Class Ruling CR 2015/64
Date of effect: 1 October 2014

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: Class of entities 3. The class of entities to which this Ruling applies are subscribers of Westpac Capital Notes 3 (WCN 3) issued by Westpac Banking Corporation (Westpac) who: In this Ruling, a person belonging to this class of entities is referred to as a Holder. 4. The class of entities to which this Ruling applies does not extend to Holders of WCN 3 who acquired their WCN 3 otherwise than by initial application under the Westpac Capital Notes 3 Prospectus dated and lodged with the Australian Securities and Investments Commission on 6 August 2015 (Prospectus). Qualifications 5. This Ruling does not deal with how the taxation law applies to Holders who hold their WCN 3 as trading stock or revenue assets. 6. This Ruling does not consider the tax implications of Conversion of the WCN 3 on the occurrence of a Capital Trigger Event, Non-Viability Trigger Event, Acquisition Event or Conversion where the Holder does not wish to receive Ordinary Shares or is an Ineligible Holder. 7. This Ruling does not consider how the taxation law applies to a Nominated Party who acquires their WCN 3 under a Transfer Notice. 8. This Ruling does not consider the tax implications of the buy-back of the WCN 3 from the Nominated Party by Westpac. 9. This Ruling does not consider how the gross-up and tax offset rules in Division 207 of the ITAA 1997 apply to partnership or trustee Holders, or to indirect distributions to partners in a partnership, or beneficiaries or trustees of a trust. 10. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 13 to 66 of this Ruling. 11. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies are subscribers of Westpac Capital Notes 3 (WCN 3) issued by Westpac Banking Corporation (Westpac) who: In this Ruling, a person belonging to this class of entities is referred to as a Holder. 4. The class of entities to which this Ruling applies does not extend to Holders of WCN 3 who acquired their WCN 3 otherwise than by initial application under the Westpac Capital Notes 3 Prospectus dated and lodged with the Australian Securities and Investments Commission on 6 August 2015 (Prospectus). | Qualifications: 5. This Ruling does not deal with how the taxation law applies to Holders who hold their WCN 3 as trading stock or revenue assets. 6. This Ruling does not consider the tax implications of Conversion of the WCN 3 on the occurrence of a Capital Trigger Event, Non-Viability Trigger Event, Acquisition Event or Conversion where the Holder does not wish to receive Ordinary Shares or is an Ineligible Holder. 7. This Ruling does not consider how the taxation law applies to a Nominated Party who acquires their WCN 3 under a Transfer Notice. 8. This Ruling does not consider the tax implications of the buy-back of the WCN 3 from the Nominated Party by Westpac. 9. This Ruling does not consider how the gross-up and tax offset rules in Division 207 of the ITAA 1997 apply to partnership or trustee Holders, or to indirect distributions to partners in a partnership, or beneficiaries or trustees of a trust. 10. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 13 to 66 of this Ruling. 11. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 12. This Ruling applies from 1 October 2014 to 30 September 2023. The Ruling continues to apply after 30 September 2023 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 13. The description of the scheme is based on information provided by the applicant: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 14. In this Ruling, unless otherwise defined, capitalised terms take their meaning as specified in the Prospectus and Terms. 15. Westpac is an Australian resident company for income tax purposes. Westpac is listed on the Australian Securities Exchange (ASX). 16. Westpac is an authorised deposit-taking institution for the purposes of the Banking Act 1959 and is subject to regulatory requirements as administered by the Australian Prudential Regulation Authority (APRA), including maintenance of minimum levels of Tier 1 Capital. 17. On 5 August 2015 Westpac announced to the ASX its intention to raise approximately $1.25 billion of Additional Tier 1 Capital through the offer of WCN 3. 18. The proceeds from the issue of the WCN 3 will be used by Westpac for general funding purposes. 19. The WCN 3 have been confirmed by APRA to meet the criteria of Additional Tier 1 Capital for the purposes of the Prudential Standard APS 111 implemented under the Basel III capital reforms (commencing from 1 January 2013). 20. The issue date for the WCN 3 is 8 September 2015. The WCN 3 are expected to be listed on the ASX and trade under the ASX code 'WBCPF'. 21. The offer consists of a Securityholder Offer, a Broker Firm Offer, and an Institutional Offer. 22. The Securityholder Offer is available to registered holders of Ordinary Shares, Westpac TPS, Westpac CPS, Westpac Subordinated Notes 2012, Westpac Subordinated Notes 2013, Westpac Capital Notes and/or Westpac Capital Notes 2 as at 7.00pm Sydney time on 20 July 2015 and who are shown on the register as having an address in Australia. 23. The Broker Firm Offer is available to Australian resident retail clients of the Syndicate Brokers who apply for a broker firm Allocation from a Syndicate Broker under the Prospectus. 24. The Institutional Offer is available to Institutional Investors invited by Westpac Institutional Bank to bid for the WCN 3 in the Bookbuild. 25. There is no general public offer of the WCN 3. However, Westpac reserves the right to accept applications from persons other than Eligible Securityholders, Broker Firm Applicants and Institutional Investors at its discretion. 26. No action has been taken to register or qualify the WCN 3 or the offer of the WCN 3 to otherwise permit a public offering of WCN 3 in any jurisdiction outside of Australia. | Main features of the WCN 3: 27. The WCN 3 are Australian dollar denominated fully paid, non-cumulative, convertible, transferable, redeemable, subordinated, perpetual, unsecured notes issued by Westpac, through its London branch. 28. The issue price for each WCN 3 is $100. | Distribution payment conditions: 29. Payment of any Distribution on a Distribution Payment Date is subject to: 30. A Distribution is only payable to those persons registered as a holder of the WCN 3 on the Record Date for that Distribution. 31. Distributions are only payable in cash and are non-cumulative. If payment of any Distribution is not paid, Westpac has no liability to pay the Distribution to the Holder and the Holder will have no claim, including in a Winding Up, or right to apply for Winding Up in respect of the non-payment. Non-payment of a Distribution does not constitute an event of default. 32. If a Distribution has not been paid to Holders in full on the relevant Distribution Payment Date, Westpac must not determine or pay any dividends on Ordinary Shares or undertake any discretionary Buy Back or Capital Reduction unless the amount of the unpaid Distribution is paid in full within 20 Business Days of that Distribution Payment Date or: and APRA does not otherwise object to the actions listed in (a), (b) or (c) as applicable. The dividend and capital restrictions do not apply in certain circumstances. | Distribution calculation: 33. Subject to the conditions outlined at paragraph 29 of this Ruling, each WCN 3 entitles the Holder to receive on the relevant Distribution Payment Date interest on the Face Value of the WCN 3 (Distribution), calculated using the following formula: Distribution = [Distribution Rate * Face Value * N] / 365 where: Distribution Rate (expressed as a percentage per annum) is calculated using the following formula: Distribution Rate = (Bank Bill Rate + Margin) * (1 - Tax Rate) where: Bank Bill Rate (expressed as a percentage per annum) means, for each Distribution Period, the average mid-rate for bills of a term of 90 days which average rate is displayed on Reuters page BBSW (or any page that replaces that page) at 10.30am (Sydney time) on, in the case of the first Distribution Period, the Issue Date, and in the case of any other Distribution Period, the first Business Day of that Distribution Period, or if there is a manifest error in the calculation of that average rate or that average rate is not displayed at 10.30am (Sydney time) on that date, the rate specified in good faith by Westpac at or around that time on that date having regard, to the extent possible, to: (a) the rates otherwise bid and offered for bills of a term of 90 days or for funds of that tenor displayed on Reuters page BBSW (or any page which replaces that page) at that time on that date, and (b) if bid and offer rates for bills of a term of 90 days are not otherwise available, the rates otherwise bid and offered for funds of that tenor at or around that time on that date, where: Distribution Rate (expressed as a percentage per annum) is calculated using the following formula: Distribution Rate = (Bank Bill Rate + Margin) * (1 - Tax Rate) where: Bank Bill Rate (expressed as a percentage per annum) means, for each Distribution Period, the average mid-rate for bills of a term of 90 days which average rate is displayed on Reuters page BBSW (or any page that replaces that page) at 10.30am (Sydney time) on, in the case of the first Distribution Period, the Issue Date, and in the case of any other Distribution Period, the first Business Day of that Distribution Period, or if there is a manifest error in the calculation of that average rate or that average rate is not displayed at 10.30am (Sydney time) on that date, the rate specified in good faith by Westpac at or around that time on that date having regard, to the extent possible, to: (a) the rates otherwise bid and offered for bills of a term of 90 days or for funds of that tenor displayed on Reuters page BBSW (or any page which replaces that page) at that time on that date, and (b) if bid and offer rates for bills of a term of 90 days are not otherwise available, the rates otherwise bid and offered for funds of that tenor at or around that time on that date, where: Bank Bill Rate (expressed as a percentage per annum) means, for each Distribution Period, the average mid-rate for bills of a term of 90 days which average rate is displayed on Reuters page BBSW (or any page that replaces that page) at 10.30am (Sydney time) on, in the case of the first Distribution Period, the Issue Date, and in the case of any other Distribution Period, the first Business Day of that Distribution Period, or if there is a manifest error in the calculation of that average rate or that average rate is not displayed at 10.30am (Sydney time) on that date, the rate specified in good faith by Westpac at or around that time on that date having regard, to the extent possible, to: Margin is 4.00% per annum Tax Rate (expressed as a decimal) means the Australian corporate tax rate applicable to the franking account of Westpac at the relevant Distribution Payment Date, and N means, in respect of a Distribution Period, the number of days in that Distribution Period. 