Product Ruling PR 2022/2
Date of effect: 1 July 2022

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 that takes part in the scheme to which this Product Ruling relates. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. 2. In this Product Ruling the scheme is referred to as C2 Gateway Deferred Purchase Agreement (DPA), offered by C2 Specialist Investments Pty Ltd (the Issuer). [1] 3. This Product Ruling does not address:

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. Those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities that 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 Issue Date, being an Issue Date on or between 1 July 2022 and 30 June 2025, and that at the time of entering into the scheme and on each interest payment date thereafter: 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of the SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:

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 that takes part in the scheme to which this Product Ruling relates. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. 2. In this Product Ruling the scheme is referred to as C2 Gateway Deferred Purchase Agreement (DPA), offered by C2 Specialist Investments Pty Ltd (the Issuer). [1] 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. Those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities that 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 Issue Date, being an Issue Date on or between 1 July 2022 and 30 June 2025, and that at the time of entering into the scheme and on each interest payment date thereafter: 6. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of the SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:


Appendix: Assessability of trust income: 21. Any Fixed Coupon and Performance Coupon paid by the Issuer on the Units held by the Custodian on trust for the Investor are ordinary income of the trust constituted under the Custody Deed Poll and included in the calculation of the trust estate's net income pursuant to section 95 of the ITAA 1936 in the income year in which they are paid. 22. The Investor shall be assessable under section 97 of the ITAA 1936 on a share of the net income of the trust that reflects the proportion of income of the trust estate to which the Investor is presently entitled. | Deductibility of interest 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. Interest incurred by the Investor on the Investment Loan and the Interest Loan (if applicable) under the C2 Gateway DPA has a sufficient connection with the gaining of assessable income (being trust income) to be deductible under section 8-1 and is 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 of the ITAA 1936: 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 of the ITAA 1936. Section 82KL of the ITAA 1936 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: 26. Subdivision H of Division 3 of Part III (Subdivision H) of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in the carrying on of a business, whether the Investor is a small business entity, whether the Investor is an individual and whether the Investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure', which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts of expenditure that are of a capital nature. | Subdivision 328-C - small business entities for the purposes of Subdivision H of the ITAA 1936: 27. 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 the ITAA 1936: 28. The Prepaid Interest charged on the Investment Loan that is deductible under section 8-1 may or may not 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, 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: 29. 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 under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 30. 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 C2 Gateway DPA, including the financing. 31. Section 82KZMF of the ITAA 1936 will have operation and apportion over the relevant period each Prepaid Interest amount incurred by the Investor which is allowable as a deduction under section 8-1 where: 32. 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), (8) or (9) of the ITAA 1936 apply to exclude Prepaid Interest incurred from the operation of section 82KZMF of the ITAA 1936. | Sections 82KZMA and 82KZMD of the ITAA 1936 - prepaid non-business expenditure incurred by non-individual and non-small business entities: 33. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure that an Investor (other than a small business entity, or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [3] , for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 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. 34. For these Investors, the amount of Prepaid Interest incurred under the Investment Loan which is allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Section 82KZM of the ITAA 1936 - prepaid expenditure incurred by certain small business entities and individuals incurring non-business expenditure: 35. Subject to paragraph 36 of this Product Ruling, section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 for the year of income in which the prepaid expenditure is incurred under an agreement by a taxpayer that is either: 36. Section 82KZM of the ITAA 1936 applies if: 37. Where the Prepaid Interest is not excluded expenditure and the eligible service period in relation to the deductible Prepaid Interest under the Investment Loan is more than 12 months, section 82KZM of the ITAA 1936 will have application to Investors that are a small business entity (or an entity covered by subsection 82KZM(1A) of the ITAA 1936) for the year of income and that have not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure, or to Investors who are individuals that have not incurred the expenditure in carrying on a business. | Application of the capital gains tax provisions to Units under the C2 Gateway Deferred Purchase Agreement: 38. 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 under the Terms to the C2 Gateway DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 39. Where the Final Coupon calculated at Maturity (if any) is paid to the Investor, together with either delivery of the Delivery Parcel or application or payment of the Sale Monies under the Agency Sale Option, the Investor's ownership of the contractual rights under the C2 Gateway DPA is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 40. 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)). 41. The Investor's capital proceeds from the CGT event will be equal to the Sale Monies applied against the Investment Loan on behalf of the Investor and/or received by the Investor under the Agency Sale Option, or the market value of the Delivery Parcel received on (or shortly after) the Settlement Date, as applicable (section 116-20). 42. The cost base or reduced cost base of the Investor's rights under the C2 Gateway DPA includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). | Division 245 - commercial debt forgiveness: 43. The Investment Loan will be treated as a 'commercial debt' under section 245-10. 44. Where the limited recourse provisions of the Investment Loan come into effect, an Investor is not required to repay the shortfall between the Loan Amount and the redemption proceeds of the Units. This will result in the forgiveness of a commercial debt at that time, under paragraph 245-35(a). 45. Under Division 245, where the forgiveness of a commercial debt results in the Investor having a positive 'net forgiven amount', the Investor will be required to reduce certain tax attributes that could otherwise reduce their taxable income (in the same or a later income year), to the extent of the net forgiven amount. 46. To calculate the net forgiven amount of a debt, it is first necessary to calculate the 'gross forgiven amount' of a debt. In the Investor's circumstances, Division 245 will have no practical effect as there will be no gross forgiven amount in respect of the Investment Loan. The gross forgiven amount is equal to the value of the debt when it is forgiven (worked out under section 245-60) less the amount (if any) that is offset against the value of the debt when it is forgiven (worked out under section 245-65). 47. As the value of the Investment Loan when it is forgiven will be equal to the amount that is offset against the value of that loan when it is forgiven, there will be no gross forgiven amount in respect of the Investment Loan (subsection 245-75(2)). 48. Accordingly, the commercial debt forgiveness rules in Division 245 will not reduce the tax attributes of an Investor as a result of the debt forgiveness that occurs when the limited recourse provisions of the Investment Loan come into effect. | Subsection 159GP(1) of the ITAA 1936 - a Unit is not a 'security': 49. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 50. The Units issued under the C2 Gateway DPA 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 do they 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. | Section 25-25 - Loan Establishment Fee: 51. The Loan Establishment Fee, if applicable, incurred by an Investor upon successful application for an Investment Loan will be an allowable deduction pursuant to section 25-25 because it is a cost of borrowing money which is used for the purpose of producing assessable income. The Loan Establishment Fee will be deductible on a straight line basis over the period of the shorter of: © 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


