Private ruling: Collar Strategy
Published: September 2014
Ruling period: Income year ending 30 June 2015 | Income year ending 30 June 2016 | Income year ending 30 June 2017
Date scheme commenced: The scheme is yet to commence.

Ruling: Q1: Does a net position in relation to shares, or an interest in shares, for the purposes of former section 160APHJ of the Income Tax Assessment Act 1936 (ITAA 1936) include all positions held by ENTITY X in respect of those shares? | A1: Yes. | Q2: Will the put and call options held by ENTITY X over shares under the Collar Strategy be related payments for the purposes of former section 160APHN ITAA 1936? | A2: No | Q3: Will ENTITY X satisfy the definition of a qualified person as defined in former section 160APHD ITAA 1936 in relation to the dividends paid on shares which are acquired by ENTITY X under the Collar Strategy? | A3: Yes | Q4: Will the Commissioner make a determination pursuant to subsection 177EA(5)(b) ITAA 1936 to deny franking credits attached to dividends received by ENTITY X on shares acquired under the Collar Strategy? | A4: No

Relevant facts and circumstances: The Fund is an unregistered managed investment scheme. The Trustee of the Fund is an Australian resident company for income tax purposes. Of the direct and indirect investments entered into by the Fund, a significant asset sector is the Australian Equities Sector. The Investment Manager has been engaged by the Fund to develop a strategy to improve the excess return generated by the Australian equity portfolio compared to the market benchmark (the excess is also known as "alpha"). Proposed Collar Strategy The Investment Manager has proposed a Collar Strategy to generate additional "alpha" for the Fund.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 177D, | Income Tax Assessment Act 1936 section 177EA, | Income Tax Assessment Act 1936 former section 160APHD, | Income Tax Assessment Act 1936 former section 160APHE, | Income Tax Assessment Act 1936 former section 160APHH, | Income Tax Assessment Act 1936 former section 160APHJ, | Income Tax Assessment Act 1936 former section 160APHM, | Income Tax Assessment Act 1936 former section 160APHN, and | Income Tax Assessment Act 1936 former section 160APHO.

Reasons for decision: Summary: Does a net position in relation to shares, or an interest in shares, for the purposes of former section 160APHJ ITAA 1936 include all positions held by the Fund in respect of those shares? Yes. A net position in relation to shares, or an interest in shares, should include all positions held by the Fund in respect of those shares. Question 2 Will the put and call options held by the Fund over shares under the Collar Strategy be related payments for the purposes of former section 160APHN ITAA 1936? No. Will the Fund satisfy the definition of a qualified person as defined in former section 160APHD ITAA 1936 in relation to the dividends paid on shares which are acquired by the Fund under the Collar Strategy? Yes. The Fund will meet the 'qualified person' test on the basis of the features set out in the relevant facts and circumstances, including the assumptions, of this Ruling: a. The put and call options entered into by the Fund in relation to the shares held by the Fund will have a negative delta that will never be less than -0.7. b. The put and call options entered into by the Fund in relation to the shares held by the Fund will not result in a related payment that would impact the 'qualified person' test (paragraph 160APHJ(10)(c)) (see question 2 above). c. The shares, which are not preference shares, will be held for a minimum of 45 days (subsection 160APHO(2)) over which the Fund would not be considered to have 'materially diminished risks of loss or opportunities for gain in respect of the shares' (subsection 160APHO(3)). Will the Commissioner make a determination pursuant to subsection 177EA(5)(b) ITAA 1936 to deny franking credits attached to dividends received by the Fund on shares acquired under the Collar Strategy to the extent that no dividend collar has been entered into? No.