34. Distributions are expected to be fully franked. However, if any Distribution is not fully franked or only partially franked (other than because of an act by, or circumstance affecting the particular Holder), the Distribution will be grossed-up to the extent that the franking percentage of the Distribution is less than 100%. | Scheduled Conversion: 35. Each WCN 3 converts to a fully paid ordinary share in the capital of Westpac (in other words an Ordinary Share) on the date that is the earlier of: on which the Scheduled Conversion Conditions are satisfied (each a Scheduled Conversion Date). 36. The Scheduled Conversion Conditions are satisfied where: 37. Holders have no right to request Conversion of their WCN 3 at any time. | Automatic Conversion: 38. Automatic Conversion happens upon the occurrence of: Capital Trigger Event 39. A Capital Trigger Event occurs when Westpac determines, or APRA notifies Westpac that it believes, that the Westpac Level 1 Common Equity Tier 1 Capital Ratio and/or Westpac Level 2 Common Equity Tier 1 Capital Ratio (as defined by APRA in its Prudential Standards) is equal to or less than 5.125%. 40. If a Capital Trigger Event occurs, Westpac must notify APRA and convert such number of WCN 3 (or, if it so determines, such percentage of the Face Value of each WCN 3) as is sufficient following conversion or write-down of other Tier 1 Capital of Westpac on a Level 1 or Level 2 basis (Relevant Securities), to return either or both of those capital ratios, as the case may be, to above 5.125%. Non-Viability Trigger Event 41. A Non-Viability Trigger Event occurs when APRA notifies Westpac in writing that it believes: 42. If a Non-Viability Trigger Event occurs due to an APRA determination that a public sector injection of capital or equivalent support is required, Westpac must convert all of the WCN 3. 43. If a Non-Viability Trigger Event occurs for other reasons, Westpac must convert such number of WCN 3, (or, if it so determines, such percentage of the Face Value of each WCN 3), as is equal (following conversion or write-down of other Relevant Securities whose terms require them to be converted or written down before Conversion of WCN 3) to the aggregate face value of capital instruments which APRA has notified Westpac must be converted or written down (or, if APRA has not so notified Westpac, such number or, if Westpac so determines, such percentage of the Face Value of WCN 3, as is necessary (when added to the amount of other Relevant Securities converted or written down) to satisfy APRA that Westpac will no longer be non-viable). 44. The Scheduled Conversion Conditions do not apply to Conversions as a result of a Capital Trigger Event or a Non-Viability Trigger Event. Automatic Conversion upon the occurrence of a Capital Trigger Event or a Non-Viability Trigger Event 45. If a Capital Trigger Event or Non-Viability Trigger Event has occurred and all or some WCN 3 (or a percentage of the Face Value of each WCN 3) are required to be Converted, then: No further rights if Conversion cannot occur 46. If for any reason Conversion of any WCN 3 (or a percentage of the Face Value of any WCN 3) required to be Converted upon the occurrence of a Capital Trigger Event or Non-Viability Trigger Event fails to take effect or does not occur for any other reason and the Ordinary Shares are not issued for any reason in respect of such Conversion by 5.00pm on the fifth Business Day after the Capital Trigger Event Conversion Date or Non-Viability Trigger Event Conversion Date, then the relevant Holders' rights (including to payment of Distributions and Face Value and any other payments) in relation to such WCN 3 or percentage of the Face Value of the WCN 3 are immediately and irrevocably terminated and such termination will be taken to have occurred immediately upon the Capital Trigger Event Date or Non-Viability Trigger Event Date, as the case may be. Acquisition Event 47. If an Acquisition Event occurs then Westpac must Convert all WCN 3 provided the modified Second Scheduled Conversion Condition is satisfied. The modified Second Scheduled Conversion Condition applies to a Conversion following an Acquisition Event as though the proposed Acquisition Event Conversion Date were a Scheduled Conversion Date for the purposes of Scheduled Conversion (except that in the case of an Acquisition Event, the Second Scheduled Conversion Condition will apply as if it referred to 20.20% of the Issue Date VWAP). 48. Conversion pursuant to an Acquisition Event will occur: | Optional Conversion: 49. Westpac may at its option Convert: 50. If the modified Second Scheduled Conversion Condition is not satisfied on the proposed Optional Conversion Date: 51. Optional Conversion may occur even if Westpac, in its absolute discretion, does not pay a Distribution for the final Distribution Period. | Ordinary Shares issued on Conversion: 52. On Conversion: 53. The Conversion Number is calculated according to the following formula: Conversion Number for each WCN 3 = Face Value / [0.99 * VWAP] but is subject to it being no greater than the Maximum Conversion Number which is calculated as follows: Maximum Conversion Number = Face Value / [Relevant Percentage * Issue Date VWAP] 54. The Relevant Percentage will be 0.50 if Conversion occurs on a Scheduled Conversion Date or the Optional Conversion Date and 0.20 if Conversion occurs at any other time. 55. The effective 1% discount on Conversion of the WCN 3 to Ordinary Shares is customary practice in the market for equity of this kind and is designed to compensate investors for transaction costs (i.e. brokerage) which may be incurred on the disposal of the Ordinary Shares they receive on Conversion of the WCN 3. | Optional Redemption: 56. Subject to APRA approval, Westpac may at its option Redeem the WCN 3 in certain circumstances. Redemption means redemption of WCN 3 for their Face Value. 57. The circumstances in which Redemption may occur include: 58. Westpac may only Redeem if: 59. Redemption may occur even if Westpac, in its absolute discretion, does not pay a Distribution for the final Distribution Period. 60. Holders of WCN 3 do not have a right to request Redemption of their WCN 3 at any time. | Transfer on the optional Transfer Date: 61. Westpac may elect that Transfer occur in relation to all or some WCN 3 on 22 March 2021 or all (but not some) of the WCN 3 on a Transfer Date following the occurrence of a Tax Event or Regulatory Event. 62. Transfer means the Transfer of WCN 3 by Holders to a Nominated Party for a cash amount per WCN 3 equal to the Face Value. Nominated Party means one or more third parties selected by Westpac in its absolute discretion (which cannot include a member of the Westpac Group). 63. If Westpac elects to Transfer by issuing a Transfer Notice: 64. Transfer may occur even if Westpac, in its absolute discretion, does not pay a Distribution for the final Distribution Period. 65. Holders do not have a right to request Transfer of their WCN 3. | Other matters: 66. The Ruling is made on the basis that: | Acquisition time of the WCN 3: 67. Under item 2 of the table in section 109-10 of the ITAA 1997, a Holder will acquire their WCN 3 on 8 September 2015, being the date the WCN 3 is issued to them. | Cost base and reduced cost base of the WCN 3: 68. The first element of the cost base and reduced cost base of each WCN 3 is $100, being the money paid by the Holder to acquire the WCN 3 from Westpac (subsections 110-25(2) and 110-55(2) of the ITAA 1997). | Inclusion of Distributions and franking credits in assessable income: 69. Distributions are non-share dividends under section 974-120 of the ITAA 1997 and must be included in the Holders' assessable income (subparagraph 44(1)(a)(ii) of the ITAA 1936). 70. Holders must also include in their assessable income an amount equal to the franking credits attached to the Distribution (subsection 207-20(1) of the ITAA 1997). | Entitlement to a tax offset: 71. Holders will be entitled to a tax offset equal to the franking credit received on Distributions (subsection 207-20(2) of the ITAA 1997) unless the Distribution is exempt income or non-assessable non-exempt income in the hands of the Holder. | Exempt income or non-assessable non-exempt income: 72. To the extent that the Distribution (or a part of it) is either exempt income or non-assessable non-exempt income in the hands of the relevant Holder, then the amount of any franking credit on the Distribution that is exempt income or non-assessable non-exempt income, is not included in the assessable income of the Holder and the Holder is not entitled to a tax offset under Division 207 of the ITAA 1997 (Subdivision 207-D of the ITAA 1997). | Franking credit subject to the refundable tax offset rules: 73. Holders who are entitled to a tax offset under subsection 207-20(2) of the ITAA 1997, in respect of the franking credits received in relation to the WCN 3, will be subject to the refundable tax offset rules in Division 67 of the ITAA 1997, unless they are specifically excluded under section 67-25 of the ITAA 1997. | Imputation benefits - streaming of imputation benefits: 74. The Commissioner will not make a determination under paragraph 204-30(3)(c) of the ITAA 1997 to deny the whole, or any part, of the imputation benefits received by a Holder in relation to the Distributions. | Section 177EA of the ITAA 1936: 75. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefits received by Holders in relation to the Distributions. | Gross-up and tax offset denied in certain circumstances: 76. Section 207-145 of the ITAA 1997 will not apply to the whole, or any part, of the Distributions paid to Holders. Accordingly, section 207-145 will not adjust the gross-up of the Holders' assessable income to exclude the franking credit, nor will it deny the tax offset to which the Holders would have otherwise been entitled. | Each WCN 3 will not be a traditional security: 77. Section 26BB of the ITAA 1936 will not apply to include any amount in the assessable income of Holders upon disposal of their WCN 3. 