Product Ruling PR 2008/50
Date of effect: 21 May 2008

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified in the Ruling part apply to the defined class of entities, who participate in the scheme to which this Product Ruling relates. 2. In this Product Ruling this scheme is referred to as ANZ Protected Equity Leveraged Solutions (APELS) offered by the Australia and New Zealand Banking Group Limited (ANZ), which is a financial product issued under the APELS Information Memorandum. 3. This Ruling does not address the consequences of: Class of entities 4. The class of entities who can rely on this Product Ruling consists of those entities that are accepted to participate in the scheme specified below on or after the date this Product Ruling is published and which execute relevant Agreements mentioned in paragraph 17 of this Ruling on or before 30 June 2011. They must have a purpose of staying in the scheme until it is completed (that is being a party to the relevant agreements until their term expires), and deriving assessable income from this involvement. These entities are referred to as Investor/s. Superannuation Industry (Supervision) Act 1993 5. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The Tax Office gives no assurance that the product 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 product may contravene the provisions of SISA 1993. Qualifications 6. The class of entities defined in this Product Ruling may rely on it provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 17 to 21 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 4. The class of entities who can rely on this Product Ruling consists of those entities that are accepted to participate in the scheme specified below on or after the date this Product Ruling is published and which execute relevant Agreements mentioned in paragraph 17 of this Ruling on or before 30 June 2011. They must have a purpose of staying in the scheme until it is completed (that is being a party to the relevant agreements until their term expires), and deriving assessable income from this involvement. These entities are referred to as Investor/s. | Superannuation Industry (Supervision) Act 1993: 5. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The Tax Office gives no assurance that the product 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 product may contravene the provisions of SISA 1993. | Qualifications: 6. The class of entities defined in this Product Ruling may rely on it provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 17 to 21 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 9. This Product Ruling applies prospectively from 21 May 2008, the date this Ruling is published. It therefore applies to the specified class of entities that enter into the scheme from 21 May 2008 until 30 June 2011, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application for schemes entered into during the period of application. 10. However, the Product Ruling only applies to the extent that: 11. If this Product Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 12. If this Product Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Product Ruling is made, the following two conditions are met: If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). | Changes in the law: 13. 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. 14. 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: 15. 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 Tax Office suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling is issued. 16. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 21 of this Ruling: 17. The scheme that is the subject of this Product Ruling is described below. The scheme is incorporated within 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. 18. The documents highlighted describe the product that an Investor may enter into. For the purposes of describing the scheme to which this Product Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor or any associate of an Investor, will be a party to, which are a part of the scheme. The effect of these agreements are summarised as follows. 19. Unless otherwise defined, capitalised terms in this Product Ruling take their meaning as per the IM. Any use of the singular also includes the plural unless otherwise specified. | Overview: 20. Following is a summary of the scheme: | Assumptions: 21. This ruling is made on the basis of the following necessary assumptions: Commissioner of Taxation 21 May 2008 | Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest: 22. The interest paid on a borrowing used to acquire income producing assets such as shares is generally treated as deductible under section 8-1 of the ITAA 1997 where it is expected that dividends or other assessable income would be derived from the investment (see Taxation Ruling TR 95/33). However, the ability to claim interest deductions may be subject to Division 247 of the ITAA 1997. 23. Division 247 of the ITAA 1997 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing is created where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified shares, where that borrowing is made for the purpose of investing in those shares. 24. Division 247 of the ITAA 1997 applies to the loan under APELS, as: 25. Division 247 of the ITAA 1997 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing. Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3) of the ITAA 1997. 