Product Ruling PR 2025/11
Date of effect: 1 July 2025

What this ruling is about: 1. This Ruling sets out the income tax consequences for entities that participate as an investor in Bell Geared Equities Investment (GEI loan). The GEI loan is a loan offered by Bell Potter Capital Limited (BPC) to acquire GEI Securities under the Bell Geared Equities Investment Product Brochure dated 11 November 2019 (Product Brochure). [1] 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Terms which are defined in the Product Brochure referred to in paragraph 11 of this Ruling have been capitalised. 3. This Ruling does not address the tax consequences of rolling the GEI Securities into a new GEI loan for another term, or the Limited Trading feature. Interest deductions under section 8-1 for the amount referred to in subparagraph 9(d) of this Ruling are available to the investor up to the time that the investor uses one or both of these features. 4. This Ruling does not address: Who this Ruling applies to 5. This Ruling applies to you if: 6. This Ruling does not apply to you if you: 7. This Ruling applies from 1 July 2025 to an investor specified in paragraph 5 of this Ruling that enters into the scheme described in paragraphs 11 to 26 of this Ruling from 1 July 2025 until 30 June 2028. 8. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the investor's involvement in the scheme. If the scheme carried out is materially different from the scheme described in paragraphs 11 to 26 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraphs 3 and 4 of this Ruling and the assumptions in paragraph 10 of this Ruling: Assumptions 10. This Ruling is made on the basis of the following necessary assumptions: 11. The scheme is identified and described in the following: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 12. For the purposes of describing the scheme, 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. 13. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. Overview of scheme 14. Under the scheme, investors borrow funds from BPC to finance the purchase of GEI Securities and brokerage. The GEI Securities are shares, units in certain widely held trusts or stapled securities listed on the Australian Securities Exchange (ASX), or units in trusts that are registered managed investment schemes in accordance with section 601EB of the Corporations Act 2001, including units in an approved Cash Trust. Where the GEI Security is a stapled security, the stapled security comprises shares and units that are jointly listed for quotation on the ASX. 15. The investors are required to select GEI Securities from an approved list of GEI Securities which is available on the GEI website, up to the amount of funds borrowed from BPC less brokerage. The minimum Loan Amount is $50,000, and the minimum size for each parcel of GEI Securities is $10,000. 16. An investor may select their own combination of GEI Securities to form a portfolio but no more than 50% of the value of the portfolio of GEI Securities selected by the investor may consist of units in a managed investment scheme (including units in an approved Cash Trust). An approved Cash Trust means a managed investment scheme which invests in short-term cash deposits, short-term money market and floating rate securities, annuities and cash equivalent securities issued by entities (including, potentially, BPC), as determined by BPC from time to time. 17. At the investor's option, the term of the GEI loan may be one, 2, 3 or 4 years. Interest is payable monthly in arrears on a variable basis or annually in advance at a rate fixed for one or more years. 18. BPC will calculate a different rate of interest for each GEI Security an investor may invest in. The interest rate will be quoted and reported to an investor as a single consolidated rate taking into account all of the GEI Securities held. The interest rate will also depend upon the term of the GEI loan. Generally, the shorter the period of the GEI loan and the greater the risk to BPC given the security offered by the GEI Securities, the higher the rate of interest charged. The inclusion in the portfolio of GEI Securities of units in an approved Cash Trust is likely to result in a lower interest rate on the GEI loan compared to a portfolio of GEI Securities which does not include units in an approved Cash Trust. 19. A Loan Establishment Fee of up to 3% of the GEI loan may be charged by BPC at its discretion, and is payable in full on the day the loan is advanced. Where a Loan Establishment Fee is charged this will generally result in a lower interest rate on the GEI loan than if the Loan Establishment Fee had not been charged. 20. For the purpose of securing the rights of BPC under the GEI loan, the investor, as legal and beneficial owner (or where the investor is a trustee of a trust, as legal owner) of the GEI Securities, grants a Mortgage to BPC over the acquired GEI Securities and related rights. 21. The Loan and Security Agreement provides for a limited recourse facility by BPC in relation to the investor. As such, BPC is only entitled to enforce its rights as mortgagee in relation to the principal of the GEI loan against the GEI Securities held as security. 22. The limited recourse loan facility operates to limit the investor's liability under the GEI loan to the GEI Securities and operates as a mechanism of capital protection. If requested to do so by the investor, BPC will exercise its rights under the Mortgage at the Final Maturity Date where the market value of the investor's GEI Securities (or of one or more types of GEI Securities) has fallen below the acquisition cost of those GEI Securities. BPC is entitled to set-off the payment of that price against the obligations of the investor to repay the GEI loan in respect of the GEI Securities (or a type of GEI Securities). The investor will have no further obligation to BPC in respect of the GEI loan (or the portion of the GEI loan in respect of a respective type of GEI Securities). 23. The investor is not required to pay a separate fee for the limited recourse loan facility. 