78. Section 70B of the ITAA 1936 will not apply to allow a deduction to Holders upon disposal of their WCN 3. | The WCN 3 are convertible interests: 79. Each WCN 3 is a convertible interest under item 4 of the table in subsection 974-75(1) of the ITAA 1997. | Conversion of the WCN 3 - ordinary income: 80. As the WCN 3 will be held by Holders on capital account, no amount will be included in the assessable income of a Holder on the Conversion of a WCN 3 under section 6-5 of the ITAA 1997. 81. Similarly, Holders will not incur a deductible loss under section 8-1 of the ITAA 1997 as a consequence of a Conversion. | Allotment of Ordinary Shares on Conversion not a dividend: 82. Other than in respect of a Distribution paid on the Conversion Date, Conversion of the WCN 3 will not result in Holders being taken to have received a dividend as defined in subsection 6(1) of the ITAA 1936. | Conversion of the WCN 3 - CGT implications: 83. CGT event C2 (section 104-25 of the ITAA 1997) will happen for Holders on Conversion of the WCN 3 for Ordinary Shares. Conversion is constituted by the WCN 3 (a convertible interest) being converted into Ordinary Shares. 84. Any capital gain or capital loss made by a Holder from CGT event C2 happening on Conversion of the WCN 3 will be disregarded (subsection 130-60(3) of the ITAA 1997). | Cost base and reduced cost base of Ordinary Shares acquired on Conversion: 85. On Conversion of the WCN 3, Subdivision 130-C of the ITAA 1997 will apply so that the first element of the cost base and reduced cost base of each Ordinary Share acquired from Conversion of a WCN 3 will be a pro-rata portion of the cost base of the WCN 3 at the time of Conversion (item 2 of the table in subsection 130-60(1) of the ITAA 1997). | Acquisition time of Ordinary Shares on Conversion: 86. Ordinary Shares acquired on Conversion of the WCN 3 (being convertible interests) will be taken to be acquired when the Conversion happens on the relevant Conversion Date (subsection 130-60(2) of the ITAA 1997). | Redemption or Transfer of the WCN 3 - ordinary income: 87. As the WCN 3 will be held by Holders on capital account, no amount will be included in the assessable income of a Holder on the Redemption or Transfer of a WCN 3 under section 6-5 of the ITAA 1997. 88. Similarly, Holders will not incur a deductible loss under section 8-1 of the ITAA 1997 as a consequence of Redemption or Transfer of their WCN 3. | Redemption of the WCN 3 - CGT implications: 89. CGT event C2 (section 104-25 of the ITAA 1997) will happen on the Redemption of the WCN 3. Redemption is constituted by the redemption of all or some of the WCN 3 for their Face Value. 90. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Redemption of their WCN 3 under the scheme. 91. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Redemption of their WCN 3. | Transfer of the WCN 3 - CGT implications: 92. CGT event A1 (section 104-10 of the ITAA 1997) will happen on the Transfer of the WCN 3. The Transfer of the WCN 3 will be for the Face Value of the WCN 3. 93. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Transfer of their WCN 3 under the scheme. 94. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Transfer of their WCN 3. | Section 45 of the ITAA 1936: 95. Section 45 of the ITAA 1936 will not apply to treat the value of the Ordinary Shares issued to the Holders on Conversion as an unfrankable dividend paid by Westpac to the Holders. | Section 45A of the ITAA 1936: 96. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the whole, or part of, a capital benefit that arises on Conversion or Redemption of the WCN 3 as an unfranked dividend in the hands of Holders. | Section 45B of the ITAA 1936: 97. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the whole, or part of, a capital benefit that arises on Conversion or Redemption of the WCN 3 as an unfranked dividend in the hands of Holders. Commissioner of Taxation 19 August 2015 | Acquisition time of the WCN 3: 98. An equity interest that is issued or allotted by a company is acquired when the contract is entered into or, if there is no contract, when the equity interests are issued or allotted (item 2 of the table in section 109-10 of the ITAA 1997). 99. A Holder will acquire their WCN 3 on the Issue Date, being the date the WCN 3 is issued. Accordingly for the purposes of item 2 in the table contained in section 109-10 of the ITAA 1997, the WCN 3 will be acquired on 8 September 2015. | Cost base and reduced cost base of the WCN 3: 100. The first element of the cost base and reduced cost base of a CGT asset includes the money paid, or required to be paid, in respect of acquiring the CGT asset (paragraph 110-25(2 )(a) of the ITAA 1997 and subsection 110-55(2) of the ITAA 1997). 101. The issue price of each WCN 3 is $100. Accordingly, when the WCN 3 are issued, the first element of the cost base and reduced cost base of each WCN 3 is $100. | Inclusion of Distributions and franking credits in assessable income: 102. Paragraph 44(1)(a) of the ITAA 1936 provides that the assessable income of a resident shareholder in a company includes all dividends and non-share dividends paid to the shareholder by the company. 103. The WCN 3 are a 'non-share equity interest' as defined in subsection 995-1(1) of the ITAA 1997 and each of the Holders is an 'equity holder' as defined in subsection 995-1(1) of the ITAA 1997. Paragraph 43B(1)(a) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 (which governs dividends) applies to a non-share equity interest in the same way as it applies to a share. Paragraph 43B(1)(b) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 applies to an equity holder in the same way as it applies to a shareholder. 104. Distributions paid in respect of non-share equity interests are non-share distributions pursuant to section 974-115 of the ITAA 1997. 105. The Distributions will not be debited against Westpac's non-share capital account or share capital account. Therefore, Distributions paid in respect of the WCN 3 are non-share dividends under section 974-120 of the ITAA 1997. Accordingly, Holders must include in their assessable income Distributions paid in respect of the WCN 3 under subparagraph 44(1)(a)(ii) of the ITAA 1936. 106. Distributions are expected to be franked. In accordance with subsection 207-20(1) of the ITAA 1997, any franking credit attached to a Distribution must also be included in the relevant Holder's assessable income for the income year in which the Distribution is made. | Entitlement to a tax offset: 107. In accordance with subsection 207-20(2) of the ITAA 1997, Holders are entitled to receive a tax offset equal to the franking credit which has been included in their assessable income in respect of Distributions they receive. | Exempt income or non-assessable non-exempt income: 108. To the extent that the Distribution is exempt income or non-assessable non-exempt income in the hands of the Holder and none of the exceptions in Subdivision 207-E of the ITAA 1997 apply, then the amount of any franking credit on the Distribution that is exempt income or non-assessable non-exempt income, is not included in the assessable income of the Holder and the Holder is not entitled to a tax offset under Division 207 of the ITAA 1997 (Subdivision 207-D of the ITAA 1997). | Franking credit subject to the refundable tax offset rules: 109. Holders who are entitled to a tax offset under subsection 207-20(2) of the ITAA 1997, in respect of the franking credit received, will also be subject to the refundable tax offset rules in Division 67 of the ITAA 1997, unless they are specifically excluded under section 67-25 of the ITAA 1997. 110. The refundable tax offset rules ensure that certain taxpayers are entitled to a refund once their total tax offsets have been utilised to reduce any income tax liability to nil. 111. Entities excluded under section 67-25 of the ITAA 1997 include corporate tax entities (such as companies, corporate limited partnerships, corporate unit trusts and public trading trusts), unless they satisfy the requisite conditions as set out in subsections 67-25(1C) or 67-25(1D) of the ITAA 1997. | Imputation benefits - streaming of imputation benefits: 112. Subdivision 204-D of the ITAA 1997 enables the Commissioner to make a determination where distributions with attached imputation benefits are streamed to a member of a corporate tax entity in preference to another member. 113. Section 204-30 of the ITAA 1997 prescribes the circumstances that are required to exist before the Commissioner may make such a determination. Section 204-30 of the ITAA 1997 applies where an entity 'streams' the payment of distributions in such a way that: 114. If all the conditions in subsection 204-30 are satisfied, the Commissioner may make one or more of the following determinations listed under subsection 204-30(3) of the ITAA 1997: 115. The meaning of the word 'streams' is not defined for the purposes of Subdivision 204-D of the ITAA 1997. However, the Commissioner understands it to refer to a company 'selectively directing the flow of franked distributions to those members who can most benefit from the imputation credits' (paragraph 3.28 of the Explanatory Memorandum to the New Business Tax System (Imputation) Bill 2002). 116. Westpac has indicated that all Holders will receive franked Distributions regardless of their tax attributes or their individual tax position. Westpac's policy in relation to the franking of its frankable distributions is not expected to change as a result of the issue of the WCN 3. 117. Foreign residents will not be precluded from participating in the offer, where the offer is made in accordance with the laws of their jurisdiction. 118. The Ordinary Shares allotted on Conversion of the WCN 3 will not attract the application of section 204-30 of the ITAA 1997. This is because the issue of Ordinary Shares does not constitute a distribution as defined in section 960-120 of the ITAA 1997 and the allotment of Ordinary Shares will not affect Westpac's dividend franking policy. 