdivision 770‑A—Entitlement rules for foreign income tax offsets 35
Basic entitlement rule for foreign income tax offset 35
770‑10................... Entitlement to foreign income tax offset............................ 35
770‑15................... Meaning of foreign income tax, credit absorption tax and unitary tax 37
Subdivision 770‑B—Amount of foreign income tax offset 38
Guide to Subdivision 770‑B 38
770‑65................... What this Subdivision is about......................................... 38
770‑70................... Amount of foreign income tax offset................................ 39
770‑75................... Foreign income tax offset limit......................................... 39
770‑80................... Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply.................................................................. 41
Subdivision 770‑C—Rules about payment of foreign income tax 41
Rules about when foreign tax is paid 41
770‑130................. When foreign income tax is considered paid—taxes paid by someone else 41
770‑135................. Foreign income tax paid by CFCs on attributed amounts. 42
Rules about when foreign tax is considered not paid 44
770‑140................. When foreign income tax is considered not paid—anti‑avoidance rule 44
Subdivision 770‑D—Administration 45
770‑190................. Amendment of assessments.............................................. 45
Division 775—Foreign currency gains and losses 46
Guide to Division 775 46
775‑5..................... What this Division is about............................................... 46
Subdivision 775‑A—Objects of this Division 47
775‑10................... Objects of this Division.................................................... 47
Subdivision 775‑B—Realisation of forex gains or losses 48
775‑15................... Forex realisation gains are assessable............................... 49
775‑20................... Certain forex realisation gains are exempt income............ 51
775‑25................... Certain forex realisation gains are non‑assessable non‑exempt income 51
775‑27................... Certain forex realisation gains are non‑assessable non‑exempt income 51
775‑30................... Forex realisation losses are deductible.............................. 51
775‑35................... Certain forex realisation losses are disregarded................ 53
775‑40................... Disposal of foreign currency or right to receive foreign currency—forex realisation event 1 53
775‑45................... Ceasing to have a right to receive foreign currency—forex realisation event 2 55
775‑50................... Ceasing to have an obligation to receive foreign currency—forex realisation event 3 59
775‑55................... Ceasing to have an obligation to pay foreign currency—forex realisation event 4 61
775‑60................... Ceasing to have a right to pay foreign currency—forex realisation event 5 67
775‑65................... Only one forex realisation event to be counted................. 69
775‑70................... Tax consequences of certain short‑term forex realisation gains 71
775‑75................... Tax consequences of certain short‑term forex realisation losses 76
775‑80................... You may choose not to have sections 775‑70 and 775‑75 apply to you 79
775‑85................... Forex cost base of a right to receive foreign currency....... 80
775‑90................... Forex entitlement base of a right to pay foreign currency. 80
775‑95................... Proceeds of assuming an obligation to pay foreign currency 81
775‑100................. Net costs of assuming an obligation to receive foreign currency 82
775‑105................. Currency exchange rate effect........................................... 83
775‑110................. Constructive receipts and payments.................................. 83
775‑115................. Economic set‑off to be treated as legal set‑off................... 84
775‑120................. Non‑arm’s length transactions.......................................... 84
775‑125................. CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3 85
775‑130................. Certain deductions not allowable...................................... 85
775‑135................. Right to receive or pay foreign currency........................... 85
775‑140................. Obligation to pay or receive foreign currency................... 86
775‑145................. Application of forex realisation events to currency and fungible rights and obligations 87
775‑150................. Transitional election.......................................................... 87
775‑155................. Applicable commencement date........................................ 88
775‑160................. Exception—event happens before the applicable commencement date 88
775‑165................. Exception—currency or right acquired, or obligation incurred, before the applicable commencement date.......................................................................................... 88
775‑168................. Exception—disposal or redemption of traditional securities 91
775‑175................. Application to things happening before commencement... 91
Subdivision 775‑C—Roll‑over relief for facility agreements 91
Guide to Subdivision 775‑C 91
775‑180................. What this Subdivision is about......................................... 91
775‑185................. What is a facility agreement?............................................ 93
775‑190................. What is an eligible security?.............................................. 93
775‑195................. You may choose roll‑over relief for a facility agreement.. 93
775‑200................. Forex realisation event 4 does not apply........................... 95
775‑205................. What is a roll‑over?.......................................................... 95
775‑210................. Notional loan.................................................................... 96
775‑215................. Discharge of obligation to pay the principal amount of a notional loan under a facility agreement—forex realisation event 6........................................................... 100
775‑220................. Material variation of a facility agreement—forex realisation event 7 102
Subdivision 775‑D—Qualifying forex accounts that pass the limited balance test 105
Guide to Subdivision 775‑D 105
775‑225................. What this Subdivision is about....................................... 105
775‑230................. Election to have this Subdivision apply to one or more qualifying forex accounts 106
775‑235................. Variation of election........................................................ 107
775‑240................. Withdrawal of election.................................................... 107
775‑245................. When does a qualifying forex account pass the limited balance test? 107
775‑250................. Tax consequences of passing the limited balance test..... 112
775‑255................. Notional realisation when qualifying forex account starts to pass the limited balance test 112
775‑260................. Modification of tax recognition time............................... 113
Subdivision 775‑E—Retranslation for qualifying forex accounts 114
Guide to Subdivision 775‑E 114
775‑265................. What this Subdivision is about....................................... 114
Operative provisions 115
775‑270................. You may choose retranslation for a qualifying forex account 115
775‑275................. Withdrawal of choice...................................................... 116
775‑280................. Tax consequences of choosing retranslation for an account 116
775‑285................. Retranslation of gains and losses relating to a qualifying forex account—forex realisation event 8 117
Subdivision 775‑F—Retranslation under foreign exchange retranslation election under Subdivision 230‑D 119
Guide to Subdivision 775‑F 119
775‑290................. What this Subdivision is about....................................... 119
775‑295................. When this Subdivision applies........................................ 120
775‑300................. Tax consequences of choosing retranslation for arrangement 121
775‑305................. Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies—forex realisation event 9................................... 122
775‑310................. When election ceases to apply to arrangement................ 123
775‑315................. Balancing adjustment when election ceases to apply to arrangement 123
Division 802—Foreign residents’ income with an underlying foreign source 125
Subdivision 802‑A—Conduit foreign income 125
Guide to Subdivision 802‑A 125
802‑5..................... What this Subdivision is about....................................... 125
802‑10................... Objects............................................................................ 126
802‑15................... Foreign residents—exempting CFI from Australian tax. 126
802‑17................... Trust estates and foreign resident beneficiaries—exempting CFI from Australian tax 127
802‑20................... Distributions between Australian corporate tax entities—non‑assessable non‑exempt income 128
802‑25................... Conduit foreign income of an Australian corporate tax entity 130
802‑30................... Foreign source income amounts..................................... 130
802‑35................... Capital gains and losses.................................................. 132
802‑40................... Effect of foreign income tax offset on conduit foreign income 132
802‑45................... Previous declarations of conduit foreign income............ 133
802‑50................... Receipt of an unfranked distribution from another Australian corporate tax entity 133
802‑55................... No double benefits.......................................................... 133
802‑60................... No streaming of distributions......................................... 134
Division 815—Cross‑border transfer pricing 136
Subdivision 815‑A—Treaty‑equivalent cross‑border transfer pricing rules 136
Guide to Subdivision 815‑A 136
815‑1..................... What this Subdivision is about....................................... 136
815‑5..................... Object............................................................................. 137
815‑10................... Transfer pricing benefit may be negated......................... 137
815‑15................... When an entity gets a transfer pricing benefit................. 138
815‑20................... Cross‑border transfer pricing guidance........................... 140
815‑25................... Modified transfer pricing benefit for thin capitalisation.. 141
815‑30................... Determinations negating transfer pricing benefit............. 141
815‑35................... Consequential adjustments.............................................. 142
815‑40................... No double taxation.......................................................... 145
Subdivision 815‑B—Arm’s length principle for cross‑border conditions between entities 146
Guide to Subdivision 815‑B 146
815‑101................. What this Subdivision is about....................................... 146
Operative provisions 146
815‑105................. Object............................................................................. 146
815‑110................. Operation of Subdivision................................................ 147
815‑115................. Substitution of arm’s length conditions.......................... 147
815‑120................. When an entity gets a transfer pricing benefit................. 148
815‑125................. Meaning of arm’s length conditions............................... 151
815‑130................. Relevance of actual commercial or financial relations..... 152
815‑135................. Guidance......................................................................... 153
815‑140................. Modification for thin capitalisation................................. 153
815‑145................. Consequential adjustments.............................................. 154
815‑150................. Amendment of assessments............................................ 155
Subdivision 815‑C—Arm’s length principle for permanent establishments 156
Guide to Subdivision 815‑C 156
815‑201................. What this Subdivision is about....................................... 156
Operative provisions 156
815‑205................. Object............................................................................. 156
815‑210................. Operation of Subdivision................................................ 157
815‑215................. Substitution of arm’s length profits................................ 157
815‑220................. When an entity gets a transfer pricing benefit................. 158
815‑225................. Meaning of arm’s length profits..................................... 159
815‑230................. Source rules for certain arm’s length profits................... 159
815‑235................. Guidance......................................................................... 160
815‑240................. Amendment of assessments............................................ 160
Subdivision 815‑D—Special rules for trusts and partnerships 161
Guide to Subdivision 815‑D 161
815‑301................. What this Subdivision is about....................................... 161
815‑305................. Special rule for trusts...................................................... 161
815‑310................. Special rules for partnerships.......................................... 161
Subdivision 815‑E—Reporting obligations for significant global entities 162
Guide to Subdivision 815‑E 162
815‑350................. What this Subdivision is about....................................... 162
815‑355................. Requirement to give statements....................................... 162
815‑360................. Replacement reporting periods........................................ 164
815‑365................. Exemptions..................................................................... 164
Division 820—Thin capitalisation rules 165
Guide to Division 820 166
820‑1..................... What this Division is about............................................. 166
820‑5..................... Does this Division apply to an entity?............................ 166
820‑10................... Map of Division............................................................. 168
Subdivision 820‑A—Preliminary 169
820‑30................... Object of Division.......................................................... 170
820‑32................... Exemption for private or domestic assets and non‑debt liabilities 170
820‑35................... Application—$2 million threshold.................................. 170
820‑37................... Application—assets threshold........................................ 170
820‑39................... Exemption of certain special purpose entities.................. 173
820‑40................... Meaning of debt deduction............................................. 174
Subdivision 820‑B—Thin capitalisation rules for outward investing entities (non‑ADI) 176
Guide to Subdivision 820‑B 176
820‑65................... What this Subdivision is about....................................... 176
Operative provisions 177
820‑85................... Thin capitalisation rule for outward investing entities (non‑ADI) 177
820‑90................... Maximum allowable debt................................................ 180
820‑95................... Safe harbour debt amount—outward investor (general). 182
820‑100................. Safe harbour debt amount—outward investor (financial) 184
820‑105................. Arm’s length debt amount.............................................. 187
820‑110................. Worldwide gearing debt amount—outward investor that is not also an inward investment vehicle 191
820‑111................. Worldwide gearing debt amount—outward investor that is also an inward investment vehicle 193
820‑115................. Amount of debt deduction disallowed............................ 195
820‑120................. Application to part year periods...................................... 195
Subdivision 820‑C—Thin capitalisation rules for inward investing entities (non‑ADI) 198
Guide to Subdivision 820‑C 198
820‑180................. What this Subdivision is about....................................... 198
Operative provisions 199
820‑185................. Thin capitalisation rule for inward investing entities (non‑ADI) 199
820‑190................. Maximum allowable debt................................................ 202
820‑195................. Safe harbour debt amount—inward investment vehicle (general) 204
820‑200................. Safe harbour debt amount—inward investment vehicle (financial) 205
820‑205................. Safe harbour debt amount—inward investor (general)... 208
820‑210................. Safe harbour debt amount—inward investor (financial). 209
820‑215................. Arm’s length debt amount.............................................. 212
