Class Ruling CR 2024/36

What this ruling is about: 1. This Ruling sets out the income tax consequences for entities who subscribed for and acquired National Australia Bank Capital Notes 8 (NAB Capital Notes 8) issued by National Australia Bank Limited (NAB). 2. Details of this scheme are set out in paragraphs 56 to 98 of this Ruling. 3. In this Ruling, unless otherwise defined, capitalised terms have the meaning specified in the Terms of NAB Capital Notes 8 (the Terms), which are contained in Appendix A of the Prospectus for the issue of NAB Capital Notes 8, dated 21 May 2024 (the Prospectus), or in the glossary contained in Appendix B of the Prospectus. 4. All legislative references in this Ruling are to provisions of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 (as detailed in the table in the Appendix 2 of this Ruling), unless otherwise indicated. Note: By issuing this Ruling, the ATO is not endorsing this product. Potential investors must form their own view about the product. Who this Ruling applies to 5. This Ruling applies to you if you are an investor (also referred to as a Holder) who: 6. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 56 to 98 of this Ruling. Note: Division 230 will not apply to individuals unless they have made an election for it to apply. What this Ruling does not consider 7. This Ruling does not consider: When this Ruling applies 8. This Ruling applies from 1 July 2023 to 30 June 2035. Consequences of acquiring NAB Capital Notes 8 Acquisition date 9. You acquired your NAB Capital Notes 8 on 6 June 2024 under table item 2 of section 109-10. Cost base and reduced cost base of each NAB Capital Note 8 10. The first element of the cost base and reduced cost base of each NAB Capital Note 8 is $100, being the money you paid to acquire your NAB Capital Notes 8 (subsections 110-25(2) and 110-55(2)). Consequences of holding NAB Capital Notes 8 Distributions on NAB Capital Notes 8 and entitlement to tax offset for franking credits 11. A Distribution on a NAB Capital Note 8 is a non-share 'dividend' under section 974-120 and is included in your assessable income (subparagraph 44(1)(a)(ii)). 12. In the income year in which the Distribution is made (section 207-20) you also: 13. To the extent that a Distribution (or a part of it) is either exempt income or non-assessable non-exempt income in your hands (and none of the exceptions in Subdivision 207-E apply), the amount of any franking credit on the Distribution that is exempt income or non-assessable non-exempt income is not included in your assessable income, and you are not entitled to a tax offset under Division 207 (Subdivision 207-D). 14. The franking credit tax offset that you are entitled to under Division 207 is subject to the refundable tax offset rules in Division 67, provided you are not excluded by the operation of section 67-25. Entities excluded by section 67-25 include corporate tax entities (such as companies, corporate limited partnerships and public trading trusts), unless they satisfy the requisite conditions in subsections 67-25(1C) or (1D).

Class of entities or scheme: 56. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. | Background: 57. NAB is a company incorporated in Australia and is listed on the Australian Securities Exchange (ASX). 58. NAB is an authorised deposit-taking institution for the purposes of the Banking Act 1959 and is subject to regulatory compliance requirements by the Australian Prudential Regulation Authority (APRA), including maintenance of mandatory levels of Tier 1 Capital. 59. Under the Prospectus, NAB announced its intention to undertake a capital raising by the issue of NAB Capital Notes 8 for an issue price of $100 each to raise $1 billion (with the ability to raise more or less) (the Offer). 60. Investors could apply for the NAB Capital Notes 8 under: 61. The Issue Date for the NAB Capital Notes 8 was 6 June 2024. 62. The NAB Capital Notes 8 are listed on the ASX under the ASX code NABPK. 63. The NAB Capital Notes 8 were issued by NAB in Australia. The NAB Capital Notes 8 were not issued at or through an offshore permanent establishment or subsidiary of NAB. 64. The Offer has been made as part of NAB's ongoing capital management activities within the regulatory capital requirements prescribed by APRA. The issue of the NAB Capital Notes 8 is a new capital raising. The proceeds from the issue of the NAB Capital Notes 8 are to be used by NAB for general corporate purposes. | Main features of NAB Capital Notes 8: 65. The NAB Capital Notes 8 are fully paid, mandatorily convertible, subordinated, perpetual debt securities issued by NAB in Australia. 66. A Holder of NAB Capital Notes 8 does not have voting rights at a general meeting of NAB. | Issue price: 67. The Issue Price and Face Value of each NAB Capital Note 8 is $100. NAB Capital Notes 8 were fully paid on the Issue Date. | Distributions: 68. Subject to the terms of the NAB Capital Notes 8, NAB will pay quarterly, floating-rate cash Distributions in respect of each NAB Capital Note 8 on a Distribution Payment Date (each a Relevant Distribution Payment Date) in accordance with the Terms. 69. The Distribution payable is calculated on the Face Value of each NAB Capital Note 8 using a Distribution Rate which is equal to the Bank Bill Rate plus a Margin, adjusted by the corporate tax rate and based on the number of days in the Distribution Period. The Margin is 2.60% as determined under the Bookbuild. 70. The Distributions are expected to be franked at the same rate as dividends paid on Ordinary Shares. The extent to which Distributions will be franked will depend on a number of factors, including the Group's capital management activities and the level of profits generated by the Group that will be subject to tax in Australia. If the Distribution is not fully franked, then the Distribution will be adjusted to reflect the applicable franking rate. 71. The payment of a Distribution is subject to the sole discretion of the Directors of NAB and will only be paid if a Payment Condition does not exist on the Distribution Payment Date. Broadly, a Payment Condition exists where NAB is prevented from paying the Distribution by prudential regulatory requirements, applicable law, or insolvency. 72. Distributions are non-cumulative and if all or any part of a Distribution is not paid, Holders have no claim or entitlement in respect of such non-payment, and such non-payment does not constitute an event of default. 