119. Based on the information provided, the Commissioner has concluded that the requisite element of streaming does not exist in relation to the franked distributions to be paid by Westpac to Holders. Accordingly, the Commissioner will not make a determination under paragraph 204-30(3)(c) of the ITAA 1997 to deny the whole, or any part, of the imputation benefits received by a Holder in relation to Distributions paid in respect of the WCN 3. | Section 177EA of the ITAA 1936: 120. Section 177EA of the ITAA 1936 is a general anti-avoidance provision that applies where one of the purposes (other than an incidental purpose) of the scheme is to obtain an imputation benefit. In these circumstances, subsection 177EA(5) of the ITAA 1936 enables the Commissioner to make a determination with the effect of either: 121. Pursuant to subsection 177EA(3) of the ITAA 1936, the provision applies if the following conditions are satisfied: 122. Subsection 177EA(12) of the ITAA 1936 extends the operation of section 177EA of the ITAA 1936 to non-share equity interests. Subsection 177EA(12) of the ITAA 1936 provides that section 177EA of the ITAA 1936: 123. The Commissioner considers that the conditions in paragraphs 177EA(3)(a) to 177EA(3)(d) of the ITAA 1936 are satisfied because: 124. Accordingly, the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme, did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer (Holders) to obtain an imputation benefit (paragraph 177EA(3)(e) of the ITAA 1936). 125. Circumstances which are relevant in determining whether any person has the requisite purpose include, but are not limited to, the factors listed in subsection 177EA(17) of the ITAA 1936. The relevant circumstances listed encompass a range of circumstances which taken individually or collectively could indicate the requisite purpose. Due to the diverse nature of these circumstances, some may or may not be present at any one time in relation to a particular scheme. 126. Based on the information provided and the qualifications set out in this Ruling, and having regard to all the relevant circumstances of the scheme, the Commissioner has concluded that the purpose of enabling the Holders to obtain imputation benefits is not more than incidental to Westpac's purpose of raising Tier 1 Capital to meet its capital adequacy requirements. 127. Accordingly, the Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefits received by Holders in relation to Distributions. | Gross-up and tax offset denied in certain circumstances: 128. Subdivision 207-F of the ITAA 1997 creates the appropriate adjustment to cancel the effect of the gross-up and tax offset rules where the entity concerned has manipulated the imputation system in a manner that is not permitted under the income tax law. 129. Section 207-145 of the ITAA 1997 provides the circumstances that must exist before this adjustment can occur. Pursuant to subsection 207-145(1) of the ITAA 1997 a 'manipulation of the imputation system' may occur where a franked distribution is made to an entity in one or more of the following circumstances: 130. A person is a 'qualified person' for the purposes of Division 1A of former Part IIIAA of the ITAA 1936 if, generally speaking, they satisfy the holding period rule and the related payments rule (see former section 160APHO of the ITAA 1936). 131. By virtue of former section 160AOA of the ITAA 1936, the holding period rule and the related payments rule apply to non-share equity interests, equity holders and non-share dividends in the same way as they apply to shares, shareholders and dividends respectively. 132. The holding period rule applies where neither the holder nor an associate of the holder has made, is under an obligation to make, or is likely to make, a related payment in respect of the dividend (or non-share dividend), and requires the shares (or non-share equity interests) to have been continuously held at risk throughout the primary qualification period (former paragraph 160APHO(1)(a) of the ITAA 1936). 133. The related payments rule applies where the holder or an associate of the holder has made, is under an obligation to make, or is likely to make, a related payment in respect of the dividend (or non-share dividend) and requires the shares (or non-share equity interests) to have been continuously held at risk throughout the secondary qualification period (former paragraph 160APHO(1)(b) and former section 160APHN of the ITAA 1936). 134. A Holder will be a 'qualified person' in relation to a Distribution received, provided that: 135. If either, or both, of the above two considerations are not met, the Holders will not be a 'qualified person' for the purposes of Division 1A of former Part IIIAA of the ITAA 1936. 136. In determining whether a shareholder is a 'qualified person' in relation to dividends paid on their shares, all 'positions' in respect of the shares are taken into account in identifying a 'net position' to ensure that there is no material diminution in the risks of loss or opportunities for gain. 137. The Commissioner has concluded that the Transfer and Conversion mechanisms in relation to the WCN 3 will not of themselves affect a Holder's risks of loss or opportunities for gain in respect of the WCN 3. Therefore, paragraph 207-145(1)(a) of the ITAA 1997 does not apply. 138. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 or paragraph 204-30(3)(c) of the ITAA 1997 to deny the imputation benefits attached to Distributions paid to Holders. 139. A distribution will be taken to be made as part of a dividend stripping operation, pursuant to paragraph 207-145(1)(d) of the ITAA 1997, where the distribution arose out of, or was made in the course of, a scheme or substantially similar arrangement that was in the nature of dividend stripping. 140. The Prospectus and Terms provide no indication that the offering of the WCN 3 and the associated payment of franked Distributions to Holders in any way constitutes a dividend stripping arrangement. 141. Accordingly, section 207-145 of the ITAA 1997 will not apply to adjust the Holders' assessable income to exclude the franking credit on the Distributions, nor will it deny the tax offset to which the Holders would otherwise be entitled. | Each WCN 3 will not be a traditional security: 142. A traditional security is defined in subsection 26BB(1) of the ITAA 1936 as a security held by the taxpayer that was acquired by the taxpayer after 10 May 1989, is not a prescribed security within the meaning of section 26C of the ITAA 1936, is not trading stock of the taxpayer, and either does not have an eligible return, or has an eligible return that satisfies the conditions listed in the definition of traditional security in subparagraph 26BB(1)(b)(ii) of the ITAA 1936. 143. The term 'security' is defined in subsection 26BB(1) of the ITAA 1936 by reference to subsection 159GP(1) of the ITAA 1936. Pursuant to subsection 159GP(1), 'security' means: 144. The WCN 3 is not stock, a bond, debenture, certificate of entitlement, bill of exchange, or a promissory note. 145. The term 'or other security' in paragraph (a) of the definition of security only encompasses instruments that evidence an obligation on the part of the issuer or drawer to pay an amount to the holder or acceptor, whether during the term of the instrument or at its maturity. The types of securities referred to in paragraph (a) of the definition of security will generally be recognised as debt instruments (Taxation Ruling TR 96/14). 146. Paragraphs (b) and (c) of the definition of security do not apply because the WCN 3 is neither a deposit with a bank or other financial institution, nor a secured or unsecured loan. 147. Only those contracts that have debt like obligations will usually fall under paragraph (d) of the definition of security (TR 96/14). 148. The Terms do not evidence a liability by Westpac to pay an amount or amounts to Holders of the WCN 3 at a particular time. 149. The WCN 3 are perpetual and Holders do not have a right to require Redemption. 150. The payment by Westpac of Distributions is subject to the payment conditions in clause 3.3 of the Terms. Distributions are discretionary and non-cumulative. If a Distribution is not paid, Westpac has no liability to pay the Distribution and Holders have no claim in respect of non-payment. 151. Upon Conversion, Westpac will allot and issue a number of Ordinary Shares based on a formula set out in the Terms for each WCN 3 held by the Holder. Each Holder's rights in relation to each WCN 3 that is being converted are immediately and irrevocably terminated for an amount equal to the Face Value and Westpac will apply that amount by way of payment for the subscription for Ordinary Shares issued to Holders. Westpac cannot be said to have a liability to pay an amount under the Terms of the WCN 3 pursuant to the Conversion. 152. Early Redemption of the WCN 3 is possible. However it is at the option of Westpac and will only occur upon the happening of certain events and requires the prior written approval of APRA. This does not establish a liability on Westpac to pay an amount. 153. Westpac would not become liable to pay an amount under the WCN 3 upon a wind-up if, as it would be expected, before a wind-up commences, the WCN 3 are either converted into Ordinary Shares pursuant to a Capital Trigger Event or a Non-Viability Trigger Event (in which case any distribution would be made to the Holders as ordinary shareholders as opposed to under the terms of the WCN 3), or Holders' rights are terminated where Westpac is not able to issue Ordinary Shares within the time stated in the Terms. 154. The Terms do not exhibit a debt like obligation as contemplated by paragraph (d) of the definition of 'security'. 155. As the WCN 3 is not a security within the meaning of subsection 159GP(1) of the ITAA 1936, it cannot be a traditional security under subsection 26BB of the ITAA 1936. 156. Accordingly section 26BB of the ITAA 1936 will not apply to include any gain upon disposal or redemption of the WCN 3 in the assessable income of the Holder. Section 70B of the ITAA 1936 will not apply to allow a deduction to Holders upon disposal and redemption of their WCN 3. | The WCN 3 are convertible interests: 157. Subsection 995-1(1) of the ITAA 1997 defines a 'convertible interest' in a company as an interest of the kind referred to in item 4 of the table in subsection 974-75(1) of the ITAA 1997. Paragraph (b) of item 4 of the table in subsection 974-75(1) provides that an interest is an equity interest if it is an interest issued by the company that is an interest that will, or may, convert into an equity interest in the company. 158. Under section 974-165 of the ITAA 1997, an interest is an interest that will or may convert into another interest if: 159. Each WCN 3 is a convertible interest because it will or may be redeemed, repaid or satisfied by the issue of Ordinary Shares upon Conversion. | Conversion of the WCN 3 - ordinary income: 160. Section 6-5 of the ITAA 1997 provides that assessable income includes income according to ordinary concepts, otherwise known as ordinary income. 