Product Ruling PR 2015/1
Date of effect: 14 January 2015

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme is referred to as Instreet Masti, offered by Instreet Structured Investment Pty Ltd (the Issuer). 3. This Product Ruling does not address: Class of entities 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities whose rights and obligations under the Terms will commence on a relevant Commencement Date, being a Commencement Date on or between 14 January 2015 and 30 June 2017, and at the time of entering into the scheme have a purpose of: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. Qualifications 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:

Class of entities or scheme: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities whose rights and obligations under the Terms will commence on a relevant Commencement Date, being a Commencement Date on or between 14 January 2015 and 30 June 2017, and at the time of entering into the scheme have a purpose of: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 10. This Product Ruling applies prospectively from 14 January 2015, the date it is published. It applies only to the specified class of entities that enter into the scheme on a relevant Commencement Date (see paragraph 5 of this Product Ruling). This Product Ruling provides advice to the specified class of entities for the income years up to 30 June 2017, being its period of application. Where relevant, this Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into on a relevant Commencement Date. 11. However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 12. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. 13. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 14. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. 15. Subject to paragraph 3 and the assumptions in paragraph 20 of this Ruling: 16. The scheme that is the subject of this Ruling is identified and described in the following documents: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 17. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor, or any associate of an Investor, will be a party to, which are a part of the scheme. Unless otherwise defined, capitalised terms in this Product Ruling take their meaning as per the Master PDS referred to in paragraph 16 of this Ruling. 18. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 19. The details of the Instreet Masti are summarised as follows: | Assumptions: 20. This Ruling is made on the basis of the following assumptions: Commissioner of Taxation 14 January 2015 | Coupons assessable as ordinary income under section 6-5: 21. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. 22. The Coupons receivable by the Investor are a product of their investment in Units under the Instreet Masti, received fully and finally, periodically and may be relied upon to offset any Finance Cost Payments. Accordingly, the Fixed Coupon(s) and any Final Coupon paid or credited by the Issuer to the Investor are ordinary income, assessable under section 6-5 in the income year in which they are paid or credited to the Investor. | Deductibility of Finance Cost Payments under section 8-1: 23. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 24. The Finance Cost Payments incurred by the Investor in respect of their Units under the Instreet Masti have a sufficient connection with the gaining of assessable income (being the Fixed Coupon(s) and any Final Coupon) to be deductible under section 8-1 and are deductible in full on the basis that the Investor's purpose of investing in the Units is to derive a return from these assessable amounts in excess of their expenditure. | Section 82KL: 25. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits' (as defined in section 82KH of the ITAA 1936). Insufficient additional benefits will be provided to trigger the application of section 82KL. Section 82KL will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997. | Sections 82KZME and 82KZMF - prepaid expenditure and 'tax shelter' style arrangements: 26. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 27. A Finance Cost Payment incurred in respect of Units under the Instreet Masti is made in return for the deferral of the payment of the Total Purchase Price until the subsequent Period (or in the case of the final Finance Cost Payment, until the Maturity Date) and 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 Finance Cost Payment relates. [1] 28. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with participation in the Instreet Masti. 29. Section 82KZMF of the ITAA 1936 will have application and apportion over the relevant Period each prepaid Finance Cost Payment incurred by the Investor which is allowable as a deduction under section 8-1 of the ITAA 1997 where the relevant Finance Cost Payment for the expenditure year is incurred on a date other than 1 July; is not excluded expenditure; and the Investor's allowable deduction in respect of that Finance Cost Payment for the expenditure year exceeds their assessable Coupon in that same year. Each of the other requirements for the agreement under subsection 82KZME(3) of the ITAA 1936 are met and none of the other exceptions contained in subsections 82KZME(5), (6), (8) or (9) of the ITAA 1936 apply to exclude Finance Cost Payments incurred from the operation of section 82KZMF of the ITAA 1936. 30. For each of the two years of income during which part of the Period for the Finance Cost Payment occurs, the Investor can deduct an amount using the following formula set out in paragraph 82KZMF(1)(b) of the ITAA 1936: Expenditure * [Number of days of eligible service period in the year of income / Total number of days of eligible service period] | Application of the CGT provisions to Units under the Instreet Masti: 31. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of an Investor in respect of their Units under the Instreet Masti are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 32. Where the Final Coupon (if any) is paid to the Investor, together with either a payment of the Final Value (under a cash settlement) or delivery of the Final Assets (under a physical settlement), the Investor's ownership of the contractual rights in respect of their Units under the Instreet Masti is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 33. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 34. The Investor's capital proceeds from the CGT event will be equal to the Final Value or market value of the Final Assets, as applicable, received on (or shortly after) the Settlement Date (section 116-20). 35. The cost base or reduced cost base of the Investor's rights in respect of their Units under the Instreet Masti includes, as its first element, the Total Purchase Price (subsections 110-25(2) and 110-55(2)). | Subsection 159GP(1) - a Unit is not a 'security': 36. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 37. The Units issued under the Instreet Masti are not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor does it fall within paragraphs (a), (b) or (c) of that definition. Therefore, such Units do not meet the definition of security under subsection 159GP(1) of the ITAA 1936. | Part IVA - anti-avoidance: 38. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply. 38. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: This Product Ruling has been given on the basis that the entity(s) who applied for the Product Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Product Ruling. 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme is referred to as Instreet Masti, offered by Instreet Structured Investment Pty Ltd (the Issuer). 3. This Product Ruling does not address: | Class of entities: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities whose rights and obligations under the Terms will commence on a relevant Commencement Date, being a Commencement Date on or between 14 January 2015 and 30 June 2017, and at the time of entering into the scheme have a purpose of: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:


Appendix: Coupons assessable as ordinary income under section 6-5: 21. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. 22. The Coupons receivable by the Investor are a product of their investment in Units under the Instreet Masti, received fully and finally, periodically and may be relied upon to offset any Finance Cost Payments. Accordingly, the Fixed Coupon(s) and any Final Coupon paid or credited by the Issuer to the Investor are ordinary income, assessable under section 6-5 in the income year in which they are paid or credited to the Investor. | Deductibility of Finance Cost Payments under section 8-1: 23. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 24. The Finance Cost Payments incurred by the Investor in respect of their Units under the Instreet Masti have a sufficient connection with the gaining of assessable income (being the Fixed Coupon(s) and any Final Coupon) to be deductible under section 8-1 and are deductible in full on the basis that the Investor's purpose of investing in the Units is to derive a return from these assessable amounts in excess of their expenditure. | Section 82KL: 25. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits' (as defined in section 82KH of the ITAA 1936). Insufficient additional benefits will be provided to trigger the application of section 82KL. Section 82KL will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997. | Sections 82KZME and 82KZMF - prepaid expenditure and 'tax shelter' style arrangements: 26. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 27. A Finance Cost Payment incurred in respect of Units under the Instreet Masti is made in return for the deferral of the payment of the Total Purchase Price until the subsequent Period (or in the case of the final Finance Cost Payment, until the Maturity Date) and 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 Finance Cost Payment relates. [1] 28. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with participation in the Instreet Masti. 29. Section 82KZMF of the ITAA 1936 will have application and apportion over the relevant Period each prepaid Finance Cost Payment incurred by the Investor which is allowable as a deduction under section 8-1 of the ITAA 1997 where the relevant Finance Cost Payment for the expenditure year is incurred on a date other than 1 July; is not excluded expenditure; and the Investor's allowable deduction in respect of that Finance Cost Payment for the expenditure year exceeds their assessable Coupon in that same year. Each of the other requirements for the agreement under subsection 82KZME(3) of the ITAA 1936 are met and none of the other exceptions contained in subsections 82KZME(5), (6), (8) or (9) of the ITAA 1936 apply to exclude Finance Cost Payments incurred from the operation of section 82KZMF of the ITAA 1936. 30. For each of the two years of income during which part of the Period for the Finance Cost Payment occurs, the Investor can deduct an amount using the following formula set out in paragraph 82KZMF(1)(b) of the ITAA 1936: Expenditure * [Number of days of eligible service period in the year of income / Total number of days of eligible service period] | Application of the CGT provisions to Units under the Instreet Masti: 31. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of an Investor in respect of their Units under the Instreet Masti are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 32. Where the Final Coupon (if any) is paid to the Investor, together with either a payment of the Final Value (under a cash settlement) or delivery of the Final Assets (under a physical settlement), the Investor's ownership of the contractual rights in respect of their Units under the Instreet Masti is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 33. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 34. The Investor's capital proceeds from the CGT event will be equal to the Final Value or market value of the Final Assets, as applicable, received on (or shortly after) the Settlement Date (section 116-20). 35. The cost base or reduced cost base of the Investor's rights in respect of their Units under the Instreet Masti includes, as its first element, the Total Purchase Price (subsections 110-25(2) and 110-55(2)). | Subsection 159GP(1) - a Unit is not a 'security': 36. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 37. The Units issued under the Instreet Masti are not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor does it fall within paragraphs (a), (b) or (c) of that definition. Therefore, such Units do not meet the definition of security under subsection 159GP(1) of the ITAA 1936. | Part IVA - anti-avoidance: 38. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | Appendix 2 - Detailed contents list


Legislative references: ITAA 1936 82KH ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL(1) ITAA 1936 82KZME ITAA 1936 82KZME(3) ITAA 1936 82KZME(4) ITAA 1936 82KZME(5) ITAA 1936 82KZME(6) ITAA 1936 82KZME(8) ITAA 1936 82KZME(9) ITAA 1936 82KZMF ITAA 1936 82KZMF(1)(b) ITAA 1936 159GP(1) ITAA 1936 Pt IVA ITAA 1997 ITAA 1997 6-5 ITAA 1997 8-1 ITAA 1997 104-25 ITAA 1997 104-25(1)(b) ITAA 1997 104-25(3) ITAA 1997 108-5(1) ITAA 1997 110-25(2) ITAA 1997 110-55(2) ITAA 1997 116-20 ITAA 1997 Div 230 ITAA 1997 230-455 SISA 1993 TAA 1953
Subject references: capital gains tax financial products prepaid expenses product rulings public rulings securities taxation administration