Product Ruling PR 2017/7
Date of effect: 1 July 2017

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme is an investment in CHESS depository interests (CDIs) over units (Interests) in the SPDR® S&P 500® ETF Trust (the Fund) offered under a Product Disclosure Statement issued by State Street Global Advisors Trust Company as the trustee of the Fund (the Trustee) and State Street Global Advisors, Australia Services Limited (the AQUA Product Issuer). 3. This Product Ruling does not address: Class of entities 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the investor. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities that are Australian residents for taxation purposes and who enter into the scheme described in paragraphs 16 to 20 of this Product Ruling on or after 1 July 2017 and on or before 30 June 2020. 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities that: Superannuation Industry (Supervision) Act 1993 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. Qualifications 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:

Class of entities or scheme: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the investor. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities that are Australian residents for taxation purposes and who enter into the scheme described in paragraphs 16 to 20 of this Product Ruling on or after 1 July 2017 and on or before 30 June 2020. 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities that: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 10. This Product Ruling applies prospectively from 1 July 2017. It therefore applies only to the specified class of entities that enter into the scheme from 1 July 2017 to 30 June 2020, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into during the period of application. 11. However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 12. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. 13. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 14. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. 15. Subject to paragraph 3 and the assumptions in paragraph 20 of this Product Ruling: 16. The scheme that is the subject of this Ruling is identified and described in the following documents: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 17. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which the investor, or an associate of the investor, will be a party to, which are a part of the scheme. Unless otherwise defined, capitalised terms in this Ruling take their meaning as per the PDS. 18. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 19. Following is a summary of the scheme: | Assumptions: 20. This Ruling is made on the basis of the following necessary assumptions: Commissioner of Taxation 28 June 2017 | Assessability of distributions to investors: 21. CDIs provide a beneficial interest to the investor in the units in the Fund. Each CDI gives rise to a separate trust estate. Distributions from the Fund will represent income of each trust estate represented by a CDI and will be assessable to the investor under section 97 of the ITAA 1936. 22. Distributions from the Fund will be treated as dividends as the Fund is treated as a company for US federal income tax purposes. 23. According to the double tax treaty between Australia and the US (US Convention [1] ) an entity will satisfy the definition of a company if the entity is treated as a company or body corporate for tax purposes. 24. Further, Article 10(6) of the US Convention defines the term 'dividend' to mean 'income from shares, as well as other amounts which are subjected to the same treatment as income from shares by the law of the State [in this case the US] of which the company making the distribution is a resident for the purpose of its tax.' 25. Therefore, any distributions made by the Fund flowing to the CHESS nominee will be treated as distributions made by a company and will have the same character as dividends. Accordingly, distributions from the Fund will be treated as dividends which will comprise the net income of each trust estate relating to the CDIs and will be assessable to the investor as the holder of those CDIs under section 97 of the ITAA 1936. | Section 108-5: CGT asset: 26. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. A CDI is a CGT asset under subsection 108-5(1). | CGT event A1: 27. The disposal of the CDIs by the investor gives rise to a CGT event A1 in respect of the investor (section 104-10). The investor will make a capital gain from this CGT event if the capital proceeds from the disposal of the CDIs are more than the CDIs' cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the CDIs' reduced cost base (subsection 104-10(4)). 28. The investor's capital proceeds under section 116-20 will be the amount they receive from the disposal of the CDIs on the AQUA market. 29. The cost base or the reduced cost base of the investor's CDIs will be the acquisition cost of the CDIs plus any incidental costs incurred by the investor in acquiring the CDIs (sections 110-25 and 110-55). The cost base or the reduced cost base of the investor's CDIs will be reduced by the amount of any distribution to the extent it is not treated as a dividend for US federal income tax purposes. If those distributions exceed the investor's existing cost base in their CDIs, a capital gain equal to the excess will arise. | Section 115-5: discount capital gains: 30. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by the investor as a result of the disposal of the CDIs will be treated as a discount capital gain where the investor has held those CDIs for at least 12 months (excluding the days of acquisition and disposal). 31. To be a discount capital gain the capital gain must be made by an investor that is either an individual, a complying superannuation entity, or a trust (section 115-10). | Division 770 - foreign income tax offset: 32. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year. 33. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source): | Subsection 159GP(1) - a CDI is not a 'qualifying security': 34. A qualifying security is defined in subsection 159GP(1) of Division 16E of the ITAA 1936. For the purposes of determining whether an arrangement is a qualifying security, that arrangement must be a security, also defined in subsection 159GP(1) to mean: 35. CDIs acquired by the investor do not fall within paragraphs (a), (b), (c) or (d) of the definition of security in subsection 159GP(1) of the ITAA 1936. Therefore, the CDIs are not qualifying securities under subsection 159GP(1) of the ITAA 1936. | Division 230 - Taxation of financial arrangements: 36. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 37. Where an arrangement is not a qualifying security for the purposes of Division 16E of the ITAA 1936 and an election under section 230-455 to have Division 230 of the ITAA 1997 apply to financial arrangements has not been made, then pursuant to section 230-455 of the ITAA 1997, Division 230 of the ITAA 1997 does not apply in relation to gains or losses from a financial arrangement held by: | Part IVA - anti-avoidance: 38. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply. 39. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: This Product Ruling has been given on the basis that the entity(s) who applied for the Product Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Product Ruling. 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme is an investment in CHESS depository interests (CDIs) over units (Interests) in the SPDR® S&P 500® ETF Trust (the Fund) offered under a Product Disclosure Statement issued by State Street Global Advisors Trust Company as the trustee of the Fund (the Trustee) and State Street Global Advisors, Australia Services Limited (the AQUA Product Issuer). 3. This Product Ruling does not address: | Class of entities: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the investor. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities that are Australian residents for taxation purposes and who enter into the scheme described in paragraphs 16 to 20 of this Product Ruling on or after 1 July 2017 and on or before 30 June 2020. 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities that: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:


Appendix: Assessability of distributions to investors: 21. CDIs provide a beneficial interest to the investor in the units in the Fund. Each CDI gives rise to a separate trust estate. Distributions from the Fund will represent income of each trust estate represented by a CDI and will be assessable to the investor under section 97 of the ITAA 1936. 22. Distributions from the Fund will be treated as dividends as the Fund is treated as a company for US federal income tax purposes. 23. According to the double tax treaty between Australia and the US (US Convention [1] ) an entity will satisfy the definition of a company if the entity is treated as a company or body corporate for tax purposes. 24. Further, Article 10(6) of the US Convention defines the term 'dividend' to mean 'income from shares, as well as other amounts which are subjected to the same treatment as income from shares by the law of the State [in this case the US] of which the company making the distribution is a resident for the purpose of its tax.' 25. Therefore, any distributions made by the Fund flowing to the CHESS nominee will be treated as distributions made by a company and will have the same character as dividends. Accordingly, distributions from the Fund will be treated as dividends which will comprise the net income of each trust estate relating to the CDIs and will be assessable to the investor as the holder of those CDIs under section 97 of the ITAA 1936. | Section 108-5: CGT asset: 26. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. A CDI is a CGT asset under subsection 108-5(1). | CGT event A1: 27. The disposal of the CDIs by the investor gives rise to a CGT event A1 in respect of the investor (section 104-10). The investor will make a capital gain from this CGT event if the capital proceeds from the disposal of the CDIs are more than the CDIs' cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the CDIs' reduced cost base (subsection 104-10(4)). 28. The investor's capital proceeds under section 116-20 will be the amount they receive from the disposal of the CDIs on the AQUA market. 29. The cost base or the reduced cost base of the investor's CDIs will be the acquisition cost of the CDIs plus any incidental costs incurred by the investor in acquiring the CDIs (sections 110-25 and 110-55). The cost base or the reduced cost base of the investor's CDIs will be reduced by the amount of any distribution to the extent it is not treated as a dividend for US federal income tax purposes. If those distributions exceed the investor's existing cost base in their CDIs, a capital gain equal to the excess will arise. | Section 115-5: discount capital gains: 30. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by the investor as a result of the disposal of the CDIs will be treated as a discount capital gain where the investor has held those CDIs for at least 12 months (excluding the days of acquisition and disposal). 31. To be a discount capital gain the capital gain must be made by an investor that is either an individual, a complying superannuation entity, or a trust (section 115-10). | Division 770 - foreign income tax offset: 32. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year. 33. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source): | Subsection 159GP(1) - a CDI is not a 'qualifying security': 34. A qualifying security is defined in subsection 159GP(1) of Division 16E of the ITAA 1936. For the purposes of determining whether an arrangement is a qualifying security, that arrangement must be a security, also defined in subsection 159GP(1) to mean: 35. CDIs acquired by the investor do not fall within paragraphs (a), (b), (c) or (d) of the definition of security in subsection 159GP(1) of the ITAA 1936. Therefore, the CDIs are not qualifying securities under subsection 159GP(1) of the ITAA 1936. | Division 230 - Taxation of financial arrangements: 36. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 37. Where an arrangement is not a qualifying security for the purposes of Division 16E of the ITAA 1936 and an election under section 230-455 to have Division 230 of the ITAA 1997 apply to financial arrangements has not been made, then pursuant to section 230-455 of the ITAA 1997, Division 230 of the ITAA 1997 does not apply in relation to gains or losses from a financial arrangement held by: | Part IVA - anti-avoidance: 38. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | [ Note: This is a consolidated version of this document. Refer to the Legal Database (www.ato.gov.au/law) to check its currency and to view the details of all changes.] | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | (a) stock, a bond, debenture, certificate of entitlement, bill of exchange, promissory note or other security; | (b) a deposit with a bank or other financial institution; | (c) a secured or unsecured loan; or | (d) any other contract, whether or not in writing, under which a person is liable to pay an amount or amounts, whether or not the liability is secured. | Application of CGT provisions on disposal of CDIs | Appendix 2 - Detailed contents list


Legislative references: ITAA 1936 ITAA 1936 97 ITAA 1936 Div 16E ITAA 1936 159GP(1) ITAA 1936 159GP(1)(a) ITAA 1936 159GP(1)(b) ITAA 1936 159GP(1)(c) ITAA 1936 159GP(1)(d) ITAA 1936 Pt IVA ITAA 1997 ITAA 1997 104-10 ITAA 1997 104-10(4) ITAA 1997 108-5 ITAA 1997 108-5(1) ITAA 1997 110-25 ITAA 1997 110-55 ITAA 1997 Div 115 ITAA 1997 115-5 ITAA 1997 115-10 ITAA 1997 116-20 ITAA 1997 Div 230 ITAA 1997 230-455 ITAA 1997 Div 770 ITAA 1997 770-15 ITAA 1997 770-75 ITAA 1997 770-130 ITAA 1997 770-140 SISA 1993 TAA 1953 US Investment Company Act 1940
Other references: US Convention