73. No interest accrues on any unpaid Distributions and the Holders have no claim or entitlement in respect of interest on any unpaid Distributions. 74. Subject to certain exceptions, if a Distribution is not paid in full on the Relevant Distribution Payment Date, NAB will be restricted from declaring, paying or determining to pay an Ordinary Share dividend or undertaking any buy-backs or capital reductions (unless Holders approve by Ordinary Resolution) until the next Distribution Payment Date. If the amount of any unpaid Distribution is paid in full within 3 Business Days of the Distribution Payment Date, this restriction will no longer apply. | Conversion: 75. Conversion of the NAB Capital Notes 8 involves the following: 76. Upon Conversion of the NAB Capital Notes 8, all other rights conferred, or restrictions imposed on that NAB Capital Notes 8 under the Terms, no longer have effect (except for rights relating to a Distribution which has been determined to be payable on a Conversion Date that is not a Loss Absorption Event Conversion Date). 77. Each Ordinary Share issued upon Conversion ranks equally with all other Ordinary Shares. | Mandatory Conversion on Mandatory Conversion Date: 78. All outstanding NAB Capital Notes 8 must Convert into Ordinary Shares on the Mandatory Conversion Date. 79. The Mandatory Conversion Date is the first to occur of the following dates, on which the Mandatory Conversion Conditions are satisfied: 80. If the Mandatory Conversion Conditions are not satisfied on the Scheduled Mandatory Conversion Date, NAB will not proceed with the Conversion on that date. The Conversion will be postponed until the first Distribution Payment Date after the Scheduled Mandatory Conversion Date on which the Mandatory Conversion Conditions are satisfied (if the Mandatory Conversion Conditions are satisfied at all). | Mandatory Conversion or Write Off on Loss Absorption Event: 81. A Loss Absorption Event means a Common Equity Trigger Event or a Non-Viability Trigger Event. 82. Such events are triggered by certain circumstances affecting the capital adequacy or viability of NAB. 83. If a Loss Absorption Event occurs, NAB must immediately convert into Ordinary Shares or write-off: | Write Off following failure to Convert: 84. If Conversion of a NAB Capital Note 8 on account of a Loss Absorption Event has not been effected within 5 days after the Loss Absorption Event Conversion Date for any reason (including an Inability Event), then Conversion will not occur and each NAB Capital Note 8 which would be required to be Converted, will be Written Off with effect on and from the Loss Absorption Event Conversion Date. | Meaning of Write Off: 85. Written Off means: | Optional Conversion: 86. Subject to certain conditions, including APRA's prior written approval, NAB may elect to Convert all or some NAB Capital Notes 8 on: 87. A Holder does not have the right to request a Conversion at any time. | Optional Redemption: 88. NAB may, with APRA's prior written approval, elect to Redeem all or some NAB Capital Notes 8 on: 89. The NAB Capital Notes 8 are Redeemed by payment on the Redemption Date of an amount equal to the Face Value to the Holder. 90. A Holder does not have the right to request a Redemption at any time. | Optional Resale: 91. NAB may, with APRA's prior written approval, elect to Resell all or some NAB Capital Notes 8 on: 92. If NAB elects to Resell NAB Capital Notes 8, NAB must appoint one or more Nominated Purchasers for the Resale on such terms as may be agreed between NAB and the Nominated Purchasers (and, to the extent any such conditions may cause the NAB Capital Notes 8 to cease to be Additional Tier 1 Capital, with the prior written approval of APRA). 93. Each Holder on the Resale Date is taken irrevocably to offer to sell NAB Capital Notes 8 to the Nominated Purchasers on the Resale Date for the Resale Price. The Resale Price, for a NAB Capital Note 8, means a cash amount equal to its Issue Price. 94. A Holder does not have the right to request a Resale at any time. | Substitution of Approved NOHC as issuer of Ordinary Shares: 95. The Terms provide for the possibility of substitution of an Approved NOHC as the issuer of Ordinary Shares on the Conversion of the NAB Capital Notes 8. A NOHC is defined as a non-operating holding company within the meaning of the Banking Act 1959. 96. A NOHC Event is an event which would otherwise be an Acquisition Event which is initiated by the Directors and the result of which is that the ultimate holding company of NAB is (or on completion in respect of the bid, or on implementation of the scheme, will be) a NOHC. 97. NAB may give a notice to the Holders before the NOHC Event occurs specifying the amendments to the Terms which will be made to effect the substitution of an Approved NOHC as the issuer of Ordinary Shares of the Approved NOHC to Holders on Conversion of the NAB Capital Notes 8. This means that, on Conversion, each NAB Capital Note 8 that is being Converted is automatically transferred by each Holder to the Approved NOHC (or another entity which meets the stated criteria) and each Holder (or in certain circumstances a nominee) is issued a number of Ordinary Shares in the capital of the Approved NOHC equal to the Conversion Number. | Other matters: 98. The Ruling is made on the basis that: Commissioner of Taxation 26 June 2024

Ruling: 1. This Ruling sets out the income tax consequences for entities who subscribed for and acquired National Australia Bank Capital Notes 8 (NAB Capital Notes 8) issued by National Australia Bank Limited (NAB). 2. Details of this scheme are set out in paragraphs 56 to 98 of this Ruling. 3. In this Ruling, unless otherwise defined, capitalised terms have the meaning specified in the Terms of NAB Capital Notes 8 (the Terms), which are contained in Appendix A of the Prospectus for the issue of NAB Capital Notes 8, dated 21 May 2024 (the Prospectus), or in the glossary contained in Appendix B of the Prospectus. 4. All legislative references in this Ruling are to provisions of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 (as detailed in the table in the Appendix 2 of this Ruling), unless otherwise indicated. Note: By issuing this Ruling, the ATO is not endorsing this product. Potential investors must form their own view about the product. | Who this Ruling applies to: 5. This Ruling applies to you if you are an investor (also referred to as a Holder) who: 6. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 56 to 98 of this Ruling. Note: Division 230 will not apply to individuals unless they have made an election for it to apply. | What this Ruling does not consider: 7. This Ruling does not consider: | When this Ruling applies: 8. This Ruling applies from 1 July 2023 to 30 June 2035. | Acquisition date: 9. You acquired your NAB Capital Notes 8 on 6 June 2024 under table item 2 of section 109-10. | Cost base and reduced cost base of each NAB Capital Note 8: 10. The first element of the cost base and reduced cost base of each NAB Capital Note 8 is $100, being the money you paid to acquire your NAB Capital Notes 8 (subsections 110-25(2) and 110-55(2)). | Distributions on NAB Capital Notes 8 and entitlement to tax offset for franking credits: 11. A Distribution on a NAB Capital Note 8 is a non-share 'dividend' under section 974-120 and is included in your assessable income (subparagraph 44(1)(a)(ii)). 12. In the income year in which the Distribution is made (section 207-20) you also: 13. To the extent that a Distribution (or a part of it) is either exempt income or non-assessable non-exempt income in your hands (and none of the exceptions in Subdivision 207-E apply), the amount of any franking credit on the Distribution that is exempt income or non-assessable non-exempt income is not included in your assessable income, and you are not entitled to a tax offset under Division 207 (Subdivision 207-D). 14. The franking credit tax offset that you are entitled to under Division 207 is subject to the refundable tax offset rules in Division 67, provided you are not excluded by the operation of section 67-25. Entities excluded by section 67-25 include corporate tax entities (such as companies, corporate limited partnerships and public trading trusts), unless they satisfy the requisite conditions in subsections 67-25(1C) or (1D). | Determination under paragraph 177EA(5)(b): 15. The Commissioner will not make a determination under paragraph 177EA(5)(b) to deny the whole, or any part, of the imputation benefits you receive in relation to a Distribution. | Determination under paragraph 204-30(3)(c): 16. The Commissioner will not make a determination under paragraph 204-30(3)(c) to deny the whole, or any part, of the imputation benefits you receive in relation to a Distribution. | Gross-up and tax offset cancelled in certain circumstances: 17. Paragraph 207-145(1)(a) will not apply to cancel the effect of the gross-up and tax offset in respect of a franked Distribution if you are a qualified person in respect of that Distribution. 18. You will be a qualified person in relation to a Distribution if, during the primary qualification period, you held your NAB Capital Notes 8 for a continuous period of at least 90 days (excluding the days of acquisition and disposal, if relevant) during which you did not have 'materially diminished risks or loss of opportunities for gain' (as defined in former section 160APHM) in respect of your NAB Capital Notes 8. 19. The Resale facility and Conversion mechanism of NAB Capital Notes 8 will not affect your risks of loss or opportunities for gain in respect of your NAB Capital Notes 8. This is because neither the Resale facility nor the Conversion mechanism constitutes a separate position (former sections 160APHM and 160APHJ). 20. Paragraphs 207-145(1)(b) to (db) will not apply to cancel the effect of the gross-up and tax offset rules in respect of a franked Distribution. 21. In respect of paragraphs 207-145(1)(b) and (c), refer to paragraphs 15 and 16 of this Ruling. 22. In respect of paragraph 207-145(1)(d), there is no evidence that the Distributions will be made as part of a dividend stripping operation. 23. In respect of paragraph 207-145(1)(da), the distribution washing provision does not apply (refer to subparagraph 98(v) of this Ruling). 24. In respect of paragraph 207-145(1)(db), the NAB Capital Notes 8 are equity interests which form part of NAB's Additional Tier 1 Capital (refer to subsection 207-158(2) and subparagraph 98(d) of this Ruling). | NAB Capital Notes 8 not traditional securities: 25. A NAB Capital Note 8 is not a 'traditional security' as defined in subsection 26BB(1). 26. Section 26BB will not apply to include any gain on the disposal or Redemption of a NAB Capital Note 8 in your assessable income. 27. Section 70B will not apply to allow any loss on the disposal or Redemption of a NAB Capital Note 8 as a deduction to you. | Conversion of NAB Capital Notes 8 for Ordinary Shares: 28. Each NAB Capital Note 8 is a convertible interest. 29. CGT event C2 happens on Conversion (section 104-25). 30. A capital gain or capital loss you make from CGT event C2 happening on Conversion will be disregarded (subsection 130-60(3)). 31. Ordinary Shares acquired on Conversion will be taken to have been acquired when Conversion happens, at the time of Conversion (subsection 130-60(2)). 32. The first element of the cost base and reduced cost base of Ordinary Shares acquired on Conversion will be equal to the cost base and reduced cost base of the relevant NAB Capital Notes 8 at the time of Conversion (table item 2 of subsection 130-60(1)). 33. As you hold your NAB Capital Notes 8 on capital account, no amount will be included in your assessable income on Conversion of a NAB Capital Note 8 under section 6-5. 34. In addition, you will not incur a deductible loss under section 8-1 as a consequence of Conversion. 35. On Conversion of NAB Capital Notes 8 for Ordinary Shares in NAB, you will not be taken to have received a dividend or a non-share dividend. | Amendment of the Terms to substitute an Approved NOHC: 36. CGT event H2 happens if the Terms are amended to effect the substitution of an Approved Non-Operating Holding Company (NOHC) as the issuer of Ordinary Shares to you on Conversion (section 104-155). 37. However, you do not make a capital gain or a capital loss from CGT event H2 happening as there are no capital proceeds or incidental costs incurred because of the amendment of the Terms. | Conversion of each NAB Capital Note 8 and the issue of Ordinary Shares in an Approved NOHC  capital gains tax implications: 38. Where an Approved NOHC becomes the ultimate holding company of NAB, the Conversion of NAB Capital Notes 8 and the issue of Approved NOHC Ordinary Shares to you results in CGT event C2 happening as it is the conversion of a convertible interest (section 104-25). 