24. The investor shall repay the GEI loan to BPC in one amount on the Final Maturity Date. At least 5 clear Business Days before the Final Maturity Date, the investor must inform BPC whether: 25. Any Distributions paid in respect of the GEI Securities acquired under the scheme are paid to the investor, although in some circumstances the investor may be required to reinvest the Distributions to acquire further GEI Securities of the same type. 26. Any Further Securities acquired or bonus securities issued will form part of the security for the GEI loan. At the expiry of the GEI loan, should the market value of the Initial Securities, and any bonus or Further Securities, be below the cost of the original parcel of GEI Securities, the original plus any bonus or Further Securities may be subject to the limited recourse loan facility. Commissioner of Taxation 13 August 2025 Section 8-1 and Division 247 27. Interest paid on a borrowing used to acquire income-producing assets such as shares or units is generally treated as deductible under section 8-1 where it is expected that dividends or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1)  relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 28. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 29. Division 247 applies to the GEI loan where the investor uses the GEI loan to acquire GEI Securities and the investor is protected against the fall in the market value of the GEI Securities (or of one or more types of GEI Securities). 30. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). 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). 31. The amount reasonably attributable to the cost of capital protection afforded by the GEI loan is worked out according to the method statement in subsection 247-20(3) as set out in subparagraph 9(b) of this Ruling. This amount is treated as the cost of one or more of the investor's Put Options under subsection 247-20(6). 32. Each Put Option is a capital asset. As the cost of capital protection is the cost of the investor's Put Options, this expense is capital in nature. The interest charged on the GEI loan will be deductible under section 8-1 only to the extent that it does not constitute the cost of capital protection (and does not correspond to the part of the GEI loan that is used to fund a brokerage fee). Section 51AAA of the ITAA 1936 33. Under the scheme it is contemplated that over the period of an investor's involvement there will be assessable income derived by way of dividend income or trust income, or both, as well as by way of capital gain. As the interest would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor in the scheme. Section 82KL of the ITAA 1936 34. 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 of the ITAA 1936. It will not apply to deny the deductions otherwise allowable under section 8-1. Subdivision H of Division 3 of Part III of the ITAA 1936 35. Subdivision H of Division 3 of Part III 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 a business, whether the investor is a small or medium 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  small business entities for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936 36. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if: The eligible service period for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936 37. The interest charge under the GEI loan that is deductible under section 8-1 may be 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 of Division 3 of Part III of the ITAA 1936, 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 loan. Sections 82KZME and 82KZMF of the ITAA 1936  prepaid expenditure and 'tax shelter' style arrangements 38. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 39. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire arrangement of which a contract may form part. Under subsection 82KZME(4), the relevant 'agreement' is all the contractual arrangements and activities associated with the participation in the scheme, including the financing, share or unit purchase, share or unit holding and disposal arrangements. 40. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid interest allowable as a deduction under section 8-1 on borrowings under the GEI loan from the operation of section 82KZMF of the ITAA 1936, as: 41. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 42 to 47 of this Ruling. Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure 42. 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: 43. Section 82KZM of the ITAA 1936 applies if: 44. As the eligible service period in relation to the deductible interest payments for the GEI 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 referred to in paragraph 42 of this Ruling. Such investors will be able to claim an immediate deduction for any prepaid interest amount incurred on the GEI loan that is allowable as a deduction under section 8-1. Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities 45. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [4] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 46. 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. 47. For these investors, the amount of prepaid interest incurred on the GEI loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. Division 110  cost base of the Put Options 48. The cost of capital protection is not deductible to the investor under section 8-1 (refer to subparagraph 9(c) of this Ruling) and is included in the first element of the cost base (under subsection 110-25(2)) and the reduced cost base (under subsection 110-55(2)) of a Put Option acquired by the investor. Each Put Option constitutes a CGT asset, and is separate and in addition to the other rights created under the scheme as described in this Ruling. 49. As a single interest rate applies in respect of the GEI loan, including where more than one type of GEI Security is held, the investment will be treated as one arrangement for the purposes of Division 247. As capital protection may be invoked in respect of each type of GEI Security a separate Put Option is deemed to be provided in respect of each type of GEI Security acquired with the GEI loan. The cost of capital protection will therefore need to be reasonably apportioned to each Put Option. The proportion of the cost of capital protection that is reasonably attributable to each Put Option is the cost of each type of GEI Security acquired with the GEI loan divided by the cost of all of the GEI Securities acquired with the GEI loan, multiplied by the cost of capital protection. 