820‑216................. Worldwide gearing debt amount—inward investment vehicle (general) 216
820‑217................. Worldwide gearing debt amount—inward investment vehicle (financial) 217
820‑218................. Worldwide gearing debt amount—inward investor (general).. 218
820‑219................. Worldwide gearing debt amount—inward investor (financial) 219
820‑220................. Amount of debt deduction disallowed............................ 220
820‑225................. Application to part year periods...................................... 220
Subdivision 820‑D—Thin capitalisation rules for outward investing entities (ADI) 223
Guide to Subdivision 820‑D 223
820‑295................. What this Subdivision is about....................................... 223
820‑300................. Thin capitalisation rule for outward investing entities (ADI) 224
820‑305................. Minimum capital amount................................................ 225
820‑310................. Safe harbour capital amount............................................ 226
820‑315................. Arm’s length capital amount........................................... 228
820‑320................. Worldwide capital amount.............................................. 230
820‑325................. Amount of debt deduction disallowed............................ 232
820‑330................. Application to part year periods...................................... 233
Subdivision 820‑E—Thin capitalisation rules for inward investing entities (ADI) 234
Guide to Subdivision 820‑E 234
820‑390................. What this Subdivision is about....................................... 234
Operative provisions 235
820‑395................. Thin capitalisation rule for inward investing entities (ADI) 235
820‑400................. Minimum capital amount................................................ 236
820‑405................. Safe harbour capital amount............................................ 237
820‑410................. Arm’s length capital amount........................................... 237
820‑415................. Amount of debt deduction disallowed............................ 240
820‑420................. Application to part year periods...................................... 240
Subdivision 820‑EA—Some financial entities may choose to be treated as ADIs 242
820‑430................. When choice can be made, and what effect it has............ 242
820‑435................. Conditions...................................................................... 244
820‑440................. Revocation of choice....................................................... 246
820‑445................. How this Subdivision interacts with Subdivision 820‑FA 246
Subdivision 820‑FA—How the thin capitalisation rules apply to consolidated groups and MEC groups 247
Guide to Subdivision 820‑FA 247
820‑579................. What this Subdivision is about....................................... 247
Operative provisions 247
820‑581................. How this Division applies to head company for income year in which group comes into existence or ceases to exist................................................................................ 247
820‑583................. Classification of head company...................................... 248
820‑584................. Exempt special purpose entities treated as not being member of group 251
820‑585................. Exemption for consolidated group headed by foreign‑controlled Australian ADI or its holding company........................................................................................ 251
820‑587................. Additional application of Subdivision 820‑D to MEC group that includes foreign‑controlled Australian ADI........................................................................................ 252
820‑588................. Choice to treat specialist credit card institutions as being financial entities and not ADIs 253
820‑589................. How Subdivision 820‑D applies to a MEC group.......... 254
Subdivision 820‑FB—Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company 255
Guide to Subdivision 820‑FB 255
820‑595................. What this Subdivision is about....................................... 255
Choice to group with branches of foreign banks and foreign financial entities 256
820‑597................. Choice by head company of consolidated group or MEC group 256
820‑599................. Choice by Australian resident company outside consolidatable group and MEC group 257
Effect of choice 258
820‑601................. Application..................................................................... 258
820‑603................. General........................................................................... 258
820‑605................. Effect on establishment entity if certain debt deductions disallowed 260
820‑607................. Effect on test periods under this Division....................... 261
820‑609................. Effect on classification of head company or single company 262
820‑610................. Choice not to be outward investing entity (ADI) or inward investing entity (ADI) 264
820‑611................. Values to be based on what would be in consolidated accounts for group 265
820‑613................. How Subdivision 820‑D applies.................................... 265
820‑615................. How Subdivision 820‑E applies..................................... 267
Subdivision 820‑G—Calculating the average values 268
Guide to Subdivision 820‑G 268
820‑625................. What this Subdivision is about....................................... 268
How to calculate the average values 269
820‑630................. Methods of calculating average values............................ 269
820‑635................. The opening and closing balances method...................... 270
820‑640................. The 3 measurement days method.................................... 271
820‑645................. The frequent measurement method................................. 272
Special rules about values and valuation 275
820‑675................. Amount to be expressed in Australian currency............. 275
820‑680................. Valuation of assets, liabilities and equity capital............. 275
820‑682................. Recognition of assets and liabilities—modifying application of accounting standards 278
820‑683................. Recognition of internally generated intangible items—modifying application of accounting standards 279
820‑684................. Valuation of intangible assets if no active market—modifying application of accounting standards 281
820‑685................. Valuation of debt capital................................................. 282
820‑690................. Commissioner’s power................................................... 282
Subdivision 820‑H—Control of entities 283
Guide to Subdivision 820‑H 283
820‑740................. What this Subdivision is about....................................... 283
Australian controller of a foreign entity 284
820‑745................. What is an Australian controlled foreign entity?............. 284
820‑750................. What is an Australian controller of a controlled foreign company? 284
820‑755................. What is an Australian controller of a controlled foreign trust? 285
820‑760................. What is an Australian controller of a controlled foreign corporate limited partnership? 285
Foreign controlled Australian entity 286
820‑780................. What is a foreign controlled Australian entity?............... 286
820‑785................. What is a foreign controlled Australian company?.......... 286
820‑790................. What is a foreign controlled Australian trust?................. 288
820‑795................. What is a foreign controlled Australian partnership?...... 290
Thin capitalisation control interest 291
820‑815................. General rule about thin capitalisation control interest in a company, trust or partnership 291
820‑820................. Special rules about calculating TC control interest held by an entity 292
820‑825................. Special rules about calculating TC control interests held by a group of entities 293
820‑830................. Special rules about determining percentage of TC control interest 294
820‑835................. Commissioner’s power................................................... 295
TC direct control interest, TC indirect control interest and TC control tracing interest 295
820‑855................. TC direct control interest in a company........................... 295
820‑860................. TC direct control interest in a trust.................................. 296
820‑865................. TC direct control interest in a partnership....................... 297
820‑870................. TC indirect control interest in a company, trust or partnership 298
820‑875................. TC control tracing interest in a company, trust or partnership 301
Subdivision 820‑HA—Controlled foreign entity debt and controlled foreign entity equity 302
Guide to Subdivision 820‑HA 302
820‑880................. What this Subdivision is about....................................... 302
820‑881................. Application..................................................................... 302
820‑885................. What is controlled foreign entity debt?............................ 302
820‑890................. What is controlled foreign entity equity?......................... 303
Subdivision 820‑I—Associate entities 304
Guide to Subdivision 820‑I 304
820‑900................. What this Subdivision is about....................................... 304
820‑905................. Associate entity............................................................... 304
820‑910................. Associate entity debt....................................................... 309
820‑915................. Associate entity equity.................................................... 311
820‑920................. Associate entity excess amount....................................... 312
Subdivision 820‑J—Equity interest in a trust or partnership 317
Guide to Subdivision 820‑J 317
820‑925................. What this Subdivision is about....................................... 317
820‑930................. Equity interest in a trust or partnership........................... 317
Subdivision 820‑JA—Worldwide debt and equity concepts 320
Guide to Subdivision 820‑JA 320
820‑931................. What this Subdivision is about....................................... 320
Operative provisions 321
820‑932................. Worldwide debt and worldwide equity........................... 321
820‑933................. Statement worldwide debt, statement worldwide equity and statement worldwide assets 322
820‑935................. Meaning of audited consolidated financial statements... 323
Subdivision 820‑K—Zero‑capital amount 325
Guide to Subdivision 820‑K 325
820‑940................. What this Subdivision is about....................................... 325
820‑942................. How to work out the zero‑capital amount....................... 325
Subdivision 820‑KA—Cost‑free debt capital and excluded equity interests 329
Guide to Subdivision 820‑KA 329
820‑945................. What this Subdivision is about....................................... 329
820‑946................. Cost‑free debt capital and excluded equity interest......... 330
Subdivision 820‑L—Record keeping requirements 332
Guide to Subdivision 820‑L 332
820‑950................. What this Subdivision is about....................................... 332
Records about Australian permanent establishments 333
820‑960................. Records about Australian permanent establishments...... 333
820‑965................. Review of Commissioner’s decision.............................. 336
Records about arm’s length amounts 337
820‑980................. Records about arm’s length debt amount and arm’s length capital amount 337
Records about asset revaluations 337
820‑985................. Methodology of revaluation and independence of valuer 337
Offences committed by certain entities 338
820‑990................. Offences—treatment of partnerships.............................. 338
820‑995................. Offences—treatment of unincorporated companies........ 340
Division 830—Foreign hybrids 342
Guide to Division 830 342
830‑1..................... What this Division is about............................................. 342
Subdivision 830‑A—Meaning of “foreign hybrid” 342
830‑5..................... Foreign hybrid................................................................ 343
830‑10................... Foreign hybrid limited partnership.................................. 343
830‑15................... Foreign hybrid company................................................. 344
Subdivision 830‑B—Extension of normal partnership provisions to foreign hybrid companies 347
830‑20................... Treatment of company as a partnership........................... 347
830‑25................... Partners are the shareholders in the company................. 348
830‑30................... Individual interest of a partner in net income etc. equals percentage of notional distribution of company’s profits............................................................................. 348
830‑35................... Partner’s interest in assets............................................... 348
830‑40................... Control and disposal of share in partnership income...... 348
Subdivision 830‑C—Special rules applicable while an entity is a foreign hybrid 349
830‑45................... Partner’s revenue and net capital losses from foreign hybrid not to exceed partner’s loss exposure amount........................................................................................ 349
830‑50................... Deduction etc. where partner’s foreign hybrid revenue loss amount and foreign hybrid net capital loss amount are less than partner’s loss exposure amount.................. 350
830‑55................... Meaning of foreign hybrid net capital loss amount........ 352
830‑60................... Meaning of loss exposure amount.................................. 352
830‑65................... Meaning of outstanding foreign hybrid revenue loss amount 354
830‑70................... Meaning of outstanding foreign hybrid net capital loss amount 355
830‑75................... Extended meaning of subject to foreign tax.................... 355
Subdivision 830‑D—Special rules applicable when an entity becomes or ceases to be a foreign hybrid 358
830‑80................... Setting the tax cost of partners’ interests in the assets of an entity that becomes a foreign hybrid 358
830‑85................... Setting the tax cost of assets of an entity when it ceases to be a foreign hybrid 359
830‑90................... What the expression tax cost is set means....................... 359
830‑95................... What the expression tax cost setting amount means....... 361
830‑100................. What the expression tax cost means................................ 364
830‑105................. What the expression asset‑based income tax regime means 365
830‑110................. No disposal of assets etc. on entity becoming or ceasing to be a foreign hybrid 365
830‑115................. Tax losses cannot be transferred to a foreign hybrid....... 366
830‑120................. End of CFC’s last statutory accounting period............... 366
830‑125................. How long interest in asset, or asset, held........................ 367
Division 840—Withholding taxes 368
Guide to Division 840 368
840‑1..................... What this Division is about............................................. 368
Subdivision 840‑M—Managed investment trust withholding tax 369
Guide to Subdivision 840‑M 369
840‑800................. What this Subdivision is about....................................... 369
Operative provisions 369
840‑805................. Liability for managed investment trust withholding tax.. 369
840‑810................. When managed investment trust withholding tax is payable 374
840‑815................. Certain income is non‑assessable non‑exempt income.... 375
840‑820................. Agency rules................................................................... 375
Subdivision 840‑S—Seasonal Labour Mobility Program withholding tax 376
Guide to Subdivision 840‑S 376
840‑900................. What this Subdivision is about....................................... 376
Operative provisions 376
840‑905................. Liability for Seasonal Labour Mobility Program withholding tax 376
840‑910................. When Seasonal Labour Mobility Program withholding tax is payable 377
840‑915................. Certain income is non‑assessable non‑exempt income.... 378
840‑920................. Overpayment of Seasonal Labour Mobility Program withholding tax 378
Division 842—Exempt Australian source income and gains of foreign residents 379
Subdivision 842‑B—Some items of Australian source income of foreign residents that are exempt from income tax 379
Guide to Subdivision 842‑B 379
842‑100................. What this Subdivision is about....................................... 379