39. As the Approved NOHC Ordinary Shares are equity interests (within the meaning of Division 974), any capital gain or capital loss that you make from CGT event C2 happening when the NAB Capital Notes 8 are Converted to Ordinary Shares in an Approved NOHC is disregarded (subsection 130-60(3)). 40. The first element of the cost base and the reduced cost base of each Approved NOHC Ordinary Share issued to you is calculated as the cost base of your NAB Capital Notes 8 at the time of Conversion divided by the number of Approved NOHC Ordinary Shares you receive (table item 2 of subsection 130-60(1)). 41. You are taken to have acquired your Approved NOHC Ordinary Shares at the time of Conversion (subsection 130-60(2)). | NAB Capital Notes 8 that are Written Off: 42. CGT event C2 happens when a NAB Capital Note 8 is Written Off because the NAB Capital Note 8 is terminated at that time (section 104-25). 43. For the purposes of determining whether you make a capital gain or a capital loss from CGT event C2 happening in respect of your NAB Capital Notes 8, you are taken to have nil capital proceeds from CGT event C2 happening. This is because you receive no capital proceeds in respect of a Write Off happening, and your NAB Capital Notes 8 have a market value of nil at that time (refer to subparagraph 98(w) of this Ruling). | Redemption of NAB Capital Notes 8: 44. CGT event C2 happens when a NAB Capital Note 8 is Redeemed for its Face Value (section 104-25). 45. The capital proceeds received by Holders on Redemption of the NAB Capital Notes 8 will be replaced with the market value of the NAB Capital Notes 8 on the date of Redemption, worked out as if Redemption had not occurred and was never proposed to occur, if the capital proceeds are more or less than the market value of the NAB Capital Notes 8 (subparagraph 116-30(2)(b)(ii)). 46. You will make a capital gain (or capital loss) on Redemption of your NAB Capital Notes 8 if the capital proceeds you receive are greater than the cost base (or less than the reduced cost base) of your NAB Capital Notes 8. 47. As you hold your NAB Capital Notes 8 on capital account, no amount will be included in your assessable income on Redemption under section 6-5. 48. In addition, you will not incur a deductible loss under section 8-1 as a consequence of Redemption. | Resale of NAB Capital Notes 8: 49. CGT event A1 happens on the Resale of a NAB Capital Note 8 (section 104-10). The Resale of a NAB Capital Note 8 to the Nominated Purchaser will be for the Face Value of the NAB Capital Note 8. 50. As the capital proceeds you receive will not be more than the cost base of the NAB Capital Note 8, you will not make a capital gain as a result of the Resale. 51. As you hold your NAB Capital Notes 8 on capital account, no amount will be included in your assessable income on the Resale under section 6-5. 52. In addition, you will not incur a deductible loss under section 8-1 as a consequence of the Resale. | Section 45: 53. Section 45 will not apply to treat the value of Ordinary Shares issued to you on Conversion as an unfrankable dividend. | Section 45A: 54. The Commissioner will not make a determination under subsection 45A(2) that section 45C applies to treat the whole or a part of the capital benefit provided to you on Conversion or Redemption as an unfranked dividend. | Section 45B: 55. The Commissioner will not make a determination under paragraph 45B(3)(b) that section 45C applies to treat the whole or a part of the capital benefit provided to you on Conversion or Redemption as an unfranked dividend. 56. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. | Background: 57. NAB is a company incorporated in Australia and is listed on the Australian Securities Exchange (ASX). 58. NAB is an authorised deposit-taking institution for the purposes of the Banking Act 1959 and is subject to regulatory compliance requirements by the Australian Prudential Regulation Authority (APRA), including maintenance of mandatory levels of Tier 1 Capital. 59. Under the Prospectus, NAB announced its intention to undertake a capital raising by the issue of NAB Capital Notes 8 for an issue price of $100 each to raise $1 billion (with the ability to raise more or less) (the Offer). 60. Investors could apply for the NAB Capital Notes 8 under: 61. The Issue Date for the NAB Capital Notes 8 was 6 June 2024. 62. The NAB Capital Notes 8 are listed on the ASX under the ASX code NABPK. 63. The NAB Capital Notes 8 were issued by NAB in Australia. The NAB Capital Notes 8 were not issued at or through an offshore permanent establishment or subsidiary of NAB. 64. The Offer has been made as part of NAB's ongoing capital management activities within the regulatory capital requirements prescribed by APRA. The issue of the NAB Capital Notes 8 is a new capital raising. The proceeds from the issue of the NAB Capital Notes 8 are to be used by NAB for general corporate purposes. | Main features of NAB Capital Notes 8: 65. The NAB Capital Notes 8 are fully paid, mandatorily convertible, subordinated, perpetual debt securities issued by NAB in Australia. 66. A Holder of NAB Capital Notes 8 does not have voting rights at a general meeting of NAB. | Issue price: 67. The Issue Price and Face Value of each NAB Capital Note 8 is $100. NAB Capital Notes 8 were fully paid on the Issue Date. | Distributions: 68. Subject to the terms of the NAB Capital Notes 8, NAB will pay quarterly, floating-rate cash Distributions in respect of each NAB Capital Note 8 on a Distribution Payment Date (each a Relevant Distribution Payment Date) in accordance with the Terms. 69. The Distribution payable is calculated on the Face Value of each NAB Capital Note 8 using a Distribution Rate which is equal to the Bank Bill Rate plus a Margin, adjusted by the corporate tax rate and based on the number of days in the Distribution Period. The Margin is 2.60% as determined under the Bookbuild. 70. The Distributions are expected to be franked at the same rate as dividends paid on Ordinary Shares. The extent to which Distributions will be franked will depend on a number of factors, including the Group's capital management activities and the level of profits generated by the Group that will be subject to tax in Australia. If the Distribution is not fully franked, then the Distribution will be adjusted to reflect the applicable franking rate. 71. The payment of a Distribution is subject to the sole discretion of the Directors of NAB and will only be paid if a Payment Condition does not exist on the Distribution Payment Date. Broadly, a Payment Condition exists where NAB is prevented from paying the Distribution by prudential regulatory requirements, applicable law, or insolvency. 