50. If the investor exercises a Put Option at the end of the GEI loan term by relying on the limited recourse provisions of the loan in relation to a type of GEI Security, the investor will include the payment they are deemed to have made to acquire the Put Option in the second element of the investor's cost base and reduced cost base of the GEI Security disposed of by BPC (on behalf of the investor) under its rights as mortgagee, pursuant to table item 2 of subsection 134-1(1). Any capital gain or capital loss the investor makes from exercising a Put Option is disregarded under subsection 134-1(4). 51. Although the sale proceeds will be insufficient to repay the GEI loan, BPC will have no recourse against the investor to recover the shortfall. In this circumstance, the investor will need to reduce the cost base (under subsection 110-45(3)) and the reduced cost base (under subsection 110-55(6)) of the GEI Security by the amount of the shortfall. The combined effect will be to give rise to a capital loss equal to, at the very least, the cost base of the Put Option. 52. If the investor does not exercise a Put Option by the Final Maturity Date, the Put Option will be taken to have expired under subsection 247-30(2). This will cause CGT event C2 to happen pursuant to paragraph 104-25(1)(c). The investor will make a capital loss at that time, equal to the reduced cost base of the Put Option. This will occur where the investor: Section 25-25  Loan Establishment Fee 53. Any Loan Establishment Fee incurred by an investor upon successful application for the GEI loan will be an allowable deduction pursuant to section 25-25. The Loan Establishment Fee will be deductible on a straight line basis over the term of the GEI loan. © 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).

Class of entities or scheme: 14. Under the scheme, investors borrow funds from BPC to finance the purchase of GEI Securities and brokerage. The GEI Securities are shares, units in certain widely held trusts or stapled securities listed on the Australian Securities Exchange (ASX), or units in trusts that are registered managed investment schemes in accordance with section 601EB of the Corporations Act 2001, including units in an approved Cash Trust. Where the GEI Security is a stapled security, the stapled security comprises shares and units that are jointly listed for quotation on the ASX. 15. The investors are required to select GEI Securities from an approved list of GEI Securities which is available on the GEI website, up to the amount of funds borrowed from BPC less brokerage. The minimum Loan Amount is $50,000, and the minimum size for each parcel of GEI Securities is $10,000. 16. An investor may select their own combination of GEI Securities to form a portfolio but no more than 50% of the value of the portfolio of GEI Securities selected by the investor may consist of units in a managed investment scheme (including units in an approved Cash Trust). An approved Cash Trust means a managed investment scheme which invests in short-term cash deposits, short-term money market and floating rate securities, annuities and cash equivalent securities issued by entities (including, potentially, BPC), as determined by BPC from time to time. 17. At the investor's option, the term of the GEI loan may be one, 2, 3 or 4 years. Interest is payable monthly in arrears on a variable basis or annually in advance at a rate fixed for one or more years. 18. BPC will calculate a different rate of interest for each GEI Security an investor may invest in. The interest rate will be quoted and reported to an investor as a single consolidated rate taking into account all of the GEI Securities held. The interest rate will also depend upon the term of the GEI loan. Generally, the shorter the period of the GEI loan and the greater the risk to BPC given the security offered by the GEI Securities, the higher the rate of interest charged. The inclusion in the portfolio of GEI Securities of units in an approved Cash Trust is likely to result in a lower interest rate on the GEI loan compared to a portfolio of GEI Securities which does not include units in an approved Cash Trust. 19. A Loan Establishment Fee of up to 3% of the GEI loan may be charged by BPC at its discretion, and is payable in full on the day the loan is advanced. Where a Loan Establishment Fee is charged this will generally result in a lower interest rate on the GEI loan than if the Loan Establishment Fee had not been charged. 20. For the purpose of securing the rights of BPC under the GEI loan, the investor, as legal and beneficial owner (or where the investor is a trustee of a trust, as legal owner) of the GEI Securities, grants a Mortgage to BPC over the acquired GEI Securities and related rights. 21. The Loan and Security Agreement provides for a limited recourse facility by BPC in relation to the investor. As such, BPC is only entitled to enforce its rights as mortgagee in relation to the principal of the GEI loan against the GEI Securities held as security. 22. The limited recourse loan facility operates to limit the investor's liability under the GEI loan to the GEI Securities and operates as a mechanism of capital protection. If requested to do so by the investor, BPC will exercise its rights under the Mortgage at the Final Maturity Date where the market value of the investor's GEI Securities (or of one or more types of GEI Securities) has fallen below the acquisition cost of those GEI Securities. BPC is entitled to set-off the payment of that price against the obligations of the investor to repay the GEI loan in respect of the GEI Securities (or a type of GEI Securities). The investor will have no further obligation to BPC in respect of the GEI loan (or the portion of the GEI loan in respect of a respective type of GEI Securities). 23. The investor is not required to pay a separate fee for the limited recourse loan facility. 