842‑105................. Amounts of Australian source ordinary income and statutory income that are exempt 379
Subdivision 842‑I—Investment manager regime 382
Guide to Subdivision 842‑I 382
842‑200................. What this Subdivision is about....................................... 382
Object of this Subdivision 383
842‑205................. Object of this Subdivision.............................................. 383
IMR concessions 384
842‑210................. IMR concessions apply only to foreign residents etc...... 384
842‑215................. IMR concessions............................................................ 384
842‑220................. Meaning of IMR entity.................................................... 388
842‑225................. Meaning of IMR financial arrangement......................... 388
IMR widely held entities 388
842‑230................. Meaning of IMR widely held entity................................. 388
842‑235................. Rules for determining total participation interests for the purposes of the widely held test 389
842‑240................. Extended meaning of IMR widely held entity—temporary circumstances outside entity’s control 391
Independent Australian fund managers 392
842‑245................. Meaning of independent Australian fund manager........ 392
842‑250................. Reductions in IMR concessions if independent Australian fund manager entitled to substantial share of IMR entity’s income................................................................ 392
Division 855—Capital gains and foreign residents 397
Guide to Division 855 397
855‑1..................... What this Division is about............................................. 397
Subdivision 855‑A—Disregarding a capital gain or loss by foreign residents 397
855‑5..................... Objects of this Subdivision............................................. 398
855‑10................... Disregarding a capital gain or loss from CGT events..... 398
855‑15................... When an asset is taxable Australian property.................. 399
855‑16................... Meaning of permanent establishment article.................. 400
855‑20................... Taxable Australian real property..................................... 400
855‑25................... Indirect Australian real property interests....................... 400
855‑30................... Principal asset test........................................................... 401
855‑32................... Disregard market value of duplicated non‑TARP assets. 403
855‑35................... Reducing a capital gain or loss from a business asset—Australian permanent establishments 405
855‑40................... Capital gains and losses of foreign residents through fixed trusts 405
Subdivision 855‑B—Becoming an Australian resident 407
855‑45................... Individual or company becomes an Australian resident.. 407
855‑50................... Trust becomes a resident trust......................................... 408
855‑55................... CFC becomes an Australian resident.............................. 408
Chapter 5—Administration 410
Part 5‑30—Record‑keeping and other obligations 410
Division 900—Substantiation rules 410
Guide to Division 900 410
900‑1..................... What this Division is about............................................. 410
Subdivision 900‑A—Application of Division 410
900‑5..................... Application of the requirements of Division 900............ 411
900‑10................... Substantiation requirement.............................................. 411
900‑12................... Application to recipients and payers of certain withholding payments 411
Subdivision 900‑B—Substantiating work expenses 412
900‑15................... Getting written evidence................................................. 413
900‑20................... Keeping travel records.................................................... 413
900‑25................... Retaining the written evidence and travel records........... 414
900‑30................... Meaning of work expense............................................... 414
900‑35................... Exception for small total of expenses.............................. 416
900‑40................... Exception for laundry expenses below a certain limit..... 417
900‑45................... Exception for work expense related to award transport payment 417
900‑50................... Exception for domestic travel allowance expenses.......... 418
900‑55................... Exception for overseas travel allowance expenses.......... 418
900‑60................... Exception for reasonable overtime meal allowance......... 419
900‑65................... Crew members on international flights need not keep travel records 419
Subdivision 900‑C—Substantiating car expenses 419
900‑70................... Getting written evidence................................................. 419
900‑75................... Retaining the written evidence and odometer records..... 420
Subdivision 900‑D—Substantiating business travel expenses 420
900‑80................... Getting written evidence................................................. 421
900‑85................... Keeping travel records.................................................... 421
900‑90................... Retaining the written evidence and travel records........... 421
900‑95................... Meaning of business travel expense............................... 422
Subdivision 900‑E—Written evidence 423
Guide to Subdivision 900‑E 423
900‑100................. What this Subdivision is about....................................... 423
Operative provisions 423
900‑105................. Ways of getting written evidence.................................... 423
900‑110................. Time limits...................................................................... 424
900‑115................. Written evidence from supplier....................................... 424
900‑120................. Written evidence of depreciating asset expense............... 425
900‑125................. Evidence of small expenses............................................ 426
900‑130................. Evidence of expenses considered otherwise too hard to substantiate 427
900‑135................. Evidence on a payment summary.................................... 427
Subdivision 900‑F—Travel records 427
Guide to Subdivision 900‑F 427
900‑140................. What this Subdivision is about....................................... 427
900‑145................. Purpose of a travel record............................................... 428
Operative provisions 428
900‑150................. Recording activities in travel records.............................. 428
900‑155................. Showing which of your activities were income‑producing activities 428
Subdivision 900‑G—Retaining and producing records 429
Guide to Subdivision 900‑G 429
900‑160................. What this Subdivision is about....................................... 429
900‑165................. The retention period........................................................ 429
Operative provisions 429
900‑170................. Extending the retention period if an expense is disputed. 429
900‑175................. Commissioner may tell you to produce your records...... 430
900‑180................. How to comply with a notice.......................................... 430
900‑185................. What happens if you don’t comply................................. 430
Subdivision 900‑H—Relief from effects of failing to substantiate 431
900‑195................. Commissioner’s discretion to review failure to substantiate 431
900‑200................. Reasonable expectation that substantiation would not be required 431
900‑205................. What if your documents are lost or destroyed?............... 431
Subdivision 900‑I—Award transport payments 432
Guide to Subdivision 900‑I 432
900‑210................. What this Subdivision is about....................................... 432
Operative provisions 433
900‑215................. Deducting an expense related to an award transport payment 433
900‑220................. Definition of award transport payment.......................... 434
900‑225................. Substituted industrial instruments................................... 434
900‑230................. Changes to industrial instruments applied for before 29 October 1986 435
900‑235................. Changes to industrial instruments solely referable to matters in the instrument 435
900‑240................. Deducting in anticipation of receiving award transport payment 435
900‑245................. Effect of exception in this Subdivision on exception for small total of expenses 436
900‑250................. Effect of exception in this Subdivision on methods of calculating car expense deductions 436
Part 5‑35—Miscellaneous 438
Division 905—Offences 438
905‑5..................... Application of the Criminal Code................................... 438
Division 909—Regulations 439
909‑1..................... Regulations..................................................................... 439
Chapter 6—The Dictionary 440
Part 6‑1—Concepts and topics 440
Division 950—Rules for interpreting this Act 440
950‑100................. What forms part of this Act............................................ 440
950‑105................. What does not form part of this Act................................ 441
950‑150................. Guides, and their role in interpreting this Act................. 441
Division 960—General 442
Subdivision 960‑B—Utilisation of tax attributes 442
960‑20................... Utilisation....................................................................... 442
Subdivision 960‑C—Foreign currency 443
960‑49................... Objects of this Subdivision............................................. 443
960‑50................... Translation of amounts into Australian currency............ 444
960‑55................... Application of translation rules....................................... 452
Subdivision 960‑D—Functional currency 453
Guide to Subdivision 960‑D 453
960‑56................... What this Subdivision is about....................................... 453
Operative provisions 454
960‑59................... Object of this Subdivision.............................................. 454
960‑60................... You may choose a functional currency........................... 454
960‑61................... Functional currency for calculating capital gains and losses on indirect Australian real property interests........................................................................................ 457
960‑65................... Backdated startup choice................................................. 458
960‑70................... What is the applicable functional currency?................... 463
960‑75................... What is a transferor trust?.............................................. 464
960‑80................... Translation rules............................................................. 465
960‑85................... Special rule about translation—events that happened before the current choice took effect 472
960‑90................... Withdrawal of choice...................................................... 473
Subdivision 960‑E—Entities 476
960‑100................. Entities............................................................................ 476
960‑105................. Certain entities treated as agents...................................... 477
Subdivision 960‑F—Distribution by corporate tax entities 477
960‑115................. Meaning of corporate tax entity...................................... 478
960‑120................. Meaning of distribution.................................................. 478
Subdivision 960‑G—Membership of entities 479
960‑130................. Members of entities........................................................ 479
960‑135................. Membership interest in an entity..................................... 480
960‑140................. Ordinary membership interest......................................... 480
Subdivision 960‑GP—Participation interests in entities 481
960‑180................. Total participation interest............................................... 481
960‑185................. Indirect participation interest........................................... 481
960‑190................. Direct participation interest............................................. 482
960‑195................. Non‑portfolio interest test............................................... 483
Subdivision 960‑H—Abnormal trading in shares or units 483
960‑220................. Meaning of trading......................................................... 484
960‑225................. Abnormal trading............................................................ 484
960‑230................. Abnormal trading—5% of shares or units in one transaction.. 485
960‑235................. Abnormal trading—suspected 5% of shares or units in a series of transactions 485
960‑240................. Abnormal trading—suspected acquisition or merger...... 485
960‑245................. Abnormal trading—20% of shares or units traded over 60 day period 486
Subdivision 960‑J—Family relationships 486
Guide to Subdivision 960‑J 486
960‑250................. What this Subdivision is about....................................... 486
Operative provisions 487
960‑252................. Object of this Subdivision.............................................. 487
960‑255................. Family relationships........................................................ 487
Subdivision 960‑M—Indexation 488
Guide to Subdivision 960‑M 488
960‑260................. What this Subdivision is about....................................... 488
960‑265................. The provisions for which indexation is relevant............. 489
Operative provisions 490
960‑270................. Indexing amounts........................................................... 490
960‑275................. Indexation factor............................................................. 490
960‑280................. Index number.................................................................. 492
960‑285................. Indexation—superannuation and employment termination 493
Subdivision 960‑S—Market value 495
Guide to Subdivision 960‑S 495
960‑400................. What this Subdivision is about....................................... 495
960‑405................. Effect of GST on market value of an asset...................... 495
960‑410................. Market value of non‑cash benefits.................................. 496
960‑412................. Working out market value using an approved method.... 496
960‑415................. Amounts that depend on market value............................ 496
Subdivision 960‑T—Meaning of Australia 497
Guide to Subdivision 960‑T 497
960‑500................. What this Subdivision is about....................................... 497
Operative provisions 497
960‑505................. Meaning of Australia...................................................... 497
Subdivision 960‑U—Significant global entities 498
Guide to Subdivision 960‑U 498
960‑550................. What this Subdivision is about....................................... 498
Operative provisions 499
960‑555................. Meaning of significant global entity................................ 499
960‑560................. Meaning of global parent entity...................................... 500
960‑565................. Meaning of annual global income.................................. 501
960‑570................. Meaning of global financial statements.......................... 501
Division 961—Notional tax offsets 502
Subdivision 961‑A—Dependant (non‑student child under 21 or student) notional tax offset 502
Guide to Subdivision 961‑A 502
961‑1..................... What this Subdivision is about....................................... 502
Entitlement to the notional tax offset 503
961‑5..................... Who is entitled to the notional tax offset......................... 503
Amount of the notional tax offset 504
961‑10................... Amount of the dependant (non‑student child under 21 or student) notional tax offset 504
961‑15................... Reduced amounts of the dependant (non‑student child under 21 or student) notional tax offset 504
961‑20................... Reductions to take account of the dependant’s income... 505
Subdivision 961‑B—Dependant (sole parent of a non‑student child under 21 or student) notional tax offset 505
Guide to Subdivision 961‑B 505
961‑50................... What this Subdivision is about....................................... 505
961‑55................... Who is entitled to the notional tax offset......................... 506
961‑60................... Amount of the dependant (sole parent of a non‑student child under 21 or student) notional tax offset 506
961‑65................... Reductions to take account of change in circumstances.. 507
Division 974—Debt and equity interests 508
Subdivision 974‑A—General 508
Guide to Division 974 508
974‑1..................... What this Division is about............................................. 508