72. Distributions are non-cumulative and if all or any part of a Distribution is not paid, Holders have no claim or entitlement in respect of such non-payment, and such non-payment does not constitute an event of default. 73. No interest accrues on any unpaid Distributions and the Holders have no claim or entitlement in respect of interest on any unpaid Distributions. 74. Subject to certain exceptions, if a Distribution is not paid in full on the Relevant Distribution Payment Date, NAB will be restricted from declaring, paying or determining to pay an Ordinary Share dividend or undertaking any buy-backs or capital reductions (unless Holders approve by Ordinary Resolution) until the next Distribution Payment Date. If the amount of any unpaid Distribution is paid in full within 3 Business Days of the Distribution Payment Date, this restriction will no longer apply. | Conversion: 75. Conversion of the NAB Capital Notes 8 involves the following: 76. Upon Conversion of the NAB Capital Notes 8, all other rights conferred, or restrictions imposed on that NAB Capital Notes 8 under the Terms, no longer have effect (except for rights relating to a Distribution which has been determined to be payable on a Conversion Date that is not a Loss Absorption Event Conversion Date). 77. Each Ordinary Share issued upon Conversion ranks equally with all other Ordinary Shares. | Mandatory Conversion on Mandatory Conversion Date: 78. All outstanding NAB Capital Notes 8 must Convert into Ordinary Shares on the Mandatory Conversion Date. 79. The Mandatory Conversion Date is the first to occur of the following dates, on which the Mandatory Conversion Conditions are satisfied: 80. If the Mandatory Conversion Conditions are not satisfied on the Scheduled Mandatory Conversion Date, NAB will not proceed with the Conversion on that date. The Conversion will be postponed until the first Distribution Payment Date after the Scheduled Mandatory Conversion Date on which the Mandatory Conversion Conditions are satisfied (if the Mandatory Conversion Conditions are satisfied at all). | Mandatory Conversion or Write Off on Loss Absorption Event: 81. A Loss Absorption Event means a Common Equity Trigger Event or a Non-Viability Trigger Event. 82. Such events are triggered by certain circumstances affecting the capital adequacy or viability of NAB. 83. If a Loss Absorption Event occurs, NAB must immediately convert into Ordinary Shares or write-off: | Write Off following failure to Convert: 84. If Conversion of a NAB Capital Note 8 on account of a Loss Absorption Event has not been effected within 5 days after the Loss Absorption Event Conversion Date for any reason (including an Inability Event), then Conversion will not occur and each NAB Capital Note 8 which would be required to be Converted, will be Written Off with effect on and from the Loss Absorption Event Conversion Date. | Meaning of Write Off: 85. Written Off means: | Optional Conversion: 86. Subject to certain conditions, including APRA's prior written approval, NAB may elect to Convert all or some NAB Capital Notes 8 on: 87. A Holder does not have the right to request a Conversion at any time. | Optional Redemption: 88. NAB may, with APRA's prior written approval, elect to Redeem all or some NAB Capital Notes 8 on: 89. The NAB Capital Notes 8 are Redeemed by payment on the Redemption Date of an amount equal to the Face Value to the Holder. 90. A Holder does not have the right to request a Redemption at any time. | Optional Resale: 91. NAB may, with APRA's prior written approval, elect to Resell all or some NAB Capital Notes 8 on: 92. If NAB elects to Resell NAB Capital Notes 8, NAB must appoint one or more Nominated Purchasers for the Resale on such terms as may be agreed between NAB and the Nominated Purchasers (and, to the extent any such conditions may cause the NAB Capital Notes 8 to cease to be Additional Tier 1 Capital, with the prior written approval of APRA). 93. Each Holder on the Resale Date is taken irrevocably to offer to sell NAB Capital Notes 8 to the Nominated Purchasers on the Resale Date for the Resale Price. The Resale Price, for a NAB Capital Note 8, means a cash amount equal to its Issue Price. 94. A Holder does not have the right to request a Resale at any time. | Substitution of Approved NOHC as issuer of Ordinary Shares: 95. The Terms provide for the possibility of substitution of an Approved NOHC as the issuer of Ordinary Shares on the Conversion of the NAB Capital Notes 8. A NOHC is defined as a non-operating holding company within the meaning of the Banking Act 1959. 96. A NOHC Event is an event which would otherwise be an Acquisition Event which is initiated by the Directors and the result of which is that the ultimate holding company of NAB is (or on completion in respect of the bid, or on implementation of the scheme, will be) a NOHC. 97. NAB may give a notice to the Holders before the NOHC Event occurs specifying the amendments to the Terms which will be made to effect the substitution of an Approved NOHC as the issuer of Ordinary Shares of the Approved NOHC to Holders on Conversion of the NAB Capital Notes 8. This means that, on Conversion, each NAB Capital Note 8 that is being Converted is automatically transferred by each Holder to the Approved NOHC (or another entity which meets the stated criteria) and each Holder (or in certain circumstances a nominee) is issued a number of Ordinary Shares in the capital of the Approved NOHC equal to the Conversion Number. | Other matters: 98. The Ruling is made on the basis that: Commissioner of Taxation 26 June 2024 | Determination under paragraph 177EA(5)(b): 99. Section 177EA is a general anti-avoidance provision that applies where one of the purposes (other than an incidental purpose) of a particular scheme is to enable a taxpayer to obtain an imputation benefit. 100. The conditions in paragraphs 177EA(3)(a) to (d) are satisfied, therefore the relevant circumstances of the scheme must be considered to establish whether any person who entered into or carried out the scheme, or any part of the scheme, did so for a more than incidental purpose of enabling a Holder to obtain an imputation benefit (paragraph 177EA(3)(e)). 