24. The investor shall repay the GEI loan to BPC in one amount on the Final Maturity Date. At least 5 clear Business Days before the Final Maturity Date, the investor must inform BPC whether: 25. Any Distributions paid in respect of the GEI Securities acquired under the scheme are paid to the investor, although in some circumstances the investor may be required to reinvest the Distributions to acquire further GEI Securities of the same type. 26. Any Further Securities acquired or bonus securities issued will form part of the security for the GEI loan. At the expiry of the GEI loan, should the market value of the Initial Securities, and any bonus or Further Securities, be below the cost of the original parcel of GEI Securities, the original plus any bonus or Further Securities may be subject to the limited recourse loan facility. Commissioner of Taxation 13 August 2025 | Section 8-1 and Division 247: 27. Interest paid on a borrowing used to acquire income-producing assets such as shares or units is generally treated as deductible under section 8-1 where it is expected that dividends or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1)  relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 28. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 29. Division 247 applies to the GEI loan where the investor uses the GEI loan to acquire GEI Securities and the investor is protected against the fall in the market value of the GEI Securities (or of one or more types of GEI Securities). 30. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). 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). 31. The amount reasonably attributable to the cost of capital protection afforded by the GEI loan is worked out according to the method statement in subsection 247-20(3) as set out in subparagraph 9(b) of this Ruling. This amount is treated as the cost of one or more of the investor's Put Options under subsection 247-20(6). 32. Each Put Option is a capital asset. As the cost of capital protection is the cost of the investor's Put Options, this expense is capital in nature. The interest charged on the GEI loan will be deductible under section 8-1 only to the extent that it does not constitute the cost of capital protection (and does not correspond to the part of the GEI loan that is used to fund a brokerage fee). | Section 51AAA of the ITAA 1936: 33. Under the scheme it is contemplated that over the period of an investor's involvement there will be assessable income derived by way of dividend income or trust income, or both, as well as by way of capital gain. As the interest would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor in the scheme. | Section 82KL of the ITAA 1936: 34. 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 of the ITAA 1936. It will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 35. Subdivision H of Division 3 of Part III 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 a business, whether the investor is a small or medium 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  small business entities for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936: 36. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if: | The eligible service period for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936: 37. The interest charge under the GEI loan that is deductible under section 8-1 may be 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 of Division 3 of Part III of the ITAA 1936, 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 loan. | Sections 82KZME and 82KZMF of the ITAA 1936  prepaid expenditure and 'tax shelter' style arrangements: 38. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 39. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire arrangement of which a contract may form part. Under subsection 82KZME(4), the relevant 'agreement' is all the contractual arrangements and activities associated with the participation in the scheme, including the financing, share or unit purchase, share or unit holding and disposal arrangements. 40. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid interest allowable as a deduction under section 8-1 on borrowings under the GEI loan from the operation of section 82KZMF of the ITAA 1936, as: 41. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 42 to 47 of this Ruling. | Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 42. 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: 43. Section 82KZM of the ITAA 1936 applies if: 44. As the eligible service period in relation to the deductible interest payments for the GEI 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 referred to in paragraph 42 of this Ruling. Such investors will be able to claim an immediate deduction for any prepaid interest amount incurred on the GEI loan that is allowable as a deduction under section 8-1. | Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 45. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [4] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 46. 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. 47. For these investors, the amount of prepaid interest incurred on the GEI loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Division 110  cost base of the Put Options: 48. The cost of capital protection is not deductible to the investor under section 8-1 (refer to subparagraph 9(c) of this Ruling) and is included in the first element of the cost base (under subsection 110-25(2)) and the reduced cost base (under subsection 110-55(2)) of a Put Option acquired by the investor. Each Put Option constitutes a CGT asset, and is separate and in addition to the other rights created under the scheme as described in this Ruling. 49. As a single interest rate applies in respect of the GEI loan, including where more than one type of GEI Security is held, the investment will be treated as one arrangement for the purposes of Division 247. As capital protection may be invoked in respect of each type of GEI Security a separate Put Option is deemed to be provided in respect of each type of GEI Security acquired with the GEI loan. The cost of capital protection will therefore need to be reasonably apportioned to each Put Option. The proportion of the cost of capital protection that is reasonably attributable to each Put Option is the cost of each type of GEI Security acquired with the GEI loan divided by the cost of all of the GEI Securities acquired with the GEI loan, multiplied by the cost of capital protection. 