26. There is a cost of capital protection in an income year if the aggregate of the interest on the amount borrowed exceeds the total interest that would have been incurred for the year if the interest rate on the amount borrowed had been the adjusted loan rate (as determined when the interest rate is fixed or, if the interest rate is variable, the average of the adjusted loan rates during the variable interest rate period). 27. As there is no separate charge payable by an Investor in APELS for a put option, the cost of capital protection is only that amount worked out under subsection 247-20(3) of the ITAA 1997. 28. For an Investor in APELS, the Investor's Notional Put Option is a capital asset. As the cost of capital protection is the cost of the Investor's Notional Put Option, this expense is capital in nature. The interest charged on the loan will be deductible under section 8-1 of the ITAA 1997 only to the extent that it is not for the cost of capital protection. | Section 51AAA: 29. By acquiring the Nominated Approved Security, it is contemplated that an Investor will derive assessable income by way of the receipt of dividend income and capital gains. As interest would have been deductible under section 8-1 of the ITAA 1997 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an Investor who enters into APELS. | Section 82KL: 30. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. Section 82KL will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997. | Subdivision H of Division 3 of Part III: 31. Subdivision H of Division 3 of Part III (Subdivision H) of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in carrying on of a business, whether the Investor is a small business entity, whether the Investor is an individual and whether the Investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature. | Subdivision 328-C of the ITAA 1997 - small business entities: 32. An Investor will be a small business entity for an income year if the Investor carries on a business and either: | The eligible service period for the purposes of Subdivision H: 33. The interest charge on the APELS loan allowable under section 8-1 of the ITAA 1997 is, if paid in advance, in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates, and not to the period of the APELS loan. | Sections 82KZME and 82KZMF - prepaid expenditure and 'tax shelter' style arrangements: 34. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' scheme for the doing of a thing that is not to be wholly done within the expenditure year. 35. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual schemes and activities associated with the participation in APELS, including the financing, share acquisition and share disposal arrangements. 36. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount allowable for interest on borrowings under the APELS loan from the operation of section 82KZMF of the ITAA 1936, as: 37. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 38 to 43 of this Ruling. | Section 82KZM - prepaid expenditure incurred by small business entities and individuals incurring non-business expenditure: 38. Section 82KZM of the ITAA 1936 operates to spread over more than one income year, a deduction for prepaid expenditure incurred by a taxpayer that is either: 39. The expenditure must not be excluded expenditure and must be incurred otherwise than in carrying on a business. Section 82KZM of the ITAA 1936 applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred and the expenditure would otherwise be immediately deductible under section 8-1 of the ITAA 1997. 40. As the eligible service period in relation to the deductible interest payment under the APELS loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to Investors who are small business entities for the year of income, or to Investors who are individuals where the expenditure is not incurred in carrying on a business. Investors who satisfy these tests will be able to claim an immediate deduction for the interest allowable under section 8-1 of the ITAA 1997 incurred under the APELS loan. | Section 82KZMD - prepaid non-business expenditure incurred by non-individual and non-small business entities: 41. Section 82KZMD of the ITAA 1936 sets the amount and timing of deductions for expenditure for an Investor (other than a small business entity for the year of income) that is not an individual and does not incur the expenditure in carrying on a business. 42. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 43. For these taxpayers, the amount allowable for prepaid interest allowable as a deduction under section 8-1 of the ITAA 1997 incurred under the APELS loan will be apportioned over the relevant interest payment period. | Sections 110-25, 110-55 and 134-1 - cost base of the Investor's Notional Put Option and the Nominated Approved Security: 44. The cost of capital protection forms part of the cost base and reduced cost base of the Nominated Approved Security pursuant to section 134-1 of the ITAA 1997 if the Notional Put Option is exercised. 45. The cost of capital protection forms part of the reduced cost base of the Notional Put Option under section 110-55 of the ITAA 1997 if the Notional Put Option is not exercised. 