101. The Commissioner considers that the relevant circumstances of the scheme do not, on balance, lead to a conclusion that the purpose of enabling Holders to obtain imputation benefits is more than incidental to the NAB's primary purpose of raising Additional Tier 1 Capital for regulatory capital requirements and otherwise to maintain the diversity of its sources and types of funding. | Determination under paragraph 204-30(3)(c): 102. Subsection 204-30(1) empowers the Commissioner to make a determination under paragraph 204-30(3)(c) if an entity streams distributions in a certain way. 103. Based on the scheme, there is no evidence of streaming. Distributions will be received by all Holders by reason of their proportionate holding of NAB Capital Notes 8 and not by reference to their tax profiles or individual tax positions. There is nothing in the Terms that allows NAB to treat Holders differently in respect of their entitlement to a franked Distribution. | Gross-up and tax offset cancelled in certain circumstances: 104. If you are not a qualified person in relation to a Distribution, you: 105. As this Ruling is made on the basis that you have not made a related payment in respect of a Distribution, the relevant qualification period is the primary qualification period (as defined in former section 160APHD). The primary qualification period begins on the day after you acquire your NAB Capital Notes 8 and ends on the 90th day after the day NAB Capital Notes 8 becomes ex-distribution. 106. You need to have held NAB Capital Notes 8 'at risk' for a continuous period of 90 days (excluding the days of acquisition and disposal, if relevant) during the primary qualification period. Any days you had materially diminished risks of loss or opportunities for gain in respect of your holding are also excluded (former subsection 160APHO(3)). 107. Under former subsection 160APHM(2), you are taken to have materially diminished the risks of loss and opportunities for gain on a particular day with respect to your NAB Capital Notes 8 if your net position on that day does not retain 30% or more of the risks and opportunities associated with holding NAB Capital Notes 8. 108. Embedded options such as the Resale and Conversion mechanisms do not represent separate positions in relation to NAB Capital Notes 8 (see also Taxation Determination TD 2007/29 Income tax: holding period rule: is an embedded share option a position in relation to the share if it is exercisable by or against a party other than the issuer of the share?). Under the Resale mechanism, you will only be taken to have made an offer to sell NAB Capital Notes 8 if NAB issues a Resale Notice. As NAB is the only party entitled to make an election to exercise the Resale option, it is not a separate position that you have taken in relation to your NAB Capital Notes 8. Similarly, under the Conversion mechanism you do not have the right to elect Conversion of your NAB Capital Notes 8 and neither does NAB have an obligation to Convert. 109. Therefore, the Resale and Conversion mechanisms will not, of themselves, affect your risks of loss or opportunities for gain in respect of your NAB Capital Notes 8. 110. However, if you do enter into any risk management strategies in respect of your NAB Capital Notes 8 that have the effect of reducing your risks of loss and opportunities for gain below 30% (for example, by the use of limited recourse loans, options or other derivatives), then you will not be considered a qualified person in respect of a Distribution. | Ordinary Shares received on Conversion not a dividend or a non-share dividend: 111. You are not a shareholder of NAB in respect of your NAB Capital Notes 8 holding. Accordingly, you will not receive a dividend as defined in subsection 6(1). 112. The application of the Face Value to subscribe for Ordinary Shares on Conversion of NAB Capital Notes 8 is a crediting of that amount to you and, therefore, a non-share distribution under section 974-115. 113. All non-share distributions are non-share dividends unless they are debited against the distributing company's non-share capital account or its share capital account (section 974-120). 114. The allocation and issue of Ordinary Shares to you on Conversion of NAB Capital Notes 8 will not be a non-share dividend as defined in section 974-120, as the Face Value of NAB Capital Notes 8 will be debited against NAB's non-share capital account. | Market value of NAB Capital Notes 8 on Redemption: 115. The capital proceeds received by Holders on Redemption will be replaced with the market value of the NAB Capital Notes 8 on the Redemption Date, worked out as if the Redemption had not occurred and was never proposed to occur, if the capital proceeds are more or less than the market value (subparagraph 116-30(2)(b)(ii)). The market value of the NAB Capital Notes 8 which are Redeemed may be determined in accordance with Practical Compliance Guideline PCG 2021/1 Application of market value substitution rules when there is a buy-back or redemption of hybrid securities  methodologies for determining market value for investors holding their securities on capital account. | Section 45: 116. Section 45 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that: 117. NAB's distribution and dividend payout ratios in relation to its Ordinary Shares and other equity interests are not expected to change as a result of issuing NAB Capital Notes 8. The extent to which NAB's distributions or dividends will be franked (including Distributions on NAB Capital Notes 8) will depend on a number of factors, including the Group's capital management activities and the level of profits generated by the Group that will be subject to tax in Australia. 118. Under the Terms, NAB is unable to issue Ordinary Shares to all or some Holders in satisfaction of their Distribution entitlement under NAB Capital Notes 8. The issue of Ordinary Shares on Conversion merely reflects a change in the type of equity interests held by Holders in NAB. 119. Based on the information provided and having regard to the circumstances of the scheme, section 45 will not apply to treat the value of Ordinary Shares issued to you on Conversion as an unfrankable dividend. | Section 45A: 120. Section 45A applies where a company streams capital benefits and the payment of dividends to shareholders who would derive a greater benefit from receiving the capital benefits (the advantaged shareholders), and it is reasonable to assume that other shareholders (the disadvantaged shareholders) have received, or will receive, dividends. 