161. Subsection 6-10(2) of the ITAA 1997 also includes in assessable income amounts of statutory income, that is, amounts that are not ordinary income but are included in assessable income by the income tax legislation. Statutory income includes net capital gains (sections 10-5 and 102-5 of the ITAA 1997). 162. The WCN 3 will be held by Holders on capital account as the Holders will acquire a CGT asset pursuant to item 2 in section 109-10 of the ITAA 1997. Accordingly, any capital gain will be statutory income, and no amount will be included in the assessable income of a Holder on the Conversion of a WCN 3 under section 6-5 of the ITAA 1997. 163. Similarly, Holders will not be entitled to a deductible loss under section 8-1 of the ITAA 1997 in respect of the Conversion of their WCN. | Allotment of Ordinary Shares on Conversion not a dividend: 164. On Conversion, Westpac will debit the Face Value of the WCN 3 to its non-share capital account. Accordingly, the issue of Ordinary shares on Conversion is not a non-share dividend and will not be included in assessable income under subparagraph 44(1)(a)(ii) of the ITAA 1936. | Conversion of the WCN 3 - CGT implications: 165. CGT event C2 will happen to Holders on Conversion of the WCN 3. Under paragraph 104-25(1)(f) of the ITAA 1997, CGT event C2 happens if an entity's ownership of an intangible CGT asset ends by the asset (if it is a convertible interest) being converted. 166. The WCN 3 are convertible interests. Conversion of the WCN 3 for Ordinary Shares constitutes the conversion of a convertible interest. 167. Conversion of the WCN 3 happens as part of a conversion to which Subdivision 130-C of the ITAA 1997 applies. Under subsection 130-60(3) of the ITAA 1997, a capital gain or capital loss made from converting a convertible interest is disregarded. Any capital gain or capital loss made by a Holder from CGT event C2 happening on Conversion of the WCN 3 will be disregarded. | Cost base and reduced cost base of Ordinary Shares acquired on Conversion: 168. On Conversion, Subdivision 130-C of the ITAA 1997 will apply so that the first element of the cost base and reduced cost base of each Ordinary Share acquired from Conversion of a WCN 3 will be a pro-rata portion of the cost base of their WCN 3 at the time of Conversion (item 2 of the table in subsection 130-60(1) of the ITAA 1997). | Acquisition time of Ordinary Shares acquired on Conversion: 169. Ordinary Shares acquired on Conversion of the WCN 3 (being convertible interests) will be taken to be acquired when the Conversion happens on the relevant Conversion Date (subsection 130-60(2) of the ITAA 1997). | Redemption or Transfer of the WCN 3 - ordinary income: 170. The WCN 3 will be held by Holders on capital account. Accordingly, no amount will be included in the assessable income of a Holder on the Redemption or Transfer of a WCN 3 under section 6-5 of the ITAA 1997. 171. Similarly, Holders will not be entitled to a deductible loss under section 8-1 of the ITAA 1997 in respect of a Redemption or Transfer of their WCN 3. | Redemption of the WCN 3 - CGT implications: 172. CGT event C2 (section 104-25 of the ITAA 1997) will happen on the Redemption of the WCN 3. Under paragraph 104-25(1)(a) of the ITAA 1997, CGT event C2 happens if an entity's ownership of an intangible CGT asset ends by the asset being redeemed or cancelled. 173. On Redemption, a Holder's ownership of the WCN 3 (being an intangible CGT asset) will end by being redeemed for an amount equal to its Face Value. 174. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Redemption of their WCN 3 under the scheme. 175. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Redemption of their WCN 3 under subparagraph 104-25(3) of the ITAA 1997. | Transfer of the WCN 3 - CGT implications: 176. CGT event A1 (section 104-10 of the ITAA 1997) will happen on the Transfer of the WCN 3. Under section 104-10 of the ITAA 1997, CGT event A1 happens if there is a disposal of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity (subsection 104-10(2) of the ITAA 1997). 177. The Transfer of the WCN 3 constitutes a disposal of a CGT asset as it results in the transfer of the ownership of the WCN 3 from the Holder to the Nominated Party. 178. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Transfer of their WCN 3 under the scheme. 179. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Transfer of their WCN 3 under subparagraph 104-25(3) of the ITAA 1997. | Application of sections 45, 45A and 45B of the ITAA 1936: 180. The WCN 3 are a 'non-share equity interest' as defined in subsection 995-1(1) of the ITAA 1997 and each of the Holders are an 'equity holder' as defined in subsection 995-1(1) of the ITAA 1997.Paragraph 43B(1)(a) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 (which includes sections 45, 45A and 45B) applies to a non-share equity interest in the same way as it applies to a share. Paragraph 43B(1)(b) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 applies to an equity holder in the same way as it applies to a shareholder. | Section 45 of the ITAA 1936: 181. Section 45 of the ITAA 1936 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that the shares are received by some shareholders and minimally franked dividends are received by other shareholders. Minimally franked dividends are dividends which are franked to less than 10%. 182. Westpac expects to pay fully franked dividends to all its shareholders and fully franked distributions to all its holders of non-share equity interests. 183. Based on the information provided and having regard to the circumstances of the scheme, section 45 of the ITAA 1936 will not apply to treat value of Ordinary Shares on Conversion as an unfrankable dividend in the hands of the Holders. | Section 45A of the ITAA 1936: 184. Section 45A of the ITAA 1936 applies in circumstances where a company streams the provision of capital benefits to certain shareholders who derive a greater benefit from the receipt of capital (the advantaged shareholders) and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 185. Where the Commissioner makes a written determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole or part of the capital benefits, the capital benefits will be treated as unfranked dividends paid out of the company's profits. 186. The issue of Ordinary Shares to Holders on Conversion will constitute the provision of capital benefits pursuant to paragraph 45A(3)(a) of the ITAA 1936. 187. In the absence of any other factors that would contribute to an alternative conclusion, the issue of Ordinary Shares on Conversion will not be considered to be streaming the provision of capital benefits. 188. The Redemption will involve the provision of a capital benefit within the meaning of subsection 45A(3)(b) of the ITAA 1936 (by virtue subsection 45A(3A) of the ITAA 1936) as it will constitute a non-share capital return. The amount paid to Holders on Redemption is limited to the amount of the Face Value of the WCN 3 and any Distribution entitlements on the WCN 3 will be separately paid as Distributions given that the Redemption Date will also be a Distribution Payment Date under the Terms. 189. Accordingly, it cannot be said that Holders would derive a greater benefit from capital benefits than other Westpac shareholders. 190. Therefore, the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefits provided to the Holders when the Ordinary Shares are issued to the Holders on Conversion or Redemption. | Section 45B of the ITAA 1936: 191. Subsection 45B(1) of the ITAA 1936 applies where certain capital benefits are provided to shareholders in substitution for dividends and the conditions in subsection 45B(2) of the ITAA 1936 are met. 192. Where the requirements of subsection 45B(2) of the ITAA 1936 are met, paragraph 45B(3)(b) of the ITAA 1936 empowers the Commissioner to make a determination that section 45C of the ITAA 1936 applies such that the capital benefit is taken to be an unfranked dividend. 193. The issue of Ordinary Shares to Holders on Conversion will constitute a scheme under which the Holders are provided with a capital benefit by Westpac (paragraph 45B(5)(a) of the ITAA 1936). Similarly, Redemption will also constitute a scheme under which the Holders are provided with a capital benefit by Westpac (paragraph 45B(5)(b) of the ITAA 1936 by virtue of subsection 45B(7) of the ITAA 1936 as it will constitute a non-share capital return). 194. For the provision to apply, among other things, paragraph 45B(2)(c) of the ITAA 1936 requires that, having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, entered into the scheme or carried out the scheme or any part of the scheme for a purpose, other than an incidental purpose, of enabling a taxpayer to obtain a tax benefit. A non-exhaustive list of relevant circumstances of the scheme are provided in subsection 45B(8) of the ITAA 1936. 195. Having regard to the relevant circumstances of the scheme, it cannot be concluded that Westpac, the Holders or any other person entered into or carried out any part of the scheme did so for more than an incidental purpose of enabling Holders to obtain a tax benefit. 196. Accordingly, the Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit provided to Holders when Ordinary Shares are issued to the Holders on Conversion or Redemption. 197. 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: Acquisition time of the WCN 3: 67. Under item 2 of the table in section 109-10 of the ITAA 1997, a Holder will acquire their WCN 3 on 8 September 2015, being the date the WCN 3 is issued to them. | Cost base and reduced cost base of the WCN 3: 68. The first element of the cost base and reduced cost base of each WCN 3 is $100, being the money paid by the Holder to acquire the WCN 3 from Westpac (subsections 110-25(2) and 110-55(2) of the ITAA 1997). | Inclusion of Distributions and franking credits in assessable income: 69. Distributions are non-share dividends under section 974-120 of the ITAA 1997 and must be included in the Holders' assessable income (subparagraph 44(1)(a)(ii) of the ITAA 1936). 