974‑5..................... Overview of Division..................................................... 509
Operative provisions 510
974‑10................... Object............................................................................. 510
Subdivision 974‑B—Debt interests 512
974‑15................... Meaning of debt interest................................................. 513
974‑20................... The test for a debt interest............................................... 515
974‑25................... Exceptions to the debt test............................................... 517
974‑30................... Providing a financial benefit........................................... 518
974‑35................... Valuation of financial benefits—general rules................ 519
974‑40................... Valuation of financial benefits—rights and options to terminate early 521
974‑45................... Valuation of financial benefits—convertible interests..... 521
974‑50................... Valuation of financial benefits—value in present value terms 522
974‑55................... The debt interest and its issue......................................... 523
974‑60................... Debt interest arising out of obligations owed by a number of entities 524
974‑65................... Commissioner’s power................................................... 525
Subdivision 974‑C—Equity interests in companies 526
974‑70................... Meaning of equity interest in a company........................ 526
974‑75................... The test for an equity interest.......................................... 529
974‑80................... Equity interest arising from arrangement funding return through connected entities 532
974‑85................... Right or return contingent on aspects of economic performance 534
974‑90................... Right or return at discretion of company or connected entity 535
974‑95................... The equity interest........................................................... 535
Subdivision 974‑D—Common provisions 536
974‑100................. Treatment of convertible and converting interests........... 536
974‑105................. Effect of action taken in relation to interest arising from related schemes 536
974‑110................. Effect of material change................................................. 537
974‑112................. Determinations by Commissioner................................... 540
Subdivision 974‑E—Non‑share distributions by a company 542
974‑115................. Meaning of non‑share distribution................................. 542
974‑120................. Meaning of non‑share dividend...................................... 542
974‑125................. Meaning of non‑share capital return............................. 542
Subdivision 974‑F—Related concepts 542
974‑130................. Financing arrangement.................................................... 543
974‑135................. Effectively non‑contingent obligation............................. 545
974‑140................. Ordinary debt interest..................................................... 546
974‑145................. Benchmark rate of return................................................ 546
974‑150................. Schemes.......................................................................... 547
974‑155................. Related schemes.............................................................. 548
974‑160................. Financial benefit.............................................................. 549
974‑165................. Convertible and converting interests............................... 549
Division 975—Concepts about companies 551
Subdivision 975‑A—General 551
975‑150................. Position to affect rights in relation to a company............ 551
975‑155................. When is an entity a controller (for CGT purposes) of a company? 552
975‑160................. When an entity has an associate‑inclusive control interest 552
Subdivision 975‑G—What is a company’s share capital account? 553
975‑300................. Meaning of share capital account.................................. 553
Subdivision 975‑W—Wholly‑owned groups of companies 554
975‑500................. Wholly‑owned groups.................................................... 554
975‑505................. What is a 100% subsidiary?............................................ 555
Division 976—Imputation 556
976‑1..................... Franked part of a distribution.......................................... 556
976‑5..................... Unfranked part of a distribution...................................... 556
976‑10................... The part of a distribution that is franked with an exempting credit 556
976‑15................... The part of a distribution that is franked with a venture capital credit 556
Division 977—Realisation events, and the gains and losses they realise for income tax purposes 557
CGT assets 557
977‑5..................... Realisation event............................................................. 557
977‑10................... Loss realised for income tax purposes............................ 557
977‑15................... Gain realised for income tax purposes............................ 558
Trading stock 558
977‑20................... Realisation event............................................................. 558
977‑25................... Disposal of trading stock: loss realised for income tax purposes 558
977‑30................... Ending of an income year: loss realised for income tax purposes 559
977‑35................... Disposal of trading stock: gain realised for income tax purposes 560
977‑40................... Ending of an income year: gain realised for income tax purposes 560
Revenue assets 561
977‑50................... Meaning of revenue asset............................................... 561
977‑55................... Loss or gain realised for income tax purposes................ 561
Part 6‑5—Dictionary definitions 563
Division 995—Definitions 563
995‑1..................... Definitions...................................................................... 563
Chapter 4—International aspects of income tax
Part 4‑5—General
768‑A Returns on foreign investment
768‑B Some items of income that are exempt from income tax
768‑G Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies
768‑R Temporary residents
(ii) receives the distribution in the capacity of a trustee of a *public trading trust.
(b) the amount is all or part of the *net income of the trust or partnership that would, apart from this subsection, be included in the entity’s assessable income because of:
(i) Division 276; or
(ii) Division 5 or 6 of Part III of the Income Tax Assessment Act 1936; and
Subdivision 768‑B—Some items of income that are exempt from income tax
768‑100 Foreign government officials in Australia
768‑105 Compensation arising out of Second World War
(1) The amounts of *ordinary income and *statutory income covered by the table are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both.
Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6‑20. The note to subsection 6‑15(2) describes some of the other consequences of it being exempt income.
Note 2: Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936.
(a) a representative in Australia of the government of a foreign country; or
and you are neither an Australian citizen nor ordinarily resident in Australia
(a) your official salary; and
(b) your *ordinary income, and your *statutory income, from a source outside Australia
(a) no Convention listed in subsection (2) applies to the representative; and
(a) an officer of the government of a *Commonwealth of Nations country; and
(b) temporarily in Australia to render service on behalf of that country, or an *Australian government agency, in accordance with an *arrangement between the governments of that country and of the Commonwealth or of a State or Territory
that country exempts from income tax the salaries of officers of the government of the Commonwealth temporarily in that country for similar purposes in accordance with a similar arrangement
(2) The Conventions are:
(a) the Vienna Convention on Diplomatic Relations, as having the force of law because of the Diplomatic Privileges and Immunities Act 1967;
(b) the Vienna Convention on Consular Relations, as having the force of law because of the Consular Privileges and Immunities Act 1972.
Note: Those Conventions have the force of law in Australia because of those Acts and achieve substantially the same effect as item 1 of the table: see Article 34 of the Vienna Convention on Diplomatic Relations and Article 49 of the Vienna Convention on Consular Relations.
(1) A payment to you is exempt from income tax if:
(a) you are an Australian resident at the time when it would otherwise be included in your assessable income; and
(b) the payment is from a source in a foreign country; and
(c) the payment is in connection with:
suffered by you or another individual as a result of:
(v) persecution during the Second World War by any other enemy of the Commonwealth or by a regime covered by subsection (3); or
(vi) flight from persecution mentioned in subparagraph (iv) or (v); or
(vii) participation in a resistance movement during the Second World War against forces of the National Socialist regime of Germany or against forces of any other enemy of the Commonwealth; and
(d) the payment is not directly or indirectly from any of your *associates.
Note: An example of a detriment covered by subparagraph (c)(iii) is if you lost the opportunity to qualify for a pension because your period of contribution was cut short because you had to flee persecution by the National Socialist regime.
(b) the period immediately after the Second World War;
in the same way as it applies to the period of the Second World War.
Regimes associated with an enemy of the Commonwealth
(3) This subsection covers a regime that was:
(4) Subsection (1) applies to a payment to:
(a) your *legal personal representative; or
(b) a trust established by your will;
in a corresponding way to the way in which it would have applied if:
(c) the payment had been to you; and
(d) if the payment is made after your death—you were still alive.
Guide to Subdivision 768‑G
768‑500 What this Subdivision is about
(a) a company has a capital gain or capital loss arising from a CGT event that happens in relation to a share in a foreign company; and
(b) the company holds a direct voting percentage of 10% or more in the foreign company for a certain period before the CGT event happens;
the gain or loss is reduced by a percentage that reflects the degree to which the assets of the foreign company are used in an active business.
768‑510 Active foreign business asset percentage
768‑515 Choices to apply market value method or book value method
768‑520 Market value method—choice made under subsection 768‑515(1)
768‑525 Book value method—choice made under subsection 768‑515(2)
768‑530 Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies
768‑533 Foreign company that is a FIF using CFC calculation method—treatment as AFI subsidiary under this Subdivision
768‑535 Modified rules for foreign wholly‑owned groups
768‑540 Active foreign business assets of a foreign company
768‑545 Assets included in the total assets of a foreign company
Voting percentages in a company
768‑550 Direct voting percentage in a company
768‑555 Indirect voting percentage in a company
768‑560 Total voting percentage in a company
(1) The *capital gain or *capital loss a company (the holding company) that is an Australian resident makes from a *CGT event that happened at a particular time (the time of the CGT event) to a *share in a company (the foreign disposal company) that is a foreign resident is reduced if:
(a) the holding company held a *direct voting percentage of 10% or more in the foreign disposal company throughout a 12 month period that:
(i) began no earlier than 24 months before the time of the CGT event; and
(ii) ended no later than that time; and
(b) the share is not:
(i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936); or
(ii) a widely distributed finance share (within the meaning of that Part); and
(c) the CGT event is CGT event A1, B1, C2, E1, E2, G3, J1, K4, K6, K10 or K11.
(2) The gain or loss is reduced by the *active foreign business asset percentage (see sections 768‑510, 768‑530 and 768‑535) of the foreign disposal company in relation to the holding company at the time of the CGT event.
(1) The active foreign business asset percentage of a company (the foreign company) that is a foreign resident, in relation to the holding company mentioned in section 768‑505, at the time of the CGT event mentioned in that section, is worked out in accordance with this section.
(2) Work out that percentage under section 768‑520 if:
(a) the holding company has made a choice under subsection 768‑515(1) in relation to the foreign company for that time; and
(b) there is sufficient evidence of the *market value at that time of:
(i) all *assets included in the total assets of the foreign company at that time; and
(ii) all *active foreign business assets of the foreign company at that time.
(3) Work out that percentage under section 768‑525 if:
(a) the holding company has made a choice under subsection 768‑515(2) in relation to the foreign company for that time; and
(b) there are *recognised company accounts of the foreign company for a period that ends no later than that time, but no more than 12 months before that time; and
(c) if the foreign company was in existence before the start of the period mentioned in paragraph (b)—there are recognised company accounts of the foreign company for a period that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in paragraph (b).
(4) Otherwise, that percentage is:
(a) 100% (if this section is being applied for the purposes of section 768‑505 to reduce a *capital loss of the holding company); or
(b) zero (in any other case).
Choice for market value method
(1) The holding company may choose to work out the *active foreign business asset percentage of the foreign company for the time of the CGT event under section 768‑520.
Choice for book value method
(2) The holding company may choose to work out the *active foreign business asset percentage of the foreign company for the time of the CGT event under section 768‑525.
Method of making choice
(3) The way an entity making a choice under subsection (1) or (2) prepares its *income tax return is sufficient evidence of the making of the choice.
Note: If an entity does not make a choice under subsection (1) or (2), it will work out the active foreign business asset percentage of the foreign company in accordance with the default method in subsection 768‑510(4).
(1) The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way.
Step 1. Work out the *market value at that time of all *assets included in the total assets of the foreign company at that time.
Step 2. Work out the *market value (see subsection (2)) at that time of all *active foreign business assets of the foreign company at that time.
Step 3. Divide the result of step 2 by the result of step 1.
Step 4. Express the result of step 3 as a percentage, and round that percentage to the nearest whole percentage point (rounding a number ending in .5 upwards).
Step 5. The active foreign business asset percentage is:
(a) if the result of step 4 is less than 10%—zero; or
(b) if the result of step 4 is 10% or more, but less than 90%—that result; or
(c) if the result of step 4 is 90% or more—100%.
Note 1: If the foreign company is a foreign life insurance company or a foreign general insurance company, the result of step 2 is modified under section 768‑530.
Note 2: If the foreign company is a member of a wholly‑owned group, section 768‑535 may modify the way in which this section operates.
(2) If, at the time of the CGT event:
(a) an *active foreign business asset of the foreign company is a *share in another company (the subsidiary company); and
(b) the subsidiary company is a foreign resident;
then, in working out the *market value of all *active foreign business assets of the foreign company at that time for the purposes of step 2 of the method statement in subsection (1), treat the *market value of the share at that time according to the following table.
Market value of a share in subsidiary company
treat the market value of the share as:
(a) the foreign company has a *direct voting percentage of 10% or more in the subsidiary company at that time; and
(b) the holding company has a *total voting percentage of 10% or more in the subsidiary company at that time
the *share’s *market value at that time, multiplied by the *active foreign business asset percentage of the subsidiary company in relation to the holding company at that time
Note: For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company.
Step 1. Work out the foreign company’s average value of total assets at that time under subsection (2).
Step 2. Work out the foreign company’s average value of active foreign business assets at that time under subsection (3).
Note: If the foreign company is a member of a wholly‑owned group, section 768‑535 may modify the way in which this section operates.