121. Both the issue of Ordinary Shares on Conversion and the Redemption of NAB Capital Notes 8 will constitute the provision of a capital benefit to Holders (paragraph 45A(3)(a) for a Conversion, and paragraph 45A(3)(b) as affected by subsection 45A(3A) for a Redemption). 122. However, the issue of Ordinary Shares on Conversion and the Redemption of NAB Capital Notes 8 will not constitute the streaming of capital benefits because under a Conversion or Redemption, NAB will not selectively direct the flow of capital benefits to Holders who could most benefit from the receipt of capital. Accordingly, as this requirement does not apply to the Conversion or Redemption of NAB Capital Notes 8, the Commissioner will not make a determination to treat the whole or a part of the capital benefit received by Holders as an unfranked dividend. | Section 45B: 123. Section 45B applies where certain capital benefits are provided to shareholders in substitution for dividends. Where the conditions are met, the Commissioner may make a determination under paragraph 45B(3)(b) that section 45C applies to the whole, or a part, of the capital benefit such that it will be treated as an unfranked dividend. 124. The issue of Ordinary Shares to Holders on Conversion and the Redemption of NAB Capital Notes 8 will each constitute a scheme under which Holders are provided with a capital benefit by NAB (paragraphs 45B(5)(a) and (b) and subsection 45B(7)). As a result, paragraph 45B(2)(a) will be satisfied. 125. At least some Holders will obtain a tax benefit as defined in subsection 45B(9) as a result of a Conversion or Redemption. As a result, paragraph 45B(2)(b) will be satisfied. 126. Therefore, whether section 45B will apply to a Conversion or Redemption turns on whether paragraph 45B(2)(c) will be satisfied. This involves considering the relevant circumstances, including but not limited to those listed in subsection 45B(8), of the Conversion and Redemption schemes to establish whether one of the persons who will enter into or carry out the schemes will do so for a more than incidental purpose of enabling a relevant taxpayer (the Holder) to obtain a tax benefit. 127. Having regard to the relevant circumstances, it could not be concluded that the Conversion or Redemption of NAB Capital Notes 8 will be entered into for a more than incidental purpose of enabling Holders to obtain a tax benefit. Accordingly, paragraph 45B(2)(c) would not be satisfied and the Commissioner will not make a determination under paragraph 45B(3)(b) that section 45C applies to the whole or a part of the capital benefit provided to Holders on Conversion or Redemption. 128. This paragraph sets out the details of the provisions of the Income Tax Assessments Acts ruled upon or referenced in this Ruling. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).


Appendix: Determination under paragraph 177EA(5)(b): 99. Section 177EA is a general anti-avoidance provision that applies where one of the purposes (other than an incidental purpose) of a particular scheme is to enable a taxpayer to obtain an imputation benefit. 100. The conditions in paragraphs 177EA(3)(a) to (d) are satisfied, therefore the relevant circumstances of the scheme must be considered to establish whether any person who entered into or carried out the scheme, or any part of the scheme, did so for a more than incidental purpose of enabling a Holder to obtain an imputation benefit (paragraph 177EA(3)(e)). 101. The Commissioner considers that the relevant circumstances of the scheme do not, on balance, lead to a conclusion that the purpose of enabling Holders to obtain imputation benefits is more than incidental to the NAB's primary purpose of raising Additional Tier 1 Capital for regulatory capital requirements and otherwise to maintain the diversity of its sources and types of funding. | Determination under paragraph 204-30(3)(c): 102. Subsection 204-30(1) empowers the Commissioner to make a determination under paragraph 204-30(3)(c) if an entity streams distributions in a certain way. 103. Based on the scheme, there is no evidence of streaming. Distributions will be received by all Holders by reason of their proportionate holding of NAB Capital Notes 8 and not by reference to their tax profiles or individual tax positions. There is nothing in the Terms that allows NAB to treat Holders differently in respect of their entitlement to a franked Distribution. | Gross-up and tax offset cancelled in certain circumstances: 104. If you are not a qualified person in relation to a Distribution, you: 105. As this Ruling is made on the basis that you have not made a related payment in respect of a Distribution, the relevant qualification period is the primary qualification period (as defined in former section 160APHD). The primary qualification period begins on the day after you acquire your NAB Capital Notes 8 and ends on the 90th day after the day NAB Capital Notes 8 becomes ex-distribution. 106. You need to have held NAB Capital Notes 8 'at risk' for a continuous period of 90 days (excluding the days of acquisition and disposal, if relevant) during the primary qualification period. Any days you had materially diminished risks of loss or opportunities for gain in respect of your holding are also excluded (former subsection 160APHO(3)). 107. Under former subsection 160APHM(2), you are taken to have materially diminished the risks of loss and opportunities for gain on a particular day with respect to your NAB Capital Notes 8 if your net position on that day does not retain 30% or more of the risks and opportunities associated with holding NAB Capital Notes 8. 108. Embedded options such as the Resale and Conversion mechanisms do not represent separate positions in relation to NAB Capital Notes 8 (see also Taxation Determination TD 2007/29 Income tax: holding period rule: is an embedded share option a position in relation to the share if it is exercisable by or against a party other than the issuer of the share?). Under the Resale mechanism, you will only be taken to have made an offer to sell NAB Capital Notes 8 if NAB issues a Resale Notice. As NAB is the only party entitled to make an election to exercise the Resale option, it is not a separate position that you have taken in relation to your NAB Capital Notes 8. Similarly, under the Conversion mechanism you do not have the right to elect Conversion of your NAB Capital Notes 8 and neither does NAB have an obligation to Convert. 