46. The Investor's cost base and reduced cost base in the Nominated Approved Security will include the amount of the APELS loan used to finance the acquisition of the Nominated Approved Security and incidental costs incurred by the Investor in acquiring and disposing of the Nominated Approved Security (this includes stamp duty and costs of transfer) under sections 110-25 and 110-55 of the ITAA 1997 respectively. | Sections 109-5 - time of acquisition: 47. For CGT purposes, the Investor's date of acquisition of their interest in the Nominated Approved Security is the Commencement Date pursuant to subsection 109-5(2) of the ITAA 1997. | Sections 104-10, 104-25 and 134-1: 48. Where the Closing Price on the Maturity Date is below the Protection Level and the Investor disposes of the Nominated Approved Security, there will be a CGT event A1 under section 104-10 of the ITAA 1997. The Investor will make a capital gain to the extent that the Protection Level exceeds the cost base of the Nominated Approved Security or a capital loss to the extent that the Protection Level is less than the reduced cost base of the Nominated Approved Security. 49. In this instance, the Notional Put Option will be taken to have been exercised, and its cost would be included in the cost base and reduced cost base of the Nominated Approved Security pursuant to section 134-1 of the ITAA 1997. 50. Where the Closing Price is between the Protection Level and the Cap Level (or if there is no Cap Level, the Closing Price is equal to or above the Protection Level), and the Investor disposes of the Nominated Approved Security, there will be a CGT event A1. The Investor will make a capital gain to the extent the sale proceeds exceed the cost base of the Nominated Approved Security or a capital loss to the extent that the sale proceeds are less than the reduced cost base of the Nominated Approved Security. 51. In this instance, the Notional Put Option is not exercised and it lapses, triggering CGT event C2 under section 104-25 of the ITAA 1997. The capital proceeds received on the lapsing of the Notional Put Option will be nil. The Investor will make a capital loss equal to the reduced cost base of the Notional Put Option. The reduced cost base will be equal to the cost of capital protection. 52. Where there is a Cap Level and the Closing Price is above the Cap Level, the Investor is required to pay to ANZ the Sold Call Adjustment Amount. Where the Investor repays the Loan and retains ownership of the Nominated Approved Security, the Sold Call Adjustment Amount is capital expenditure made to preserve the Investor's title to the Nominated Approved Security and will form part of the Investor's cost base in the Nominated Approved Security pursuant to subsection 110-25(6) of the ITAA 1997. 53. In this instance, the Notional Put Option is not exercised and it lapses, resulting in the same CGT consequences as per paragraph 51 of this Ruling. | Section 115-5 - discount capital gains: 54. Division 115 of the ITAA 1997 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5 of the ITAA 1997, any capital gain realised by an Investor on the sale of the Nominated Approved Security will be treated as a discount capital gain where the Investor is an individual or a trust and has held the Nominated Approved Security for more than 12 months. | Part IVA: 55. Provided that the arrangement ruled on is entered into and carried out as described (see the Scheme part of this Ruling), it would be accepted as an ordinary commercial transaction and Part IVA of the ITAA 1936 would not apply. 56. The following is a detailed contents list for this Ruling: 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 Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified in the Ruling part apply to the defined class of entities, who participate in the scheme to which this Product Ruling relates. 2. In this Product Ruling this scheme is referred to as ANZ Protected Equity Leveraged Solutions (APELS) offered by the Australia and New Zealand Banking Group Limited (ANZ), which is a financial product issued under the APELS Information Memorandum. 3. This Ruling does not address the consequences of: | Class of entities: 4. The class of entities who can rely on this Product Ruling consists of those entities that are accepted to participate in the scheme specified below on or after the date this Product Ruling is published and which execute relevant Agreements mentioned in paragraph 17 of this Ruling on or before 30 June 2011. They must have a purpose of staying in the scheme until it is completed (that is being a party to the relevant agreements until their term expires), and deriving assessable income from this involvement. These entities are referred to as Investor/s. | Superannuation Industry (Supervision) Act 1993: 5. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The Tax Office gives no assurance that the product 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 product may contravene the provisions of SISA 1993. | Qualifications: 6. The class of entities defined in this Product Ruling may rely on it provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 17 to 21 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:


Appendix: Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest: 22. The interest paid on a borrowing used to acquire income producing assets such as shares is generally treated as deductible under section 8-1 of the ITAA 1997 where it is expected that dividends or other assessable income would be derived from the investment (see Taxation Ruling TR 95/33). However, the ability to claim interest deductions may be subject to Division 247 of the ITAA 1997. 23. Division 247 of the ITAA 1997 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing is created where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified shares, where that borrowing is made for the purpose of investing in those shares. 24. Division 247 of the ITAA 1997 applies to the loan under APELS, as: 25. Division 247 of the ITAA 1997 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing. Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3) of the ITAA 1997. 26. There is a cost of capital protection in an income year if the aggregate of the interest on the amount borrowed exceeds the total interest that would have been incurred for the year if the interest rate on the amount borrowed had been the adjusted loan rate (as determined when the interest rate is fixed or, if the interest rate is variable, the average of the adjusted loan rates during the variable interest rate period). 27. As there is no separate charge payable by an Investor in APELS for a put option, the cost of capital protection is only that amount worked out under subsection 247-20(3) of the ITAA 1997. 28. For an Investor in APELS, the Investor's Notional Put Option is a capital asset. As the cost of capital protection is the cost of the Investor's Notional Put Option, this expense is capital in nature. The interest charged on the loan will be deductible under section 8-1 of the ITAA 1997 only to the extent that it is not for the cost of capital protection. | Section 51AAA: 29. By acquiring the Nominated Approved Security, it is contemplated that an Investor will derive assessable income by way of the receipt of dividend income and capital gains. As interest would have been deductible under section 8-1 of the ITAA 1997 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an Investor who enters into APELS. | Section 82KL: 30. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. Section 82KL will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997. | Subdivision H of Division 3 of Part III: 31. Subdivision H of Division 3 of Part III (Subdivision H) of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in carrying on of a business, whether the Investor is a small business entity, whether the Investor is an individual and whether the Investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature. | Subdivision 328-C of the ITAA 1997 - small business entities: 32. An Investor will be a small business entity for an income year if the Investor carries on a business and either: | The eligible service period for the purposes of Subdivision H: 33. The interest charge on the APELS loan allowable under section 8-1 of the ITAA 1997 is, if paid in advance, in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates, and not to the period of the APELS loan. | Sections 82KZME and 82KZMF - prepaid expenditure and 'tax shelter' style arrangements: 34. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' scheme for the doing of a thing that is not to be wholly done within the expenditure year. 35. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual schemes and activities associated with the participation in APELS, including the financing, share acquisition and share disposal arrangements. 36. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount allowable for interest on borrowings under the APELS loan from the operation of section 82KZMF of the ITAA 1936, as: 37. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 38 to 43 of this Ruling. | Section 82KZM - prepaid expenditure incurred by small business entities and individuals incurring non-business expenditure: 38. Section 82KZM of the ITAA 1936 operates to spread over more than one income year, a deduction for prepaid expenditure incurred by a taxpayer that is either: 39. The expenditure must not be excluded expenditure and must be incurred otherwise than in carrying on a business. Section 82KZM of the ITAA 1936 applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred and the expenditure would otherwise be immediately deductible under section 8-1 of the ITAA 1997. 40. As the eligible service period in relation to the deductible interest payment under the APELS loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to Investors who are small business entities for the year of income, or to Investors who are individuals where the expenditure is not incurred in carrying on a business. Investors who satisfy these tests will be able to claim an immediate deduction for the interest allowable under section 8-1 of the ITAA 1997 incurred under the APELS loan. | Section 82KZMD - prepaid non-business expenditure incurred by non-individual and non-small business entities: 41. Section 82KZMD of the ITAA 1936 sets the amount and timing of deductions for expenditure for an Investor (other than a small business entity for the year of income) that is not an individual and does not incur the expenditure in carrying on a business. 42. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 43. For these taxpayers, the amount allowable for prepaid interest allowable as a deduction under section 8-1 of the ITAA 1997 incurred under the APELS loan will be apportioned over the relevant interest payment period. | Sections 110-25, 110-55 and 134-1 - cost base of the Investor's Notional Put Option and the Nominated Approved Security: 44. The cost of capital protection forms part of the cost base and reduced cost base of the Nominated Approved Security pursuant to section 134-1 of the ITAA 1997 if the Notional Put Option is exercised. 