50. If the investor exercises a Put Option at the end of the GEI loan term by relying on the limited recourse provisions of the loan in relation to a type of GEI Security, the investor will include the payment they are deemed to have made to acquire the Put Option in the second element of the investor's cost base and reduced cost base of the GEI Security disposed of by BPC (on behalf of the investor) under its rights as mortgagee, pursuant to table item 2 of subsection 134-1(1). Any capital gain or capital loss the investor makes from exercising a Put Option is disregarded under subsection 134-1(4). 51. Although the sale proceeds will be insufficient to repay the GEI loan, BPC will have no recourse against the investor to recover the shortfall. In this circumstance, the investor will need to reduce the cost base (under subsection 110-45(3)) and the reduced cost base (under subsection 110-55(6)) of the GEI Security by the amount of the shortfall. The combined effect will be to give rise to a capital loss equal to, at the very least, the cost base of the Put Option. 52. If the investor does not exercise a Put Option by the Final Maturity Date, the Put Option will be taken to have expired under subsection 247-30(2). This will cause CGT event C2 to happen pursuant to paragraph 104-25(1)(c). The investor will make a capital loss at that time, equal to the reduced cost base of the Put Option. This will occur where the investor: | Section 25-25  Loan Establishment Fee: 53. Any Loan Establishment Fee incurred by an investor upon successful application for the GEI loan will be an allowable deduction pursuant to section 25-25. The Loan Establishment Fee will be deductible on a straight line basis over the term of the GEI loan. © 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).

Ruling: 1. This Ruling sets out the income tax consequences for entities that participate as an investor in Bell Geared Equities Investment (GEI loan). The GEI loan is a loan offered by Bell Potter Capital Limited (BPC) to acquire GEI Securities under the Bell Geared Equities Investment Product Brochure dated 11 November 2019 (Product Brochure). [1] 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Terms which are defined in the Product Brochure referred to in paragraph 11 of this Ruling have been capitalised. 3. This Ruling does not address the tax consequences of rolling the GEI Securities into a new GEI loan for another term, or the Limited Trading feature. Interest deductions under section 8-1 for the amount referred to in subparagraph 9(d) of this Ruling are available to the investor up to the time that the investor uses one or both of these features. 4. This Ruling does not address: | Who this Ruling applies to: 5. This Ruling applies to you if: 6. This Ruling does not apply to you if you: 7. This Ruling applies from 1 July 2025 to an investor specified in paragraph 5 of this Ruling that enters into the scheme described in paragraphs 11 to 26 of this Ruling from 1 July 2025 until 30 June 2028. 8. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the investor's involvement in the scheme. If the scheme carried out is materially different from the scheme described in paragraphs 11 to 26 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraphs 3 and 4 of this Ruling and the assumptions in paragraph 10 of this Ruling: | Assumptions: 10. This Ruling is made on the basis of the following necessary assumptions: 11. The scheme is identified and described in the following: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 12. For the purposes of describing the scheme, 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. 13. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview of scheme: 14. Under the scheme, investors borrow funds from BPC to finance the purchase of GEI Securities and brokerage. The GEI Securities are shares, units in certain widely held trusts or stapled securities listed on the Australian Securities Exchange (ASX), or units in trusts that are registered managed investment schemes in accordance with section 601EB of the Corporations Act 2001, including units in an approved Cash Trust. Where the GEI Security is a stapled security, the stapled security comprises shares and units that are jointly listed for quotation on the ASX. 15. The investors are required to select GEI Securities from an approved list of GEI Securities which is available on the GEI website, up to the amount of funds borrowed from BPC less brokerage. The minimum Loan Amount is $50,000, and the minimum size for each parcel of GEI Securities is $10,000. 16. An investor may select their own combination of GEI Securities to form a portfolio but no more than 50% of the value of the portfolio of GEI Securities selected by the investor may consist of units in a managed investment scheme (including units in an approved Cash Trust). An approved Cash Trust means a managed investment scheme which invests in short-term cash deposits, short-term money market and floating rate securities, annuities and cash equivalent securities issued by entities (including, potentially, BPC), as determined by BPC from time to time. 17. At the investor's option, the term of the GEI loan may be one, 2, 3 or 4 years. Interest is payable monthly in arrears on a variable basis or annually in advance at a rate fixed for one or more years. 18. BPC will calculate a different rate of interest for each GEI Security an investor may invest in. The interest rate will be quoted and reported to an investor as a single consolidated rate taking into account all of the GEI Securities held. The interest rate will also depend upon the term of the GEI loan. Generally, the shorter the period of the GEI loan and the greater the risk to BPC given the security offered by the GEI Securities, the higher the rate of interest charged. The inclusion in the portfolio of GEI Securities of units in an approved Cash Trust is likely to result in a lower interest rate on the GEI loan compared to a portfolio of GEI Securities which does not include units in an approved Cash Trust. 