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. | [ Note: This is a consolidated version of this document. Refer to the Legal database (ato.gov.au/law) to check its currency and to view the details of all changes.] | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | Date of effect: 10. This Product Ruling applies from 1 July 2022. It applies only to the specified class of entities that enter into the scheme on a relevant Issue Date (see paragraph 5 of this Product Ruling). This Product Ruling provides advice to the specified class of entities from 1 July 2022 until 30 June 2025, 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 Issue 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 that are considering participating in the scheme are advised to confirm with their tax 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 of this Product Ruling and the assumptions in paragraph 20 of this Product Ruling: | 16. The scheme that is the subject of this Product Ruling 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. | 17. For the purposes of describing the scheme to which this Product Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor, or any associate of an Investor, will be a party to, which are a part of the scheme. | 18. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview: 19. The details of the C2 Gateway DPA are summarised as follows: | Assumptions: 20. This Product Ruling is made on the basis of the following necessary assumptions: | Commissioner of Taxation 23 March 2022 | (a) stock, a bond, debenture, certificate of entitlement, bill of exchange, promissory note or other security; | (b) a deposit with a bank or other financial institution; | (c) a secured or unsecured loan; or | (d) any other contract, whether or not in writing, under which a person is liable to pay an amount or amounts, whether or not the liability is secured.


Legislative references: ITAA 1936 51AAA ITAA 1936 82KH 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(3) ITAA 1936 82KZME(4) ITAA 1936 82KZME(5) ITAA 1936 82KZME(8) ITAA 1936 82KZME(9) ITAA 1936 82KZMF ITAA 1936 95 ITAA 1936 97 ITAA 1936 159GP(1) ITAA 1936 159GP(1)(a) ITAA 1936 159GP(1)(b) ITAA 1936 159GP(1)(c) ITAA 1936 159GP(1)(d) ITAA 1936 Pt IVA ITAA 1997 8-1 ITAA 1997 25-25 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 ITAA 1997 Div 245 ITAA 1997 245-10 ITAA 1997 245-35(a) ITAA 1997 245-60 ITAA 1997 245-65 ITAA 1997 245-75(2) ITAA 1997 Subdiv 328-C ITAA 1997 328-110 TAA 1953 SISA 1993