70. Holders must also include in their assessable income an amount equal to the franking credits attached to the Distribution (subsection 207-20(1) of the ITAA 1997). | Entitlement to a tax offset: 71. Holders will be entitled to a tax offset equal to the franking credit received on Distributions (subsection 207-20(2) of the ITAA 1997) unless the Distribution is exempt income or non-assessable non-exempt income in the hands of the Holder. | Exempt income or non-assessable non-exempt income: 72. To the extent that the Distribution (or a part of it) is either exempt income or non-assessable non-exempt income in the hands of the relevant Holder, then the amount of any franking credit on the Distribution that is exempt income or non-assessable non-exempt income, is not included in the assessable income of the Holder and the Holder is not entitled to a tax offset under Division 207 of the ITAA 1997 (Subdivision 207-D of the ITAA 1997). | Franking credit subject to the refundable tax offset rules: 73. Holders who are entitled to a tax offset under subsection 207-20(2) of the ITAA 1997, in respect of the franking credits received in relation to the WCN 3, will be subject to the refundable tax offset rules in Division 67 of the ITAA 1997, unless they are specifically excluded under section 67-25 of the ITAA 1997. | Imputation benefits - streaming of imputation benefits: 74. The Commissioner will not make a determination under paragraph 204-30(3)(c) of the ITAA 1997 to deny the whole, or any part, of the imputation benefits received by a Holder in relation to the Distributions. | Section 177EA of the ITAA 1936: 75. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefits received by Holders in relation to the Distributions. | Gross-up and tax offset denied in certain circumstances: 76. Section 207-145 of the ITAA 1997 will not apply to the whole, or any part, of the Distributions paid to Holders. Accordingly, section 207-145 will not adjust the gross-up of the Holders' assessable income to exclude the franking credit, nor will it deny the tax offset to which the Holders would have otherwise been entitled. | Each WCN 3 will not be a traditional security: 77. Section 26BB of the ITAA 1936 will not apply to include any amount in the assessable income of Holders upon disposal of their WCN 3. 78. Section 70B of the ITAA 1936 will not apply to allow a deduction to Holders upon disposal of their WCN 3. | The WCN 3 are convertible interests: 79. Each WCN 3 is a convertible interest under item 4 of the table in subsection 974-75(1) of the ITAA 1997. | Conversion of the WCN 3 - ordinary income: 80. As the WCN 3 will be held by Holders on capital account, no amount will be included in the assessable income of a Holder on the Conversion of a WCN 3 under section 6-5 of the ITAA 1997. 81. Similarly, Holders will not incur a deductible loss under section 8-1 of the ITAA 1997 as a consequence of a Conversion. | Allotment of Ordinary Shares on Conversion not a dividend: 82. Other than in respect of a Distribution paid on the Conversion Date, Conversion of the WCN 3 will not result in Holders being taken to have received a dividend as defined in subsection 6(1) of the ITAA 1936. | Conversion of the WCN 3 - CGT implications: 83. CGT event C2 (section 104-25 of the ITAA 1997) will happen for Holders on Conversion of the WCN 3 for Ordinary Shares. Conversion is constituted by the WCN 3 (a convertible interest) being converted into Ordinary Shares. 84. Any capital gain or capital loss made by a Holder from CGT event C2 happening on Conversion of the WCN 3 will be disregarded (subsection 130-60(3) of the ITAA 1997). | Cost base and reduced cost base of Ordinary Shares acquired on Conversion: 85. On Conversion of the WCN 3, Subdivision 130-C of the ITAA 1997 will apply so that the first element of the cost base and reduced cost base of each Ordinary Share acquired from Conversion of a WCN 3 will be a pro-rata portion of the cost base of the WCN 3 at the time of Conversion (item 2 of the table in subsection 130-60(1) of the ITAA 1997). | Acquisition time of Ordinary Shares on Conversion: 86. Ordinary Shares acquired on Conversion of the WCN 3 (being convertible interests) will be taken to be acquired when the Conversion happens on the relevant Conversion Date (subsection 130-60(2) of the ITAA 1997). | Redemption or Transfer of the WCN 3 - ordinary income: 87. As the WCN 3 will be held by Holders on capital account, no amount will be included in the assessable income of a Holder on the Redemption or Transfer of a WCN 3 under section 6-5 of the ITAA 1997. 88. Similarly, Holders will not incur a deductible loss under section 8-1 of the ITAA 1997 as a consequence of Redemption or Transfer of their WCN 3. | Redemption of the WCN 3 - CGT implications: 89. CGT event C2 (section 104-25 of the ITAA 1997) will happen on the Redemption of the WCN 3. Redemption is constituted by the redemption of all or some of the WCN 3 for their Face Value. 90. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Redemption of their WCN 3 under the scheme. 91. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Redemption of their WCN 3. | Transfer of the WCN 3 - CGT implications: 92. CGT event A1 (section 104-10 of the ITAA 1997) will happen on the Transfer of the WCN 3. The Transfer of the WCN 3 will be for the Face Value of the WCN 3. 93. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Transfer of their WCN 3 under the scheme. 94. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Transfer of their WCN 3. | Section 45 of the ITAA 1936: 95. Section 45 of the ITAA 1936 will not apply to treat the value of the Ordinary Shares issued to the Holders on Conversion as an unfrankable dividend paid by Westpac to the Holders. | Section 45A of the ITAA 1936: 96. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the whole, or part of, a capital benefit that arises on Conversion or Redemption of the WCN 3 as an unfranked dividend in the hands of Holders. | Section 45B of the ITAA 1936: 97. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the whole, or part of, a capital benefit that arises on Conversion or Redemption of the WCN 3 as an unfranked dividend in the hands of Holders. Commissioner of Taxation 19 August 2015


Appendix: Acquisition time of the WCN 3: 98. An equity interest that is issued or allotted by a company is acquired when the contract is entered into or, if there is no contract, when the equity interests are issued or allotted (item 2 of the table in section 109-10 of the ITAA 1997). 99. A Holder will acquire their WCN 3 on the Issue Date, being the date the WCN 3 is issued. Accordingly for the purposes of item 2 in the table contained in section 109-10 of the ITAA 1997, the WCN 3 will be acquired on 8 September 2015. | Cost base and reduced cost base of the WCN 3: 100. The first element of the cost base and reduced cost base of a CGT asset includes the money paid, or required to be paid, in respect of acquiring the CGT asset (paragraph 110-25(2 )(a) of the ITAA 1997 and subsection 110-55(2) of the ITAA 1997). 101. The issue price of each WCN 3 is $100. Accordingly, when the WCN 3 are issued, the first element of the cost base and reduced cost base of each WCN 3 is $100. | Inclusion of Distributions and franking credits in assessable income: 102. Paragraph 44(1)(a) of the ITAA 1936 provides that the assessable income of a resident shareholder in a company includes all dividends and non-share dividends paid to the shareholder by the company. 103. The WCN 3 are a 'non-share equity interest' as defined in subsection 995-1(1) of the ITAA 1997 and each of the Holders is an 'equity holder' as defined in subsection 995-1(1) of the ITAA 1997. Paragraph 43B(1)(a) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 (which governs dividends) applies to a non-share equity interest in the same way as it applies to a share. Paragraph 43B(1)(b) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 applies to an equity holder in the same way as it applies to a shareholder. 104. Distributions paid in respect of non-share equity interests are non-share distributions pursuant to section 974-115 of the ITAA 1997. 105. The Distributions will not be debited against Westpac's non-share capital account or share capital account. Therefore, Distributions paid in respect of the WCN 3 are non-share dividends under section 974-120 of the ITAA 1997. Accordingly, Holders must include in their assessable income Distributions paid in respect of the WCN 3 under subparagraph 44(1)(a)(ii) of the ITAA 1936. 106. Distributions are expected to be franked. In accordance with subsection 207-20(1) of the ITAA 1997, any franking credit attached to a Distribution must also be included in the relevant Holder's assessable income for the income year in which the Distribution is made. | Entitlement to a tax offset: 107. In accordance with subsection 207-20(2) of the ITAA 1997, Holders are entitled to receive a tax offset equal to the franking credit which has been included in their assessable income in respect of Distributions they receive. | Exempt income or non-assessable non-exempt income: 108. To the extent that the Distribution is exempt income or non-assessable non-exempt income in the hands of the Holder and none of the exceptions in Subdivision 207-E of the ITAA 1997 apply, then the amount of any franking credit on the Distribution that is exempt income or non-assessable non-exempt income, is not included in the assessable income of the Holder and the Holder is not entitled to a tax offset under Division 207 of the ITAA 1997 (Subdivision 207-D of the ITAA 1997). | Franking credit subject to the refundable tax offset rules: 109. Holders who are entitled to a tax offset under subsection 207-20(2) of the ITAA 1997, in respect of the franking credit received, will also be subject to the refundable tax offset rules in Division 67 of the ITAA 1997, unless they are specifically excluded under section 67-25 of the ITAA 1997. 110. The refundable tax offset rules ensure that certain taxpayers are entitled to a refund once their total tax offsets have been utilised to reduce any income tax liability to nil. 111. Entities excluded under section 67-25 of the ITAA 1997 include corporate tax entities (such as companies, corporate limited partnerships, corporate unit trusts and public trading trusts), unless they satisfy the requisite conditions as set out in subsections 67-25(1C) or 67-25(1D) of the ITAA 1997. | Imputation benefits - streaming of imputation benefits: 112. Subdivision 204-D of the ITAA 1997 enables the Commissioner to make a determination where distributions with attached imputation benefits are streamed to a member of a corporate tax entity in preference to another member. 