19. A Loan Establishment Fee of up to 3% of the GEI loan may be charged by BPC at its discretion, and is payable in full on the day the loan is advanced. Where a Loan Establishment Fee is charged this will generally result in a lower interest rate on the GEI loan than if the Loan Establishment Fee had not been charged. 20. For the purpose of securing the rights of BPC under the GEI loan, the investor, as legal and beneficial owner (or where the investor is a trustee of a trust, as legal owner) of the GEI Securities, grants a Mortgage to BPC over the acquired GEI Securities and related rights. 21. The Loan and Security Agreement provides for a limited recourse facility by BPC in relation to the investor. As such, BPC is only entitled to enforce its rights as mortgagee in relation to the principal of the GEI loan against the GEI Securities held as security. 22. The limited recourse loan facility operates to limit the investor's liability under the GEI loan to the GEI Securities and operates as a mechanism of capital protection. If requested to do so by the investor, BPC will exercise its rights under the Mortgage at the Final Maturity Date where the market value of the investor's GEI Securities (or of one or more types of GEI Securities) has fallen below the acquisition cost of those GEI Securities. BPC is entitled to set-off the payment of that price against the obligations of the investor to repay the GEI loan in respect of the GEI Securities (or a type of GEI Securities). The investor will have no further obligation to BPC in respect of the GEI loan (or the portion of the GEI loan in respect of a respective type of GEI Securities). 23. The investor is not required to pay a separate fee for the limited recourse loan facility. 24. The investor shall repay the GEI loan to BPC in one amount on the Final Maturity Date. At least 5 clear Business Days before the Final Maturity Date, the investor must inform BPC whether: 25. Any Distributions paid in respect of the GEI Securities acquired under the scheme are paid to the investor, although in some circumstances the investor may be required to reinvest the Distributions to acquire further GEI Securities of the same type. 26. Any Further Securities acquired or bonus securities issued will form part of the security for the GEI loan. At the expiry of the GEI loan, should the market value of the Initial Securities, and any bonus or Further Securities, be below the cost of the original parcel of GEI Securities, the original plus any bonus or Further Securities may be subject to the limited recourse loan facility. Commissioner of Taxation 13 August 2025 | Section 8-1 and Division 247: 27. Interest paid on a borrowing used to acquire income-producing assets such as shares or units is generally treated as deductible under section 8-1 where it is expected that dividends or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1)  relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 28. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 29. Division 247 applies to the GEI loan where the investor uses the GEI loan to acquire GEI Securities and the investor is protected against the fall in the market value of the GEI Securities (or of one or more types of GEI Securities). 30. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). 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). 31. The amount reasonably attributable to the cost of capital protection afforded by the GEI loan is worked out according to the method statement in subsection 247-20(3) as set out in subparagraph 9(b) of this Ruling. This amount is treated as the cost of one or more of the investor's Put Options under subsection 247-20(6). 32. Each Put Option is a capital asset. As the cost of capital protection is the cost of the investor's Put Options, this expense is capital in nature. The interest charged on the GEI loan will be deductible under section 8-1 only to the extent that it does not constitute the cost of capital protection (and does not correspond to the part of the GEI loan that is used to fund a brokerage fee). | Section 51AAA of the ITAA 1936: 33. Under the scheme it is contemplated that over the period of an investor's involvement there will be assessable income derived by way of dividend income or trust income, or both, as well as by way of capital gain. As the interest would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor in the scheme. | Section 82KL of the ITAA 1936: 34. 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 of the ITAA 1936. It will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 35. Subdivision H of Division 3 of Part III 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 a business, whether the investor is a small or medium 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  small business entities for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936: 36. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if: | The eligible service period for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936: 37. The interest charge under the GEI loan that is deductible under section 8-1 may be 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 of Division 3 of Part III of the ITAA 1936, 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 loan. | Sections 82KZME and 82KZMF of the ITAA 1936  prepaid expenditure and 'tax shelter' style arrangements: 38. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 39. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire arrangement of which a contract may form part. Under subsection 82KZME(4), the relevant 'agreement' is all the contractual arrangements and activities associated with the participation in the scheme, including the financing, share or unit purchase, share or unit holding and disposal arrangements. 40. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid interest allowable as a deduction under section 8-1 on borrowings under the GEI loan from the operation of section 82KZMF of the ITAA 1936, as: 41. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 42 to 47 of this Ruling. | Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 42. 