45. The cost of capital protection forms part of the reduced cost base of the Notional Put Option under section 110-55 of the ITAA 1997 if the Notional Put Option is not exercised. 46. The Investor's cost base and reduced cost base in the Nominated Approved Security will include the amount of the APELS loan used to finance the acquisition of the Nominated Approved Security and incidental costs incurred by the Investor in acquiring and disposing of the Nominated Approved Security (this includes stamp duty and costs of transfer) under sections 110-25 and 110-55 of the ITAA 1997 respectively. | Sections 109-5 - time of acquisition: 47. For CGT purposes, the Investor's date of acquisition of their interest in the Nominated Approved Security is the Commencement Date pursuant to subsection 109-5(2) of the ITAA 1997. | Sections 104-10, 104-25 and 134-1: 48. Where the Closing Price on the Maturity Date is below the Protection Level and the Investor disposes of the Nominated Approved Security, there will be a CGT event A1 under section 104-10 of the ITAA 1997. The Investor will make a capital gain to the extent that the Protection Level exceeds the cost base of the Nominated Approved Security or a capital loss to the extent that the Protection Level is less than the reduced cost base of the Nominated Approved Security. 49. In this instance, the Notional Put Option will be taken to have been exercised, and its cost would be included in the cost base and reduced cost base of the Nominated Approved Security pursuant to section 134-1 of the ITAA 1997. 50. Where the Closing Price is between the Protection Level and the Cap Level (or if there is no Cap Level, the Closing Price is equal to or above the Protection Level), and the Investor disposes of the Nominated Approved Security, there will be a CGT event A1. The Investor will make a capital gain to the extent the sale proceeds exceed the cost base of the Nominated Approved Security or a capital loss to the extent that the sale proceeds are less than the reduced cost base of the Nominated Approved Security. 51. In this instance, the Notional Put Option is not exercised and it lapses, triggering CGT event C2 under section 104-25 of the ITAA 1997. The capital proceeds received on the lapsing of the Notional Put Option will be nil. The Investor will make a capital loss equal to the reduced cost base of the Notional Put Option. The reduced cost base will be equal to the cost of capital protection. 52. Where there is a Cap Level and the Closing Price is above the Cap Level, the Investor is required to pay to ANZ the Sold Call Adjustment Amount. Where the Investor repays the Loan and retains ownership of the Nominated Approved Security, the Sold Call Adjustment Amount is capital expenditure made to preserve the Investor's title to the Nominated Approved Security and will form part of the Investor's cost base in the Nominated Approved Security pursuant to subsection 110-25(6) of the ITAA 1997. 53. In this instance, the Notional Put Option is not exercised and it lapses, resulting in the same CGT consequences as per paragraph 51 of this Ruling. | Section 115-5 - discount capital gains: 54. Division 115 of the ITAA 1997 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5 of the ITAA 1997, any capital gain realised by an Investor on the sale of the Nominated Approved Security will be treated as a discount capital gain where the Investor is an individual or a trust and has held the Nominated Approved Security for more than 12 months. | Part IVA: 55. Provided that the arrangement ruled on is entered into and carried out as described (see the Scheme part of this Ruling), it would be accepted as an ordinary commercial transaction and Part IVA of the ITAA 1936 would 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, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are 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 ATO Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] | No guarantee of commercial success: The Tax Office does not sanction or guarantee this product. Further, we give no assurance that the product is commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based. | Potential participants must form their own view about the commercial and financial viability of the product. We recommend 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. | Appendix 2 - Detailed contents list


Related rulings: TR 95/33
Legislative references: ITAA 1936 51AAA ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL(1) ITAA 1936 82KZL(2)(a) ITAA 1936 82KZM ITAA 1936 82KZMA ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZME(4) ITAA 1936 82KZME(5) ITAA 1936 82KZME(5)(b)(ii) ITAA 1936 82KZMF ITAA 1936 Pt IVA ITAA 1997 8-1 ITAA 1997 104-10 ITAA 1997 104-25 ITAA 1997 109-5 ITAA 1997 109-5(2) ITAA 1997 110-25 ITAA 1997 110-25(6) ITAA 1997 110-55 ITAA 1997 Div 115 ITAA 1997 115-5 ITAA 1997 134-1 ITAA 1997 Div 247 ITAA 1997 247-20(3) ITAA 1997 247-20(4) ITAA 1997 247-20(5) ITAA 1997 247-20(5A) ITAA 1997 247-20(6) ITAA 1997 Subdiv 328-C ITAA 1997 328-110(1) SISA 1993 TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968
Subject references: capital protected borrowings financial products interest expenses prepaid expenses product rulings public rulings taxation administration