113. Section 204-30 of the ITAA 1997 prescribes the circumstances that are required to exist before the Commissioner may make such a determination. Section 204-30 of the ITAA 1997 applies where an entity 'streams' the payment of distributions in such a way that: 114. If all the conditions in subsection 204-30 are satisfied, the Commissioner may make one or more of the following determinations listed under subsection 204-30(3) of the ITAA 1997: 115. The meaning of the word 'streams' is not defined for the purposes of Subdivision 204-D of the ITAA 1997. However, the Commissioner understands it to refer to a company 'selectively directing the flow of franked distributions to those members who can most benefit from the imputation credits' (paragraph 3.28 of the Explanatory Memorandum to the New Business Tax System (Imputation) Bill 2002). 116. Westpac has indicated that all Holders will receive franked Distributions regardless of their tax attributes or their individual tax position. Westpac's policy in relation to the franking of its frankable distributions is not expected to change as a result of the issue of the WCN 3. 117. Foreign residents will not be precluded from participating in the offer, where the offer is made in accordance with the laws of their jurisdiction. 118. The Ordinary Shares allotted on Conversion of the WCN 3 will not attract the application of section 204-30 of the ITAA 1997. This is because the issue of Ordinary Shares does not constitute a distribution as defined in section 960-120 of the ITAA 1997 and the allotment of Ordinary Shares will not affect Westpac's dividend franking policy. 119. Based on the information provided, the Commissioner has concluded that the requisite element of streaming does not exist in relation to the franked distributions to be paid by Westpac to Holders. Accordingly, the Commissioner will not make a determination under paragraph 204-30(3)(c) of the ITAA 1997 to deny the whole, or any part, of the imputation benefits received by a Holder in relation to Distributions paid in respect of the WCN 3. | Section 177EA of the ITAA 1936: 120. Section 177EA of the ITAA 1936 is a general anti-avoidance provision that applies where one of the purposes (other than an incidental purpose) of the scheme is to obtain an imputation benefit. In these circumstances, subsection 177EA(5) of the ITAA 1936 enables the Commissioner to make a determination with the effect of either: 121. Pursuant to subsection 177EA(3) of the ITAA 1936, the provision applies if the following conditions are satisfied: 122. Subsection 177EA(12) of the ITAA 1936 extends the operation of section 177EA of the ITAA 1936 to non-share equity interests. Subsection 177EA(12) of the ITAA 1936 provides that section 177EA of the ITAA 1936: 123. The Commissioner considers that the conditions in paragraphs 177EA(3)(a) to 177EA(3)(d) of the ITAA 1936 are satisfied because: 124. Accordingly, the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme, did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer (Holders) to obtain an imputation benefit (paragraph 177EA(3)(e) of the ITAA 1936). 125. Circumstances which are relevant in determining whether any person has the requisite purpose include, but are not limited to, the factors listed in subsection 177EA(17) of the ITAA 1936. The relevant circumstances listed encompass a range of circumstances which taken individually or collectively could indicate the requisite purpose. Due to the diverse nature of these circumstances, some may or may not be present at any one time in relation to a particular scheme. 126. Based on the information provided and the qualifications set out in this Ruling, and having regard to all the relevant circumstances of the scheme, the Commissioner has concluded that the purpose of enabling the Holders to obtain imputation benefits is not more than incidental to Westpac's purpose of raising Tier 1 Capital to meet its capital adequacy requirements. 127. Accordingly, the Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefits received by Holders in relation to Distributions. | Gross-up and tax offset denied in certain circumstances: 128. Subdivision 207-F of the ITAA 1997 creates the appropriate adjustment to cancel the effect of the gross-up and tax offset rules where the entity concerned has manipulated the imputation system in a manner that is not permitted under the income tax law. 129. Section 207-145 of the ITAA 1997 provides the circumstances that must exist before this adjustment can occur. Pursuant to subsection 207-145(1) of the ITAA 1997 a 'manipulation of the imputation system' may occur where a franked distribution is made to an entity in one or more of the following circumstances: 130. A person is a 'qualified person' for the purposes of Division 1A of former Part IIIAA of the ITAA 1936 if, generally speaking, they satisfy the holding period rule and the related payments rule (see former section 160APHO of the ITAA 1936). 131. By virtue of former section 160AOA of the ITAA 1936, the holding period rule and the related payments rule apply to non-share equity interests, equity holders and non-share dividends in the same way as they apply to shares, shareholders and dividends respectively. 132. The holding period rule applies where neither the holder nor an associate of the holder has made, is under an obligation to make, or is likely to make, a related payment in respect of the dividend (or non-share dividend), and requires the shares (or non-share equity interests) to have been continuously held at risk throughout the primary qualification period (former paragraph 160APHO(1)(a) of the ITAA 1936). 133. The related payments rule applies where the holder or an associate of the holder has made, is under an obligation to make, or is likely to make, a related payment in respect of the dividend (or non-share dividend) and requires the shares (or non-share equity interests) to have been continuously held at risk throughout the secondary qualification period (former paragraph 160APHO(1)(b) and former section 160APHN of the ITAA 1936). 134. A Holder will be a 'qualified person' in relation to a Distribution received, provided that: 135. If either, or both, of the above two considerations are not met, the Holders will not be a 'qualified person' for the purposes of Division 1A of former Part IIIAA of the ITAA 1936. 136. In determining whether a shareholder is a 'qualified person' in relation to dividends paid on their shares, all 'positions' in respect of the shares are taken into account in identifying a 'net position' to ensure that there is no material diminution in the risks of loss or opportunities for gain. 137. The Commissioner has concluded that the Transfer and Conversion mechanisms in relation to the WCN 3 will not of themselves affect a Holder's risks of loss or opportunities for gain in respect of the WCN 3. Therefore, paragraph 207-145(1)(a) of the ITAA 1997 does not apply. 138. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 or paragraph 204-30(3)(c) of the ITAA 1997 to deny the imputation benefits attached to Distributions paid to Holders. 139. A distribution will be taken to be made as part of a dividend stripping operation, pursuant to paragraph 207-145(1)(d) of the ITAA 1997, where the distribution arose out of, or was made in the course of, a scheme or substantially similar arrangement that was in the nature of dividend stripping. 140. The Prospectus and Terms provide no indication that the offering of the WCN 3 and the associated payment of franked Distributions to Holders in any way constitutes a dividend stripping arrangement. 141. Accordingly, section 207-145 of the ITAA 1997 will not apply to adjust the Holders' assessable income to exclude the franking credit on the Distributions, nor will it deny the tax offset to which the Holders would otherwise be entitled. | Each WCN 3 will not be a traditional security: 142. A traditional security is defined in subsection 26BB(1) of the ITAA 1936 as a security held by the taxpayer that was acquired by the taxpayer after 10 May 1989, is not a prescribed security within the meaning of section 26C of the ITAA 1936, is not trading stock of the taxpayer, and either does not have an eligible return, or has an eligible return that satisfies the conditions listed in the definition of traditional security in subparagraph 26BB(1)(b)(ii) of the ITAA 1936. 143. The term 'security' is defined in subsection 26BB(1) of the ITAA 1936 by reference to subsection 159GP(1) of the ITAA 1936. Pursuant to subsection 159GP(1), 'security' means: 144. The WCN 3 is not stock, a bond, debenture, certificate of entitlement, bill of exchange, or a promissory note. 145. The term 'or other security' in paragraph (a) of the definition of security only encompasses instruments that evidence an obligation on the part of the issuer or drawer to pay an amount to the holder or acceptor, whether during the term of the instrument or at its maturity. The types of securities referred to in paragraph (a) of the definition of security will generally be recognised as debt instruments (Taxation Ruling TR 96/14). 146. Paragraphs (b) and (c) of the definition of security do not apply because the WCN 3 is neither a deposit with a bank or other financial institution, nor a secured or unsecured loan. 147. Only those contracts that have debt like obligations will usually fall under paragraph (d) of the definition of security (TR 96/14). 148. The Terms do not evidence a liability by Westpac to pay an amount or amounts to Holders of the WCN 3 at a particular time. 149. The WCN 3 are perpetual and Holders do not have a right to require Redemption. 150. The payment by Westpac of Distributions is subject to the payment conditions in clause 3.3 of the Terms. Distributions are discretionary and non-cumulative. If a Distribution is not paid, Westpac has no liability to pay the Distribution and Holders have no claim in respect of non-payment. 151. Upon Conversion, Westpac will allot and issue a number of Ordinary Shares based on a formula set out in the Terms for each WCN 3 held by the Holder. Each Holder's rights in relation to each WCN 3 that is being converted are immediately and irrevocably terminated for an amount equal to the Face Value and Westpac will apply that amount by way of payment for the subscription for Ordinary Shares issued to Holders. Westpac cannot be said to have a liability to pay an amount under the Terms of the WCN 3 pursuant to the Conversion. 152. Early Redemption of the WCN 3 is possible. However it is at the option of Westpac and will only occur upon the happening of certain events and requires the prior written approval of APRA. This does not establish a liability on Westpac to pay an amount. 