(2) The foreign company’s average value of total assets at the time of the CGT event is worked out in this way.
Step 1. Work out the sum of the values (see subsection (5)) of every *asset included in the total assets of the foreign company at the end of the most recent period:
(a) that ends no later than that time, but no more than 12 months before that time; and
(b) for which the foreign company has *recognised company accounts.
Step 2. Work out the sum of the values (see subsection (5)) of every *asset included in the total assets of the foreign company at the end of the most recent period:
(a) that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in step 1; and
Note: See subsection (6) if the foreign company does not have recognised company accounts for a period mentioned in this step.
Step 3. Work out the sum of the results of steps 1 and 2, and divide that sum by 2.
(3) The foreign company’s average value of active foreign business assets at that time is worked out in this way.
Step 1. Work out the sum of the values (see subsections (4) and (5)) of every *active foreign business asset of the foreign company at the end of the most recent period:
Step 2. Work out the sum of the values (see subsections (4) and (5)) of every *active foreign business asset of the foreign company at the end of the most recent period:
Note: If the foreign company is a foreign life insurance company or a foreign general insurance company, the results of steps 1 and 2 are modified under section 768‑530.
(4) If an *active foreign business asset of the foreign company is a *share in another company (the subsidiary company) that is a foreign resident, then, for the purposes of steps 1 and 2 of the method statement in subsection (3), treat the value of the share at a particular time according to the following table.
Value of a share in subsidiary company
treat the value of the share as:
the *share’s value (see subsection (5)) at that time, multiplied by the *active foreign business asset percentage of the subsidiary company in relation to the holding company at that time
(5) For the purposes of this section, the value of an asset of a foreign company at the end of a period is taken to be:
(a) the value of the asset as shown in the *recognised company accounts of the foreign company for that period; or
(b) if the value of the asset is not shown in the recognised company accounts of the foreign company for that period—zero.
(6) The result of:
(a) step 2 of the method statement in subsection (2); and
(b) step 2 of the method statement in subsection (3);
is taken to be zero if the foreign company does not have *recognised company accounts for a period mentioned in those steps.
Note: This will only be the case if the foreign company was not in existence before the start of the period mentioned in step 1 of those method statements (see paragraph 768‑510(3)(c)).
(1) If the foreign company is a *foreign life insurance company or a *foreign general insurance company, work out its *active foreign business asset percentage according to section 768‑510, but with the modifications set out in subsections (2) and (3).
(2) Treat a reference in the following provisions to a period as a reference to a *statutory accounting period of the foreign company:
(a) paragraphs 768‑510(3)(b) and (c);
(b) section 768‑525.
(3) Apply the modifications set out in the following table.
Modifications for foreign life insurance companies and foreign general insurance companies
is increased by the amount applicable under subsection (4) for this statutory accounting period:
step 2 of the method statement in subsection 768‑520(1)
the most recent *statutory accounting period of the foreign company ending at or before the time mentioned in that step
step 1 of the method statement in subsection 768‑525(3)
the *statutory accounting period mentioned in that step (as modified by subsection (2) of this section)
step 2 of the method statement in subsection 768‑525(3)
(4) The amount applicable under this subsection for a *statutory accounting period of the foreign company is worked out using the following formula:
active insurance amount means:
(a) if the foreign company is a *foreign life insurance company—the untainted policy liabilities (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period; or
(b) if the foreign company is a *foreign general insurance company—the active general insurance amount worked out under subsection (5) for the statutory accounting period.
total insurance assets means:
(a) if the foreign company is a *foreign life insurance company—the total assets (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period; or
(b) if the foreign company is a *foreign general insurance company—the total assets (within the meaning of subsection 446(4) of that Act) of the foreign company for the statutory accounting period.
value of non‑active foreign business assets means:
(a) for the purposes of item 1 of the table in subsection (3)—the difference between:
(i) the result of step 1 of the method statement in subsection 768‑520(1); and
(ii) the result of step 2 of that method statement (apart from this section); or
(b) for the purposes of item 2 of the table in subsection (3)—the difference between:
(i) the result of step 1 of the method statement in subsection 768‑525(2); and
(ii) the result of step 1 of the method statement in subsection 768‑525(3) (apart from this section); or
(c) for the purposes of item 3 of the table in subsection (3)—the difference between:
(i) the result of step 2 of the method statement in subsection 768‑525(2); and
(ii) the result of step 2 of the method statement in subsection 768‑525(3) (apart from this section).
Active insurance amount for foreign general insurance company
(5) The active general insurance amount under this subsection for a *statutory accounting period of the foreign company is worked out using the following formula:
net assets means the net assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.
solvency amount means the solvency amount (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.
tainted outstanding claims means the tainted outstanding claims (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.
total general insurance assets means the total assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.
(a) the foreign company is a FIF (within the meaning of former section 481 of the Income Tax Assessment Act 1936); and
(b) the holding company has made a choice under former subsection 559A(1) of the Income Tax Assessment Act 1936 in relation to the foreign company in respect of a notional accounting period (within the meaning of former section 486 of that Act) of the foreign company that ends in the 2009‑10 income year; and
(e) the holding company has not failed to make a choice under that subsection for the 2010‑11 income year or any later income year.
(1A) A holding company may make a choice under this subsection in relation to a foreign company if the holding company could have made a choice in relation to the foreign company under former section 559A of the Income Tax Assessment Act 1936 if it had not been repealed by item 37 of Schedule 1 to the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010.
(a) for the purposes of section 768‑505, it is necessary to work out the *active foreign business asset percentage of a company (the top foreign company) in relation to the holding company mentioned in that section, at the time of the CGT event mentioned in that section; and
(b) the top foreign company is not:
(i) an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936); or
(ii) a *foreign life insurance company; or
(iii) a *foreign general insurance company; and
(c) for the purposes of section 768‑505, it is also necessary (apart from this section) to work out the active foreign business asset percentage at that time of 1 or more other companies in relation to the holding company, at that time, where:
(i) the top foreign company and 1 or more of those other companies (the subsidiary foreign companies) are members of a *wholly‑owned group; and
(ii) each of the subsidiary foreign companies is a *100% subsidiary of the top foreign company.
(2) The holding company may choose to work out the *active foreign business asset percentage of the top foreign company in accordance with subsections (4) and (6).
(3) The way an entity making a choice under subsection (2) prepares its *income tax return is sufficient evidence of the making of the choice.
(4) If the holding company has made a choice under subsection (2), the provisions mentioned in subsection (5) operate, for the purposes of section 768‑505, as if each subsidiary foreign company were a part of the top foreign company, rather than a separate entity.
Note 1: This subsection means that certain assets are not treated as active foreign business assets, or as assets included in the total assets, of any of the subsidiary foreign companies or of the top foreign company. For example:
(a) a share owned by one of those companies in another of those companies; and
(b) a debt owed by one of those companies to another of those companies.
Note 2: If an asset (other than an asset mentioned in Note 1) is actually an active foreign business asset, or an asset included in the total assets, of a subsidiary foreign company, it is treated under this subsection as an active foreign business asset, or as an asset included in the total assets, of the top foreign company.
(5) For the purposes of subsection (4), the provisions are:
(a) section 768‑540 (active foreign business assets of a foreign company); and
(b) section 768‑545 (assets included in the total assets of a foreign company).
(6) If the holding company has made a choice under subsection (2), then for the purposes of sections 768‑510 and 768‑525, treat the *recognised consolidated accounts of the top foreign company and all of the subsidiary foreign companies as the *recognised company accounts of the top foreign company.
(1) An asset is, at a particular time, an active foreign business asset of a company (the foreign company) that is a foreign resident if, at that time:
(a) the asset is an *asset included in the total assets of the company; and
(b) the asset satisfies any of these conditions:
(i) the asset is used, or held ready for use, by the company in the course of carrying on a *business;
(ii) the asset is goodwill;
(iii) the asset is a *share; and
(d) the asset is not covered by subsection (2); and
(e) if the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business—the asset is not covered under subsection (4).
(2) An asset is covered by this subsection if it is:
(a) a financial instrument (other than a *share or a trade debt); or
(ii) a widely distributed finance share (within the meaning of that Part); or
(c) an interest in a trust or *partnership; or
(d) a *life insurance policy; or
(e) a right or option in respect of:
(i) a financial instrument; or
(ii) an interest in a company, trust or partnership; or
(iii) a life insurance policy; or
(f) cash or cash equivalent; or
(g) an asset whose main use in the course of carrying on the *business mentioned in subparagraph (1)(b)(i) is to *derive interest, an *annuity, rent, *royalties or foreign exchange gains unless:
(i) the asset is an intangible asset and has been substantially developed, altered or improved by the foreign company so that its *market value has been substantially enhanced; or
(3) If, at the time mentioned in subsection (1), the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business (within the meaning of that Part), subsection (2) operates as if:
(a) paragraphs (2)(a) and (f) were omitted; and
(b) paragraph (2)(g) did not contain a reference to interest, an *annuity or foreign exchange gains; and
(c) subparagraph (2)(e)(i) were omitted and the following subparagraph were substituted:
(i) a financial instrument, other than an asset mentioned in paragraph 450(1)(b) of the Income Tax Assessment Act 1936; or
(4) The asset is covered under this subsection if:
(a) all of these conditions are satisfied:
(i) the asset is an asset mentioned in subparagraph 450(4)(b)(i) or (ii) of the Income Tax Assessment Act 1936;
(ii) the asset was acquired from another entity;
(iii) either of the conditions mentioned in subparagraph 450(6)(c)(i) and (ii) of the Income Tax Assessment Act 1936 were satisfied in relation to the other entity at the time of the acquisition; or
(i) the asset relates to a debt to which factoring income (within the meaning of Part X of the Income Tax Assessment Act 1936) of the foreign company relates;
(ii) the condition in paragraph 450(8)(b) of the Income Tax Assessment Act 1936 is satisfied in relation to the debt.
(1) At a particular time, an asset is an asset included in the total assets of a company (the foreign company) that is a foreign resident if:
(c) if at that time the foreign company is not an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business (within the meaning of that Part)—the asset is not a foreign company derivative asset covered by subsection (2).
(2) An asset is a foreign company derivative asset covered by this subsection if:
(3) An *arrangement is covered by this subsection if:
(b) that future time is not less than the number of days, prescribed by regulations made for the purposes of paragraph 761D(1)(b) of the Corporations Act 2001, after the day on which the arrangement is entered into; and
(4) An *arrangement under which one person has an obligation to buy, and another person has an obligation to sell, property is not an arrangement covered by subsection (3) merely because the arrangement provides for the consideration to be varied by reference to a general inflation index such as the Consumer Price Index.
(1) An entity’s direct voting percentage at a particular time in a company is:
(a) if the entity has a voting interest (within the meaning of section 334A of the Income Tax Assessment Act 1936) in the foreign company at that time amounting to a percentage of the voting power of the company—that percentage; or
(2) In applying section 334A of the Income Tax Assessment Act 1936 for the purposes of subsection (1) of this section, assume that:
(a) the entity is a company; and
(b) the entity is not the beneficial owner of a *share in the company if a trust or partnership is interposed between the entity and the company.
(1) An entity’s indirect voting percentage at a particular time in a company (the subsidiary company) is worked out by multiplying:
(a) the entity’s *direct voting percentage (if any) in another company (the intermediate company) at that time;
(i) the intermediate company’s direct voting percentage (if any) in the subsidiary company at that time; and
(ii) the intermediate company’s indirect voting percentage (if any) in the subsidiary company at that time (as worked out under one or more other applications of this section).
(2) If there is more than one intermediate company to which subsection (1) applies at that time, the entity’s indirect voting percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate companies.
An entity’s total voting percentage at a particular time in a company is the sum of:
(a) the entity’s *direct voting percentage in the company at that time; and
(b) the entity’s *indirect voting percentage in the company at that time.
Subdivision 768‑R—Temporary residents
Guide to Subdivision 768‑R
768‑900 What this Subdivision is about
Generally foreign income derived by temporary residents is non‑assessable non‑exempt income and capital gains and losses they make are also disregarded for CGT purposes. There are some exceptions for employment‑related income and capital gains on shares and rights acquired under employee share schemes.