109. Therefore, the Resale and Conversion mechanisms will not, of themselves, affect your risks of loss or opportunities for gain in respect of your NAB Capital Notes 8. 110. However, if you do enter into any risk management strategies in respect of your NAB Capital Notes 8 that have the effect of reducing your risks of loss and opportunities for gain below 30% (for example, by the use of limited recourse loans, options or other derivatives), then you will not be considered a qualified person in respect of a Distribution. | Ordinary Shares received on Conversion not a dividend or a non-share dividend: 111. You are not a shareholder of NAB in respect of your NAB Capital Notes 8 holding. Accordingly, you will not receive a dividend as defined in subsection 6(1). 112. The application of the Face Value to subscribe for Ordinary Shares on Conversion of NAB Capital Notes 8 is a crediting of that amount to you and, therefore, a non-share distribution under section 974-115. 113. All non-share distributions are non-share dividends unless they are debited against the distributing company's non-share capital account or its share capital account (section 974-120). 114. The allocation and issue of Ordinary Shares to you on Conversion of NAB Capital Notes 8 will not be a non-share dividend as defined in section 974-120, as the Face Value of NAB Capital Notes 8 will be debited against NAB's non-share capital account. | Market value of NAB Capital Notes 8 on Redemption: 115. The capital proceeds received by Holders on Redemption will be replaced with the market value of the NAB Capital Notes 8 on the Redemption Date, worked out as if the Redemption had not occurred and was never proposed to occur, if the capital proceeds are more or less than the market value (subparagraph 116-30(2)(b)(ii)). The market value of the NAB Capital Notes 8 which are Redeemed may be determined in accordance with Practical Compliance Guideline PCG 2021/1 Application of market value substitution rules when there is a buy-back or redemption of hybrid securities  methodologies for determining market value for investors holding their securities on capital account. | Section 45: 116. Section 45 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that: 117. NAB's distribution and dividend payout ratios in relation to its Ordinary Shares and other equity interests are not expected to change as a result of issuing NAB Capital Notes 8. The extent to which NAB's distributions or dividends will be franked (including Distributions on NAB Capital Notes 8) will depend on a number of factors, including the Group's capital management activities and the level of profits generated by the Group that will be subject to tax in Australia. 118. Under the Terms, NAB is unable to issue Ordinary Shares to all or some Holders in satisfaction of their Distribution entitlement under NAB Capital Notes 8. The issue of Ordinary Shares on Conversion merely reflects a change in the type of equity interests held by Holders in NAB. 119. Based on the information provided and having regard to the circumstances of the scheme, section 45 will not apply to treat the value of Ordinary Shares issued to you on Conversion as an unfrankable dividend. | Section 45A: 120. Section 45A applies where a company streams capital benefits and the payment of dividends to shareholders who would derive a greater benefit from receiving the capital benefits (the advantaged shareholders), and it is reasonable to assume that other shareholders (the disadvantaged shareholders) have received, or will receive, dividends. 121. Both the issue of Ordinary Shares on Conversion and the Redemption of NAB Capital Notes 8 will constitute the provision of a capital benefit to Holders (paragraph 45A(3)(a) for a Conversion, and paragraph 45A(3)(b) as affected by subsection 45A(3A) for a Redemption). 122. However, the issue of Ordinary Shares on Conversion and the Redemption of NAB Capital Notes 8 will not constitute the streaming of capital benefits because under a Conversion or Redemption, NAB will not selectively direct the flow of capital benefits to Holders who could most benefit from the receipt of capital. Accordingly, as this requirement does not apply to the Conversion or Redemption of NAB Capital Notes 8, the Commissioner will not make a determination to treat the whole or a part of the capital benefit received by Holders as an unfranked dividend. | Section 45B: 123. Section 45B applies where certain capital benefits are provided to shareholders in substitution for dividends. Where the conditions are met, the Commissioner may make a determination under paragraph 45B(3)(b) that section 45C applies to the whole, or a part, of the capital benefit such that it will be treated as an unfranked dividend. 124. The issue of Ordinary Shares to Holders on Conversion and the Redemption of NAB Capital Notes 8 will each constitute a scheme under which Holders are provided with a capital benefit by NAB (paragraphs 45B(5)(a) and (b) and subsection 45B(7)). As a result, paragraph 45B(2)(a) will be satisfied. 125. At least some Holders will obtain a tax benefit as defined in subsection 45B(9) as a result of a Conversion or Redemption. As a result, paragraph 45B(2)(b) will be satisfied. 126. Therefore, whether section 45B will apply to a Conversion or Redemption turns on whether paragraph 45B(2)(c) will be satisfied. This involves considering the relevant circumstances, including but not limited to those listed in subsection 45B(8), of the Conversion and Redemption schemes to establish whether one of the persons who will enter into or carry out the schemes will do so for a more than incidental purpose of enabling a relevant taxpayer (the Holder) to obtain a tax benefit. 127. Having regard to the relevant circumstances, it could not be concluded that the Conversion or Redemption of NAB Capital Notes 8 will be entered into for a more than incidental purpose of enabling Holders to obtain a tax benefit. Accordingly, paragraph 45B(2)(c) would not be satisfied and the Commissioner will not make a determination under paragraph 45B(3)(b) that section 45C applies to the whole or a part of the capital benefit provided to Holders on Conversion or Redemption.


What this Ruling is about | Appendix 2  Legislative provisions | 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. | Ordinary Shares received on Conversion not a dividend or non-share dividend


Related rulings: TD 2007/29
Legislative references: Banking Act 1959 11AF
Other references: PCG 2021/1