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: 43. Section 82KZM of the ITAA 1936 applies if: 44. As the eligible service period in relation to the deductible interest payments for the GEI 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 referred to in paragraph 42 of this Ruling. Such investors will be able to claim an immediate deduction for any prepaid interest amount incurred on the GEI loan that is allowable as a deduction under section 8-1. | Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 45. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [4] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 46. 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. 47. For these investors, the amount of prepaid interest incurred on the GEI loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Division 110  cost base of the Put Options: 48. The cost of capital protection is not deductible to the investor under section 8-1 (refer to subparagraph 9(c) of this Ruling) and is included in the first element of the cost base (under subsection 110-25(2)) and the reduced cost base (under subsection 110-55(2)) of a Put Option acquired by the investor. Each Put Option constitutes a CGT asset, and is separate and in addition to the other rights created under the scheme as described in this Ruling. 49. As a single interest rate applies in respect of the GEI loan, including where more than one type of GEI Security is held, the investment will be treated as one arrangement for the purposes of Division 247. As capital protection may be invoked in respect of each type of GEI Security a separate Put Option is deemed to be provided in respect of each type of GEI Security acquired with the GEI loan. The cost of capital protection will therefore need to be reasonably apportioned to each Put Option. The proportion of the cost of capital protection that is reasonably attributable to each Put Option is the cost of each type of GEI Security acquired with the GEI loan divided by the cost of all of the GEI Securities acquired with the GEI loan, multiplied by the cost of capital protection. 50. If the investor exercises a Put Option at the end of the GEI loan term by relying on the limited recourse provisions of the loan in relation to a type of GEI Security, the investor will include the payment they are deemed to have made to acquire the Put Option in the second element of the investor's cost base and reduced cost base of the GEI Security disposed of by BPC (on behalf of the investor) under its rights as mortgagee, pursuant to table item 2 of subsection 134-1(1). Any capital gain or capital loss the investor makes from exercising a Put Option is disregarded under subsection 134-1(4). 51. Although the sale proceeds will be insufficient to repay the GEI loan, BPC will have no recourse against the investor to recover the shortfall. In this circumstance, the investor will need to reduce the cost base (under subsection 110-45(3)) and the reduced cost base (under subsection 110-55(6)) of the GEI Security by the amount of the shortfall. The combined effect will be to give rise to a capital loss equal to, at the very least, the cost base of the Put Option. 52. If the investor does not exercise a Put Option by the Final Maturity Date, the Put Option will be taken to have expired under subsection 247-30(2). This will cause CGT event C2 to happen pursuant to paragraph 104-25(1)(c). The investor will make a capital loss at that time, equal to the reduced cost base of the Put Option. This will occur where the investor: | Section 25-25  Loan Establishment Fee: 53. Any Loan Establishment Fee incurred by an investor upon successful application for the GEI loan will be an allowable deduction pursuant to section 25-25. The Loan Establishment Fee will be deductible on a straight line basis over the term of the GEI loan. © 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).


Appendix: Section 8-1 and Division 247: 27. Interest paid on a borrowing used to acquire income-producing assets such as shares or units is generally treated as deductible under section 8-1 where it is expected that dividends or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1)  relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 28. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly, a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 29. Division 247 applies to the GEI loan where the investor uses the GEI loan to acquire GEI Securities and the investor is protected against the fall in the market value of the GEI Securities (or of one or more types of GEI Securities). 30. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). 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). 31. The amount reasonably attributable to the cost of capital protection afforded by the GEI loan is worked out according to the method statement in subsection 247-20(3) as set out in subparagraph 9(b) of this Ruling. This amount is treated as the cost of one or more of the investor's Put Options under subsection 247-20(6). 32. Each Put Option is a capital asset. As the cost of capital protection is the cost of the investor's Put Options, this expense is capital in nature. The interest charged on the GEI loan will be deductible under section 8-1 only to the extent that it does not constitute the cost of capital protection (and does not correspond to the part of the GEI loan that is used to fund a brokerage fee). | Section 51AAA of the ITAA 1936: 33. Under the scheme it is contemplated that over the period of an investor's involvement there will be assessable income derived by way of dividend income or trust income, or both, as well as by way of capital gain. As the interest would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor in the scheme. | Section 82KL of the ITAA 1936: 34. 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 of the ITAA 1936. It will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 35. Subdivision H of Division 3 of Part III 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 a business, whether the investor is a small or medium 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  small business entities for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936: 36. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if: | The eligible service period for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936: 37. The interest charge under the GEI loan that is deductible under section 8-1 may be 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 of Division 3 of Part III of the ITAA 1936, 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 loan. | Sections 82KZME and 82KZMF of the ITAA 1936  prepaid expenditure and 'tax shelter' style arrangements: 38. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 39. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire arrangement of which a contract may form part. Under subsection 82KZME(4), the relevant 'agreement' is all the contractual arrangements and activities associated with the participation in the scheme, including the financing, share or unit purchase, share or unit holding and disposal arrangements. 40. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid interest allowable as a deduction under section 8-1 on borrowings under the GEI loan from the operation of section 82KZMF of the ITAA 1936, as: 41. Deductibility of the prepaid interest must therefore be considered under the prepayment rules contained in paragraphs 42 to 47 of this Ruling. | Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 42. 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: 43. Section 82KZM of the ITAA 1936 applies if: 44. As the eligible service period in relation to the deductible interest payments for the GEI 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 referred to in paragraph 42 of this Ruling. Such investors will be able to claim an immediate deduction for any prepaid interest amount incurred on the GEI loan that is allowable as a deduction under section 8-1. | Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 45. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [4] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 46. 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. 47. For these investors, the amount of prepaid interest incurred on the GEI loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Division 110  cost base of the Put Options: 48. The cost of capital protection is not deductible to the investor under section 8-1 (refer to subparagraph 9(c) of this Ruling) and is included in the first element of the cost base (under subsection 110-25(2)) and the reduced cost base (under subsection 110-55(2)) of a Put Option acquired by the investor. Each Put Option constitutes a CGT asset, and is separate and in addition to the other rights created under the scheme as described in this Ruling. 49. As a single interest rate applies in respect of the GEI loan, including where more than one type of GEI Security is held, the investment will be treated as one arrangement for the purposes of Division 247. As capital protection may be invoked in respect of each type of GEI Security a separate Put Option is deemed to be provided in respect of each type of GEI Security acquired with the GEI loan. The cost of capital protection will therefore need to be reasonably apportioned to each Put Option. The proportion of the cost of capital protection that is reasonably attributable to each Put Option is the cost of each type of GEI Security acquired with the GEI loan divided by the cost of all of the GEI Securities acquired with the GEI loan, multiplied by the cost of capital protection. 50. If the investor exercises a Put Option at the end of the GEI loan term by relying on the limited recourse provisions of the loan in relation to a type of GEI Security, the investor will include the payment they are deemed to have made to acquire the Put Option in the second element of the investor's cost base and reduced cost base of the GEI Security disposed of by BPC (on behalf of the investor) under its rights as mortgagee, pursuant to table item 2 of subsection 134-1(1). Any capital gain or capital loss the investor makes from exercising a Put Option is disregarded under subsection 134-1(4). 51. Although the sale proceeds will be insufficient to repay the GEI loan, BPC will have no recourse against the investor to recover the shortfall. In this circumstance, the investor will need to reduce the cost base (under subsection 110-45(3)) and the reduced cost base (under subsection 110-55(6)) of the GEI Security by the amount of the shortfall. The combined effect will be to give rise to a capital loss equal to, at the very least, the cost base of the Put Option. 52. If the investor does not exercise a Put Option by the Final Maturity Date, the Put Option will be taken to have expired under subsection 247-30(2). This will cause CGT event C2 to happen pursuant to paragraph 104-25(1)(c). The investor will make a capital loss at that time, equal to the reduced cost base of the Put Option. This will occur where the investor: | Section 25-25  Loan Establishment Fee: 53. Any Loan Establishment Fee incurred by an investor upon successful application for the GEI loan will be an allowable deduction pursuant to section 25-25. The Loan Establishment Fee will be deductible on a straight line basis over the term of the GEI loan. © 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).


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | This Ruling has been given on the basis that the entity who applied for the 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 Ruling. | 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.


Related rulings: TR 95/33 PR 2020/1 PR 2022/8
Legislative references: ITAA 1936 51AAA ITAA 1936 51(1) 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 82KZM(1A) ITAA 1936 82KZMA ITAA 1936 82KZMA(2A) ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZME(4) ITAA 1936 82KZME(5) ITAA 1936 82KZME(5)(b)(iii) ITAA 1936 82KZMF ITAA 1936 Pt IVA ITAA 1997 8-1 ITAA 1997 25-25 ITAA 1997 104-10 ITAA 1997 104-25 ITAA 1997 104-25(1)(c) ITAA 1997 104-25(3) ITAA 1997 Div 110 ITAA 1997 110-25(2) ITAA 1997 110-45(3) ITAA 1997 110-55(2) ITAA 1997 110-55(6) ITAA 1997 134-1(1) ITAA 1997 134-1(4) ITAA 1997 Div 230 ITAA 1997 Div 247 ITAA 1997 247-20 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 247-30(2) ITAA 1997 Subdiv 328-C ITAA 1997 328-110 Corporations Act 2001 601EB