Temporary residents are also partly relieved of record‑keeping obligations in relation to the controlled foreign company rules.
Interest paid by temporary residents is not subject to withholding tax and may be non‑assessable non‑exempt income for a foreign resident.
768‑905 Objects
768‑910 Income derived by temporary resident
768‑915 Certain capital gains and capital losses of temporary resident to be disregarded
768‑950 Individual becoming an Australian resident
768‑955 Temporary resident who ceases to be temporary resident but remains an Australian resident
768‑960 Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules
768‑970 Modification of rules for accruals system of taxation of certain non‑resident trust estates
768‑980 Interest paid by temporary resident
The objects of this Subdivision are to:
(a) provide *temporary residents with tax relief on most foreign source income and capital gains; and
(b) relieve the burdens associated with complying with certain record‑keeping obligations and interest withholding tax obligations.
(1) The following are *non‑assessable non‑exempt income:
(a) the *ordinary income you *derive directly or indirectly from a source other than an *Australian source if you are a *temporary resident when you derive it;
(b) your *statutory income (other than a *net capital gain) from a source other than an Australian source if you are a temporary resident when you derive it.
This subsection has effect subject to subsections (3) and (5).
Note: A capital gain or loss you make may be disregarded under section 768‑915.
(a) if you have statutory income because a particular circumstance occurs, you derive the statutory income at the time when the circumstance occurs; and
(b) if you have statutory income because a number of circumstances occur, you derive the statutory income at the time when the last of those circumstances occurs.
(3) However, the following are not *non‑assessable non‑exempt income under subsection (1):
(a) the *ordinary income you *derive directly or indirectly from a source other than an *Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a *temporary resident;
(b) your *statutory income (other than a *net capital gain) from a source other than an Australian source to the extent that it relates to employment undertaken, or services provided, while you are a temporary resident;
(c) an amount included in your assessable income under Division 86.
Note: This subsection only makes an amount not non‑assessable non‑exempt income under subsection (1). It does not prevent that amount from being non‑assessable non‑exempt income under some other provision of this Act or the Income Tax Assessment Act 1936.
(1) A *capital gain or *capital loss you make from a *CGT event is disregarded if:
(a) you are a *temporary resident when, or immediately before, the CGT event happens; and
(b) you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when, or immediately before, the CGT event happens.
(2) Subsection (1) does not apply in relation to *CGT event I1 if:
(a) the CGT event happens in relation to an *ESS interest that is a beneficial interest in a right (or to a *share acquired by exercising such a right); and
(b) the provisions referred to in paragraphs 83A‑33(1)(a) to (c) (about start ups) apply to the ESS interest.
Section 855‑45 does not apply to your becoming an Australian resident if you are a *temporary resident immediately after you become an Australian resident.
(1) If you are a *temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident), there are rules relevant to each *CGT asset that:
(a) you owned just before you ceased to be a temporary resident; and
(c) you *acquired on or after 20 September 1985.
(2) The first element of the *cost base and *reduced cost base of the asset (at the time you cease to be a *temporary resident) is its *market value at that time.
(3) Also, Parts 3‑1 and 3‑3 apply to the asset as if you had *acquired it at the time you ceased to be a *temporary resident.
(a) Subdivision 83A‑C (about employee share schemes) applies to the interest, and the *ESS deferred taxing point for the interest has not yet occurred; or
For the purposes of Part X of the Income Tax Assessment Act 1936 (which deals with the attribution of income in respect of controlled foreign companies), you are taken not to be an *attributable taxpayer in relation to a *CFC or *CFT at any time you are a *temporary resident.
At any time when you are a *temporary resident, you are taken not to be a resident for the purposes of section 102AAZD of the Income Tax Assessment Act 1936.
Interest that is paid by a *temporary resident:
(a) is an amount to which section 128B (liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply; and
(b) is *non‑assessable non‑exempt income if the interest is:
(i) *derived by a foreign resident; and
(ii) is not derived from carrying on *business in Australia at or through a *permanent establishment in Australia.
Division 770—Foreign income tax offsets
770‑A Entitlement rules for foreign income tax offsets
770‑B Amount of foreign income tax offset
770‑C Rules about payment of foreign income tax
770‑D Administration
770‑1 What this Division is about
You may get a non‑refundable tax offset for foreign income tax paid on your assessable income.
770‑5 Object
(1) The object of this Division is to relieve double taxation where:
(a) you have paid foreign income tax on amounts included in your assessable income; and
(b) you would, apart from this Division, pay Australian income tax on the same amounts.
(2) To achieve this object, this Division gives you a tax offset to reduce or eliminate Australian income tax otherwise payable on those amounts.
Subdivision 770‑A—Entitlement rules for foreign income tax offsets
770‑10 Entitlement to foreign income tax offset
770‑15 Meaning of foreign income tax, credit absorption tax and unitary tax
(1) You are entitled to a *tax offset for an income year for *foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.
Note 1: The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax—even if you paid the foreign income tax in another income year.
Note 2: If the foreign income tax has been paid on an amount that is part non‑assessable non‑exempt income and part assessable income for you for the income year, only a proportionate share of the foreign income tax (the share that corresponds to the part that is assessable income) will count towards the tax offset (excluding the operation of subsection (2)).
Note 3: For offshore banking units, the amount of foreign income tax paid in respect of offshore banking income is reduced: see subsection 121EG(3A) of the Income Tax Assessment Act 1936.
(2) An amount of *foreign income tax counts towards the *tax offset for you for the year if you paid it in respect of an amount that is your *non‑assessable non‑exempt income under either section 23AI or 23AK of the Income Tax Assessment Act 1936 for the year.
Note 1: Sections 23AI and 23AK of the Income Tax Assessment Act 1936 provide that amounts paid out of income previously attributed from a controlled foreign company or a foreign investment fund are non‑assessable non‑exempt income.
Note 2: Foreign income taxes covered by this subsection are direct taxes (for example, a withholding tax on a dividend payment) and not underlying taxes, only some of which are covered by section 770‑135.
Exception for certain residence‑based foreign income taxes
(3) An amount of *foreign income tax you paid does not count towards the *tax offset for the year if you paid it:
(a) to a foreign country because you are a resident of that country for the purposes of a law relating to the foreign income tax; and
(b) in respect of an amount derived from a source outside that country.
(4) An amount of *foreign income tax paid by a *superannuation provider in relation to a *superannuation fund does not count towards the *tax offset for the year if:
(a) the tax was paid in respect of an amount included in the fund’s assessable income under table item 2 or 3 in section 295‑320; and
(b) the provider paid the tax before the start of the income year.
Note: Table items 2 and 3 in section 295‑320 include additional amounts in the assessable income of superannuation funds that change their status from complying to non‑complying or from foreign to Australian.
(5) An amount of *credit absorption tax or *unitary tax you paid does not count towards the *tax offset for the year.
(1) Foreign income tax means tax that:
(iii) any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953.
Note: Foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953), has been correctly imposed in accordance with that tax treaty.
(2) Credit absorption tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country to the extent that the tax would not have been payable if the entity concerned or another entity had not been entitled to an offset in respect of the tax under this Division.
(3) Unitary tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country, being a law which, for the purposes of taxing income, profits or gains of a company derived from sources within that country, takes into account, or is entitled to take into account, income, losses, outgoings or assets of the company (or of a company that for the purposes of that law is treated as being associated with the company) derived, incurred or situated outside that country, but does not include tax imposed by that law if that law only takes those matters into account:
Subdivision 770‑B—Amount of foreign income tax offset
Guide to Subdivision 770‑B
770‑65 What this Subdivision is about
However, there is a limit on the maximum amount of your offset. The limit is the greater of $1,000 and an amount worked out under this Subdivision. This amount is based on a comparison between your tax liability and the tax liability you would have if certain foreign‑taxed and foreign‑sourced income and related deductions were disregarded.
770‑70 Amount of foreign income tax offset
770‑75 Foreign income tax offset limit
770‑80 Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply
Note 1: The amount of foreign income tax you paid may be affected by Subdivision 770‑C.
Note 2: The amount of the offset might be increased under section 770‑230 of the Income Tax (Transitional Provisions) Act 1997, if you have pre‑commencement excess foreign income tax.
(1) There is a limit (the offset limit) on the amount of your *tax offset for a year. If your tax offset exceeds the offset limit, reduce the offset by the amount of the excess.
(2) Your offset limit is the greater of:
Note 1: If you do not intend to claim a foreign income tax offset of more than $1,000 for the year, you do not need to work out the amount under paragraph (b).
Note 2: The amount of the offset limit might be increased under section 770‑80.
(3) For the purposes of paragraph (2)(b), work out the amount of income tax payable by you, or that would be payable by you, disregarding any *tax offsets.
(4) Assume that:
Note: You must also assume you were not entitled to any deductions for certain converted foreign losses: see section 770‑35 of the Income Tax (Transitional Provisions) Act 1997.
Example: If an entity has paid foreign income tax on a capital gain that comprises part of its net capital gain, only that capital gain on which foreign income tax has been paid is disregarded.
Your offset limit under subsection 770‑75(2) is increased by any amounts of *foreign income tax that count towards the *tax offset for you for the year because of subsection 770‑10(2).
Subdivision 770‑C—Rules about payment of foreign income tax
770‑130 When foreign income tax is considered paid—taxes paid by someone else
770‑135 Foreign income tax paid by CFCs on attributed amounts
770‑140 When foreign income tax is considered not paid—anti‑avoidance rule
(1) This Act applies to you as if you had paid an amount of *foreign income tax in respect of an amount (a taxed amount) that is all or part of an amount included in your *ordinary income or *statutory income if you are covered by subsection (2) or (3) for an amount of foreign income tax paid in respect of the taxed amount.
(2) You are covered by this subsection for an amount of *foreign income tax paid in respect of a taxed amount if that foreign income tax has been paid in respect of the taxed amount by another entity under an *arrangement with you or under the law relating to the foreign income tax.
Example: You are a partner in a partnership and the partnership pays foreign income tax on the partnership income.
(3) You are covered by this subsection for an amount of *foreign income tax paid in respect of the taxed amount to the extent that:
(a) the taxed amount is taken, because of section 6B of the Income Tax Assessment Act 1936 (the 1936 Act), to be attributable to another amount of income of a particular kind or source; and
(b) foreign income tax has been paid in respect of the other amount of income; and
(c) the taxed amount is less than it would have been if that tax had not been paid.
Example: Aust Co (an Australian resident) is the sole beneficiary of an Australian resident trust H and is presently entitled to all the income of trust H. Trust H owns shares in For Co (a foreign company). For Co pays a dividend to trust H and the dividend is subject to withholding tax in For Co’s country of residence.
Trust H allocates to Aust Co, the dividend, as well as other Australian source income trust H earned in the year (none of which was subject to foreign income tax). Aust Co is treated as having paid the foreign income tax paid by For Co under subsection 770‑130(3). The foreign income tax is treated as paid in respect of the amount included in Aust Co’s assessable income that is attributable to the dividend.
(1) This Division applies to an entity (other than a *CFC) as if it had paid an amount of *foreign income tax worked out under subsection (7) in respect of an amount included in its assessable income if:
(a) the amount is included in its assessable income as described in subsection (2); and
(b) the conditions in subsections (3), (5) and (6) are satisfied.
(2) An amount is included in an entity’s assessable income as described in this subsection if the entity is a company and the amount is included under:
(a) section 456 (a section 456 case) of the 1936 Act in relation to a *CFC and a statutory accounting period; or
(b) section 457 (a section 457 case) of that Act in relation to a CFC.
Note: Section 456 of the 1936 Act includes, in the assessable income of certain Australian shareholders, amounts that are attributable to the profits of an Australian‑controlled foreign company.
(3) An amount of *foreign income tax, income tax or *withholding tax (the tax amount) must have been paid:
(a) for a section 456 case—by the *CFC in respect of an amount included in the notional assessable income of the CFC for the statutory accounting period; or
(b) for a section 457 case—by the CFC.
Note: Section 770‑130 deems foreign income tax to have been paid in certain circumstances.
(4) For the purposes of paragraphs (3)(a) and (b), the tax amount includes an amount that is taken to have been paid by the *CFC under subsection 393(4) of the 1936 Act (about tax paid on reinsurance premiums).
(5) If the entity is a company, it must have an *attribution percentage of 10% or more:
(a) for a section 456 case—in relation to the *CFC at the end of the statutory accounting period; or
(b) for a section 457 case—in relation to the CFC at the residence‑change time (within the meaning of section 457 of the 1936 Act).
(7) The amount worked out under this subsection is:
(a) for a section 456 case—the sum of all the tax amounts for the statutory accounting period multiplied by the company’s *attribution percentage in relation to the *CFC at the time mentioned in paragraph (5)(a); or
(b) for a section 457 case—the sum of all the tax amounts to the extent they are attributable to the amount included in the company’s assessable income under section 457 of the 1936 Act.
Grossing‑up of attributed amount
(8) For the purposes of this Act except this section and section 371 of the 1936 Act (for a section 456 case or a section 457 case), the amount included in the entity’s assessable income as described in subsection (2) is taken to be increased by the amount of tax worked out under subsection (7).
Note: Section 371 of the 1936 Act records an amount in an attribution account when the amount is included in the assessable income of an attributable taxpayer in relation to a CFC.
(a) a refund of the foreign income tax; or
(b) any other benefit worked out by reference to the amount of the foreign income tax (other than a reduction in the amount of the foreign income tax).
Subdivision 770‑D—Administration
770‑190 Amendment of assessments
(1) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purpose of giving effect to this Division for an income year if:
(a) an event described in subsection (2) (an amendment event) happens after the time you lodged your *income tax return for that year; and
(b) the amendment is made at any time during the period of 4 years starting immediately after the amendment event.
Note: Section 170 of that Act specifies the periods within which assessments may be amended.
(2) The following are amendment events:
(a) you pay an amount of *foreign income tax that counts towards your *tax offset for the year;
(b) there is an increase in an amount of foreign income tax you paid that counts towards your offset for the year;
(c) there is a reduction in an amount of foreign income tax you paid that counts towards your offset for the year.
Division 775—Foreign currency gains and losses
Guide to Division 775
775‑A Objects of this Division
775‑B Realisation of forex gains or losses
775‑C Roll‑over relief for facility agreements
775‑D Qualifying forex accounts that pass the limited balance test
775‑E Retranslation for qualifying forex accounts
775‑F Retranslation under foreign exchange retranslation election under Subdivision 230‑D
775‑5 What this Division is about
Your assessable income includes a forex realisation gain you make as a result of a forex realisation event.
You can deduct a forex realisation loss that you make as a result of a forex realisation event.
There are 5 main types of forex realisation events:
(a) forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity;
(b) forex realisation event 2 happens if you cease to have a right to receive foreign currency (otherwise than because you disposed of the right to another entity);
(c) forex realisation event 3 happens if you cease to have an obligation to receive foreign currency;
(d) forex realisation event 4 happens if you cease to have an obligation to pay foreign currency;
(e) forex realisation event 5 happens if you cease to have a right to pay foreign currency.
There are special rules for certain short‑term forex realisation gains and losses.
You may choose roll‑over relief for certain facility agreements.
You may elect to receive concessional tax treatment for a qualifying forex account that passes the limited balance test.
You may choose retranslation for a qualifying forex account.
Subdivision 775‑A—Objects of this Division
775‑10 Objects of this Division
The objects of this Division are as follows:
(a) to recognise *foreign currency gains and losses for income tax purposes;
(b) to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations;
(c) to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan;
(d) to reduce compliance costs by not requiring the recognition of certain low‑value foreign currency gains and losses that involve substantial calculations.
Subdivision 775‑B—Realisation of forex gains or losses
775‑15 Forex realisation gains are assessable
775‑20 Certain forex realisation gains are exempt income
775‑25 Certain forex realisation gains are non‑assessable non‑exempt income
775‑30 Forex realisation losses are deductible
775‑35 Certain forex realisation losses are disregarded
775‑40 Disposal of foreign currency or right to receive foreign currency—forex realisation event 1
775‑45 Ceasing to have a right to receive foreign currency—forex realisation event 2
775‑50 Ceasing to have an obligation to receive foreign currency—forex realisation event 3
775‑55 Ceasing to have an obligation to pay foreign currency—forex realisation event 4
775‑60 Ceasing to have a right to pay foreign currency—forex realisation event 5
775‑65 Only one forex realisation event to be counted
775‑70 Tax consequences of certain short‑term forex realisation gains
775‑75 Tax consequences of certain short‑term forex realisation losses
775‑80 You may choose not to have sections 775‑70 and 775‑75 apply to you
775‑85 Forex cost base of a right to receive foreign currency
775‑90 Forex entitlement base of a right to pay foreign currency
775‑95 Proceeds of assuming an obligation to pay foreign currency
775‑100 Net costs of assuming an obligation to receive foreign currency
775‑105 Currency exchange rate effect
775‑110 Constructive receipts and payments
775‑115 Economic set‑off to be treated as legal set‑off
775‑120 Non‑arm’s length transactions
775‑125 CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3
775‑130 Certain deductions not allowable
775‑135 Right to receive or pay foreign currency
775‑140 Obligation to pay or receive foreign currency
775‑145 Application of forex realisation events to currency and fungible rights and obligations
775‑150 Transitional election
775‑155 Applicable commencement date
775‑160 Exception—event happens before the applicable commencement date
775‑165 Exception—currency or right acquired, or obligation incurred, before the applicable commencement date
775‑175 Application to things happening before commencement
(1) Your assessable income for an income year includes a *forex realisation gain you make as a result of a *forex realisation event that happens during that year.
(2) However, your assessable income does not include a *forex realisation gain to the extent that it:
You make the forex realisation gain as a result of this event...
and the following condition is satisfied...
forex realisation event 1 or 2
*foreign currency or a right, or a part of a right, to receive foreign currency
a gain that would result from the occurrence of a *realisation event in relation to the foreign currency, or to the right, or the part of the right, would, apart from this Division, be taken into account under Part 3‑1 or 3‑3
a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, where subparagraph 775‑45(1)(b)(iv) applies
a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3
an obligation, or a part of an obligation, you incurred in return for the acquisition of a *CGT asset
a gain or loss that would result from the occurrence of a *realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3
Note: Parts 3‑1 and 3‑3 deal with capital gains and losses.
(3) Section 775‑70 provides for additional exceptions.
Note: Section 775‑70 is about the tax consequences of certain short‑term forex realisation gains.
(4) To the extent that a *forex realisation gain would be included in your assessable income under this section and another provision of this Act, the gain is only included in your assessable income under this section.
Note: Under section 230‑20, foreign exchange gains from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.
A *forex realisation gain you make is *exempt income to the extent that, if it had been a *forex realisation loss, it would have been made in gaining or producing exempt income.
A *forex realisation gain you make is *non‑assessable non‑exempt income to the extent that, if it had been a *forex realisation loss, it would have been made in gaining or producing non‑assessable non‑exempt income.
(1) You can deduct from your assessable income for an income year a *forex realisation loss that you make as a result of a *forex realisation event that happens during that year.
(2) However, you cannot deduct a *forex realisation loss under this section to the extent that it:
(a) is a loss of a private or domestic nature; and
Forex realisation losses to which this subsection does not apply
You make the forex realisation loss as a result of this event...
(3) Section 775‑75 provides for additional exceptions.
Note: Section 775‑75 is about the tax consequences of certain short‑term forex realisation losses.
(4) To the extent that this section and another provision of this Act would allow you a deduction for a *forex realisation loss, you can only deduct the loss under this section.
Note: Under section 230‑20, foreign exchange losses from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.
(1) A *forex realisation loss you make as a result of forex realisation event 1, 2 or 5 is disregarded to the extent that it is made in gaining or producing *exempt income or *non‑assessable non‑exempt income.
(2) A *forex realisation loss you make as a result of forex realisation event 3, 4 or 6 is disregarded to the extent that:
(a) it is made in gaining or producing *exempt income or *non‑assessable non‑exempt income; and
(b) the obligation, or the part of the obligation, does not give rise to a deduction.
(1) Forex realisation event 1 is *CGT event A1 that happens if you dispose of:
(a) *foreign currency; or
(b) a right, or a part of a right, to receive foreign currency.
Note: For extended meaning of right to receive foreign currency, see section 775‑135.
(2) For the purposes of this section, use subsection 104‑10(2) to work out whether you have disposed of:
Note: Under subsection 104‑10(2), a disposal requires a change of ownership.
(3) For the purposes of this section, subsection 104‑10(3) is modified so that the time of the event is when:
(a) the *foreign currency is disposed of; or
(b) the right, or the part of the right, is disposed of.
(4) You make a forex realisation gain if:
(a) you make a *capital gain from the event; and
(b) some or all of the capital gain is attributable to a *currency exchange rate effect.
The amount of the forex realisation gain is so much of the capital gain as is attributable to a currency exchange rate effect.
Note: For currency exchange rate effect, see section 775‑105.
(5) For the purposes of paragraph (4)(a), Part 3‑1 is modified so that section 118‑20 is disregarded in working out the *capital gain.
Note: Section 118‑20 deals with reducing capital gains if an amount is otherwise assessable.
(6) You make a forex realisation loss if:
(a) you make a *capital loss from the event; and
(b) some or all of the capital loss is attributable to a *currency exchange rate effect.
The amount of the forex realisation loss is so much of the capital loss as is attributable to a currency exchange rate effect.
No indexation of cost base
(7) For the purposes of this section, disregard Division 114.
Note: Division 114 deals with indexation of the cost base.
(8) For the purposes of this section, disregard section 118‑55.
Note: Section 118‑55 deals with foreign currency hedging gains and losses.
(9) For the purposes of this section, if the *capital proceeds from the event are more or less than the *market value of:
(a) the *foreign currency; or
(b) the right, or the part of the right;
the capital proceeds from the event are taken to be the market value. (The market value is worked out as at the time of the event.)
(1) Forex realisation event 2 happens if:
(a) you cease to have a right, or a part of a right, to receive *foreign currency; and
(b) the right, or the part of the right, is one of the following:
(i) a right, or a part of a right, to receive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102);
(ii) a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset;
(iii) a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency or foreign currency;
(iv) a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of subparagraphs (i), (ii) and (iii) applies; and
(c) you did not cease to have the right, or the part of the right, because you disposed of the right or the part of the right (within the meaning of section 775‑40).
Note 1: Disposals are dealt with by section 775‑40 (forex realisation event 1).
Note 2: For extended meaning of right to receive foreign currency, see section 775‑135.
(2) The time of the event is when you cease to have the right or the part of the right.
(3) You make a forex realisation gain if:
(a) the amount you receive in respect of the event happening exceeds the *forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and
(b) some or all of the excess is attributable to a *currency exchange rate effect.
The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.
Note 1: For forex cost base, see section 775‑85.
Note 2: For tax recognition time, see subsection (7).
Note 3: For currency exchange rate effect, see section 775‑105.
(4) You make a forex realisation loss if:
(a) the amount you receive in respect of the event happening falls short of the *forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and
(b) some or all of the shortfall is attributable to a *currency exchange rate effect.
The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.
(5) You make a forex realisation loss if:
(a) the event happens because an option to buy *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and
(b) you were capable of exercising the option immediately before the event happened.
The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.
Non‑cash benefit
(6) The amount you receive in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you receive.
(7) For the purposes of this section, the tax recognition time is worked out using the table:
If the right, or part of the right, is...
the tax recognition time is...
a right, or a part of a right, to receive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102)
(a) in the case of ordinary income—when the ordinary income is *derived; or
(b) in the case of statutory income—when the requirement first arose to include the statutory income in your assessable income.
a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset
when you stop holding the asset.
a right, or a part of a right, referred to in subsection 775‑165(3) (which deals with extensions of loans)
the extension time referred to in that subsection.
a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency, where item 3 does not apply
when the amount is paid.
a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of *foreign currency, where item 3 does not apply
a right, or a part of a right, created in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of the above items apply
when the realisation event occurs.
Note: Subsection 775‑260(1) modifies the tax recognition time if forex realisation event 2 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.
(1) Forex realisation event 3 happens if:
(a) you cease to have an obligation, or a part of an obligation, to receive *foreign currency; and
(b) the obligation, or the part of the obligation, is one of the following:
(i) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay foreign currency;
(ii) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay Australian currency;
(iii) an obligation, or a part of an obligation, under an option to sell foreign currency.
Note 1: For extended meaning of obligation to receive foreign currency, see section 775‑140.
Note 2: For extended meaning of right to pay foreign currency, see section 775‑135.
(2) The time of the event is when you cease to have the obligation or the part of the obligation.
(a) the amount you receive in respect of the event happening exceeds the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and
Note 1: For net costs of assuming the obligation, see section 775‑100.
(a) the event happens because an option to sell *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and
(b) if the option had been exercised immediately before the event, you would have been obliged to buy the foreign currency.
The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.
(a) the amount you receive in respect of the event happening falls short of the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and
(7) For the purposes of this section, the tax recognition time is the time when you received an amount in respect of the event happening.
Right to pay Australian currency
(8) To avoid doubt, for the purposes of this section, a right to pay Australian currency includes a right to pay Australian currency, where the right is subject to a contingency.
(1) Forex realisation event 4 happens if:
(a) you cease to have an obligation, or a part of an obligation, to pay *foreign currency; and
(i) the obligation, or the part of the obligation, is an expense or outgoing that you deduct;
(ii) the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936);
(iii) the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936);
(iv) you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset;
(v) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the *cost base of a CGT asset;
(vi) you incurred the obligation, or the part of the obligation, in return for your starting to hold a *depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;
(vii) you incurred the obligation, or the part of the obligation, as the second element of the *cost of a depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;
(viii) you incurred the obligation, or the part of the obligation, as a *project amount;
(ix) you incurred the obligation, or the part of the obligation, in return for receiving an amount of Australian currency or foreign currency;
(x) you incurred the obligation, or the part of the obligation, in return for the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;
(xi) the obligation, or the part of the obligation, is under an option to buy foreign currency.
Note: For extended meaning of obligation to pay foreign currency, see section 775‑140.
(a) the amount you paid in respect of the event happening falls short of the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and
The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.
Note 1: For proceeds of assuming the obligation, see section 775‑95.
(b) if the option had been exercised immediately before the event, you would have been obliged to sell the foreign currency.
(a) the amount you paid in respect of the event happening exceeds the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and
The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.
(6) The amount you paid in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you paid.
(a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and
(b) the obligation, or the part of the obligation, was not incurred:
(i) in return for the acquisition of an item of *trading stock; or
(ii) in return for your starting to hold a *depreciating asset; and
(c) the obligation, or the part of the obligation, was not incurred as the second element of the cost of a depreciating asset
the time when the expense or outgoing became deductible.
(b) the obligation, or the part of the obligation, was incurred in return for the acquisition of an item of *trading stock
the time when the item becomes part of your trading stock on hand.
the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936)
the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936)
(a) you incurred the obligation, or the part of the obligation:
(b) you deduct an amount under Division 40 or 328 for the depreciating asset
(a) in the case of the acquisition of a depreciating asset—when you began to hold the depreciating asset (worked out under Division 40); or
(b) in the case of the second element of the cost of a depreciating asset—when you incurred the relevant expenditure.
you incurred the obligation, or the part of the obligation, as a *project amount
the first time when any part of the amount became deductible.
the obligation, or the part of the obligation, is referred to in subsection 775‑165(5) (which deals with extension of loans)
you incurred the obligation, or the part of the obligation, in return for:
(a) receiving Australian currency or *foreign currency; or
(b) the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;
where item 7 does not apply
the time when you received the currency.
(a) you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset; and
(b) none of the above items apply
the time when you acquired the CGT asset (worked out under Division 109).
(a) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the *cost base of a CGT asset; and
the time of the transaction under which you incurred the obligation.
Note 1: Foreign currency is a CGT asset. If you acquire foreign currency as the borrower under a loan, item 8 will apply to your obligation to repay the foreign currency borrowed under the loan.
Note 2: If you have made a choice for roll‑over relief for a facility agreement, and forex realisation event 7 (material variation of a facility agreement) happens, subsection 775‑220(6) modifies the tax recognition time for an obligation under a security that was in existence under the agreement at the time of that event.
Note 3: Subsection 775‑260(2) modifies the tax recognition time if forex realisation event 4 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.
Note 4: If you have made a choice for roll‑over relief for a facility agreement, a forex realisation gain or forex realisation loss you make under the agreement as a result of forex realisation event 4 is disregarded—see section 775‑200.
(1) Forex realisation event 5 happens if:
(a) you cease to have a right, or a part of a right, to pay *foreign currency; and
(i) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay foreign currency;
(ii) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay Australian currency;
(iii) a right, or a part of a right, under an option to sell foreign currency.
Note 1: For extended meaning of right to pay foreign currency, see section 775‑135.
Note 2: For extended meaning of obligation to pay foreign currency, see section 775‑140.
(a) the amount you pay in respect of the event happening falls short of the *forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and
Note 1: For forex entitlement base, see section 775‑90.
(a) the amount you pay in respect of the event happening exceeds the *forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and
(6) The amount you pay in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you pay.
(7) For the purposes of this section, the tax recognition time is the time when you pay an amount in respect of the event happening.
Obligation to pay Australian currency
(8) To avoid doubt, for the purposes of this section, an obligation to pay Australian currency includes an obligation to pay Australian currency, where the obligation is subject to a contingency.
(1) The following table applies to an option to buy a particular *foreign currency if the exercise price is payable in another foreign currency:
and both of these events happen when the option is exercised...
the entity who is capable of exercising the option
(a) forex realisation event 1;
(b) forex realisation event 4
ignore forex realisation event 4.
(a) forex realisation event 2;
the entity who granted the option
(a) forex realisation event 3;
ignore forex realisation event 3.
(2) The following table applies to an option to sell a particular *foreign currency if the exercise price is payable in another foreign currency:
(b) forex realisation event 5
(3) The following table applies to a contract to buy a particular *foreign currency in return for another foreign currency:
If both of these events happen when the contract is carried out...
Residual rule
(a) 2 or more of forex realisation events 1, 2, 3, 4 and 5 happen to you at the same time in relation to the same rights and/or obligations; and
(b) none of the above subsections applies;
apply the forex realisation event that is most appropriate, and ignore the remaining event or events.
(1) The following table has effect unless you have made a choice under section 775‑80:
Tax consequences of certain short‑term forex realisation gains
you make a *forex realisation gain as a result of forex realisation event 2, and:
(a) the right to receive *foreign currency was created in return for the occurrence of a *realisation event in relation to a *CGT asset you own; and
(b) item 6 of the table in subsection 775‑45(7) applies; and
(a) the forex realisation gain is not included in your assessable income under section 775‑15; and
you make a *forex realisation gain as a result of forex realisation event 4, and:
(b) item 9 of the table in subsection 775‑55(7) applies; and
(i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or
(ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure
(b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24‑month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and
(c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure
(i) the forex realisation event happens in the income year in which the asset’s *start time occurs; and
(ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D;
the asset’s *cost is reduced (but not below zero) by an amount equal to the forex realisation gain; and
(i) the forex realisation event happens in an income year that is later than the one in which the asset’s *start time occurs; and
the depreciating asset’s *opening adjustable value for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain; and
(d) if the asset is allocated to a pool under Subdivision 40‑E or 328‑D—the opening pool balance of the pool for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain.
(c) the project amount is allocated to a project pool
and the following conditions are satisfied...
item 3 of the table in subsection (1) applies in relation to a *depreciating asset
(a) the forex realisation event happens in the income year in which the asset’s *start time occurs; and
(b) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; and
(c) the forex realisation gain exceeds the asset’s *cost
the excess is included in your assessable income.
(a) the forex realisation event happens in an income year that is later than the one in which the asset’s *start time occurs; and
(c) the forex realisation gain exceeds the asset’s *opening adjustable value for the income year in which the forex realisation event happens
(a) the asset is allocated to a pool under Subdivision 40‑E or 328‑D; and
item 4 of the table in subsection (1) applies in relation to a project amount
the forex realisation gain exceeds the pool value of the project pool for the income year in which you incurred the project amount
(3) To the extent that a *forex realisation gain:
(a) would have been included in your assessable income under section 775‑15 if this section had not been enacted; and
Tax consequences of certain short‑term forex realisation losses
you make a *forex realisation loss as a result of forex realisation event 2, and:
(a) the forex realisation loss is not deductible under section 775‑30; and
(b) CGT event K11 happens.
you make a *forex realisation loss as a result of forex realisation event 4, and:
(b) both the *cost base and the *reduced cost base of the CGT asset are increased by an amount equal to the *forex realisation loss.
the asset’s *cost is increased by an amount equal to the forex realisation loss; and
the depreciating asset’s *opening adjustable value for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss; and
(d) if the asset is allocated to a pool under Subdivision 40‑E or 328‑D—the opening pool balance of the pool for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss.
(b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount
(b) the pool value of the project pool for the income year in which you incurred the project amount is increased by an amount equal to the forex realisation loss.
(a) section 775‑30 would have allowed you a deduction for a *forex realisation loss if this section had not been enacted; and
(1) You may choose not to have sections 775‑70 and 775‑75 apply to you.
(2) A choice must be in writing.
(3) A choice must be made:
(a) if you were in existence at the start of the applicable commencement date:
(i) within 90 days after the applicable commencement date; or
(ii) within 30 days after the commencement of this subsection; or
(b) if you came into existence within 90 days after the start of the applicable commencement date:
(i) within 90 days after you came into existence; or
(c) if the Commissioner allows a longer period—within that longer period.
Note: For applicable commencement date, see section 775‑155.
(4) A choice has effect from the start of the applicable commencement date.
(5) A choice may not be revoked.
The forex cost base of a right, or a part of a right, to receive *foreign currency is the total of:
(a) the money you:
(ii) are required to pay; or
(iii) would be required to pay in the event of the exercise of an option;
in respect of acquiring the right or part of the right; and
(b) the *market value of any *non‑cash benefit you:
(i) provided; or
(ii) are required to provide; or
(iii) would be required to provide in the event of the exercise of an option;
in respect of acquiring the right or part of the right;
reduced by any amounts that are deductible under a provision of this Act other than this Division.
The forex entitlement base of a right, or a part of a right, to pay *foreign currency is the total of:
(i) are entitled to receive; or
(ii) would be entitled to receive in the event of the exercise of an option;
in respect of the discharge or satisfaction of the right or the part of the right; and
(i) are entitled to acquire or obtain; or
(ii) would be entitled to acquire or obtain in the event of the exercise of an option;
in respect of the discharge or satisfaction of the right or the part of the right;
(c) any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and
(d) the market value of any non‑cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.
For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay *foreign currency are the total of:
(i) received; or
(ii) are entitled to receive; or
(iii) would be entitled to receive in the event of the exercise of an option;
in return for incurring the obligation or the part of the obligation; and
(i) acquired or obtained; or
(ii) are entitled to acquire or obtain; or
(iii) would be entitled to acquire or obtain in the event of the exercise of an option;
in return for incurring the obligation or the part of the obligation;
reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.
(1) For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive *foreign currency are the total of:
(i) are required to pay; or
(ii) would be required to pay in the event of the exercise of an option;
in respect of the fulfilment of the obligation or the part of the obligation; and
(i) are required to provide; or
(ii) would be required to provide in the event of the exercise of an option;
in respect of the fulfilment of the obligation or the part of the obligation;
reduced by the amount worked out under subsection (2).
(2) The amount worked out under this subsection is the total of:
(ii) are entitled to receive;
because you incurred the obligation or the part of the obligation; and
(i) received or obtained; or
(ii) are entitled to receive or obtain;
because you incurred the obligation or the part of the obligation;
(3) To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a *non‑cash benefit that you:
(a) received or obtained; or
(b) are entitled to receive or obtain;
because of the fulfilment of the obligation or the part of the obligation.
775‑105 Currency e