153. Westpac would not become liable to pay an amount under the WCN 3 upon a wind-up if, as it would be expected, before a wind-up commences, the WCN 3 are either converted into Ordinary Shares pursuant to a Capital Trigger Event or a Non-Viability Trigger Event (in which case any distribution would be made to the Holders as ordinary shareholders as opposed to under the terms of the WCN 3), or Holders' rights are terminated where Westpac is not able to issue Ordinary Shares within the time stated in the Terms. 154. The Terms do not exhibit a debt like obligation as contemplated by paragraph (d) of the definition of 'security'. 155. As the WCN 3 is not a security within the meaning of subsection 159GP(1) of the ITAA 1936, it cannot be a traditional security under subsection 26BB of the ITAA 1936. 156. Accordingly section 26BB of the ITAA 1936 will not apply to include any gain upon disposal or redemption of the WCN 3 in the assessable income of the Holder. Section 70B of the ITAA 1936 will not apply to allow a deduction to Holders upon disposal and redemption of their WCN 3. | The WCN 3 are convertible interests: 157. Subsection 995-1(1) of the ITAA 1997 defines a 'convertible interest' in a company as an interest of the kind referred to in item 4 of the table in subsection 974-75(1) of the ITAA 1997. Paragraph (b) of item 4 of the table in subsection 974-75(1) provides that an interest is an equity interest if it is an interest issued by the company that is an interest that will, or may, convert into an equity interest in the company. 158. Under section 974-165 of the ITAA 1997, an interest is an interest that will or may convert into another interest if: 159. Each WCN 3 is a convertible interest because it will or may be redeemed, repaid or satisfied by the issue of Ordinary Shares upon Conversion. | Conversion of the WCN 3 - ordinary income: 160. Section 6-5 of the ITAA 1997 provides that assessable income includes income according to ordinary concepts, otherwise known as ordinary income. 161. Subsection 6-10(2) of the ITAA 1997 also includes in assessable income amounts of statutory income, that is, amounts that are not ordinary income but are included in assessable income by the income tax legislation. Statutory income includes net capital gains (sections 10-5 and 102-5 of the ITAA 1997). 162. The WCN 3 will be held by Holders on capital account as the Holders will acquire a CGT asset pursuant to item 2 in section 109-10 of the ITAA 1997. Accordingly, any capital gain will be statutory income, and no amount will be included in the assessable income of a Holder on the Conversion of a WCN 3 under section 6-5 of the ITAA 1997. 163. Similarly, Holders will not be entitled to a deductible loss under section 8-1 of the ITAA 1997 in respect of the Conversion of their WCN. | Allotment of Ordinary Shares on Conversion not a dividend: 164. On Conversion, Westpac will debit the Face Value of the WCN 3 to its non-share capital account. Accordingly, the issue of Ordinary shares on Conversion is not a non-share dividend and will not be included in assessable income under subparagraph 44(1)(a)(ii) of the ITAA 1936. | Conversion of the WCN 3 - CGT implications: 165. CGT event C2 will happen to Holders on Conversion of the WCN 3. Under paragraph 104-25(1)(f) of the ITAA 1997, CGT event C2 happens if an entity's ownership of an intangible CGT asset ends by the asset (if it is a convertible interest) being converted. 166. The WCN 3 are convertible interests. Conversion of the WCN 3 for Ordinary Shares constitutes the conversion of a convertible interest. 167. Conversion of the WCN 3 happens as part of a conversion to which Subdivision 130-C of the ITAA 1997 applies. Under subsection 130-60(3) of the ITAA 1997, a capital gain or capital loss made from converting a convertible interest is disregarded. Any capital gain or capital loss made by a Holder from CGT event C2 happening on Conversion of the WCN 3 will be disregarded. | Cost base and reduced cost base of Ordinary Shares acquired on Conversion: 168. On Conversion, Subdivision 130-C of the ITAA 1997 will apply so that the first element of the cost base and reduced cost base of each Ordinary Share acquired from Conversion of a WCN 3 will be a pro-rata portion of the cost base of their WCN 3 at the time of Conversion (item 2 of the table in subsection 130-60(1) of the ITAA 1997). | Acquisition time of Ordinary Shares acquired on Conversion: 169. Ordinary Shares acquired on Conversion of the WCN 3 (being convertible interests) will be taken to be acquired when the Conversion happens on the relevant Conversion Date (subsection 130-60(2) of the ITAA 1997). | Redemption or Transfer of the WCN 3 - ordinary income: 170. The WCN 3 will be held by Holders on capital account. Accordingly, no amount will be included in the assessable income of a Holder on the Redemption or Transfer of a WCN 3 under section 6-5 of the ITAA 1997. 171. Similarly, Holders will not be entitled to a deductible loss under section 8-1 of the ITAA 1997 in respect of a Redemption or Transfer of their WCN 3. | Redemption of the WCN 3 - CGT implications: 172. CGT event C2 (section 104-25 of the ITAA 1997) will happen on the Redemption of the WCN 3. Under paragraph 104-25(1)(a) of the ITAA 1997, CGT event C2 happens if an entity's ownership of an intangible CGT asset ends by the asset being redeemed or cancelled. 173. On Redemption, a Holder's ownership of the WCN 3 (being an intangible CGT asset) will end by being redeemed for an amount equal to its Face Value. 174. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Redemption of their WCN 3 under the scheme. 175. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Redemption of their WCN 3 under subparagraph 104-25(3) of the ITAA 1997. | Transfer of the WCN 3 - CGT implications: 176. CGT event A1 (section 104-10 of the ITAA 1997) will happen on the Transfer of the WCN 3. Under section 104-10 of the ITAA 1997, CGT event A1 happens if there is a disposal of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity (subsection 104-10(2) of the ITAA 1997). 177. The Transfer of the WCN 3 constitutes a disposal of a CGT asset as it results in the transfer of the ownership of the WCN 3 from the Holder to the Nominated Party. 178. As the capital proceeds received by Holders will not be more than the cost base of the WCN 3, Holders should not make a capital gain as a result of the Transfer of their WCN 3 under the scheme. 179. If the Face Value of the WCN 3 has been reduced because there has been a Capital Trigger Event or a Non-Viability Trigger Event, Holders will make a capital loss on the Transfer of their WCN 3 under subparagraph 104-25(3) of the ITAA 1997. | Application of sections 45, 45A and 45B of the ITAA 1936: 180. The WCN 3 are a 'non-share equity interest' as defined in subsection 995-1(1) of the ITAA 1997 and each of the Holders are an 'equity holder' as defined in subsection 995-1(1) of the ITAA 1997.Paragraph 43B(1)(a) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 (which includes sections 45, 45A and 45B) applies to a non-share equity interest in the same way as it applies to a share. Paragraph 43B(1)(b) of the ITAA 1936 provides that Subdivision D of Division 2 of Part III of the ITAA 1936 applies to an equity holder in the same way as it applies to a shareholder. | Section 45 of the ITAA 1936: 181. Section 45 of the ITAA 1936 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that the shares are received by some shareholders and minimally franked dividends are received by other shareholders. Minimally franked dividends are dividends which are franked to less than 10%. 182. Westpac expects to pay fully franked dividends to all its shareholders and fully franked distributions to all its holders of non-share equity interests. 183. Based on the information provided and having regard to the circumstances of the scheme, section 45 of the ITAA 1936 will not apply to treat value of Ordinary Shares on Conversion as an unfrankable dividend in the hands of the Holders. | Section 45A of the ITAA 1936: 184. Section 45A of the ITAA 1936 applies in circumstances where a company streams the provision of capital benefits to certain shareholders who derive a greater benefit from the receipt of capital (the advantaged shareholders) and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 185. Where the Commissioner makes a written determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole or part of the capital benefits, the capital benefits will be treated as unfranked dividends paid out of the company's profits. 186. The issue of Ordinary Shares to Holders on Conversion will constitute the provision of capital benefits pursuant to paragraph 45A(3)(a) of the ITAA 1936. 187. In the absence of any other factors that would contribute to an alternative conclusion, the issue of Ordinary Shares on Conversion will not be considered to be streaming the provision of capital benefits. 188. The Redemption will involve the provision of a capital benefit within the meaning of subsection 45A(3)(b) of the ITAA 1936 (by virtue subsection 45A(3A) of the ITAA 1936) as it will constitute a non-share capital return. The amount paid to Holders on Redemption is limited to the amount of the Face Value of the WCN 3 and any Distribution entitlements on the WCN 3 will be separately paid as Distributions given that the Redemption Date will also be a Distribution Payment Date under the Terms. 189. Accordingly, it cannot be said that Holders would derive a greater benefit from capital benefits than other Westpac shareholders. 190. Therefore, the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefits provided to the Holders when the Ordinary Shares are issued to the Holders on Conversion or Redemption. | Section 45B of the ITAA 1936: 191. Subsection 45B(1) of the ITAA 1936 applies where certain capital benefits are provided to shareholders in substitution for dividends and the conditions in subsection 45B(2) of the ITAA 1936 are met. 192. Where the requirements of subsection 45B(2) of the ITAA 1936 are met, paragraph 45B(3)(b) of the ITAA 1936 empowers the Commissioner to make a determination that section 45C of the ITAA 1936 applies such that the capital benefit is taken to be an unfranked dividend. 193. The issue of Ordinary Shares to Holders on Conversion will constitute a scheme under which the Holders are provided with a capital benefit by Westpac (paragraph 45B(5)(a) of the ITAA 1936). Similarly, Redemption will also constitute a scheme under which the Holders are provided with a capital benefit by Westpac (paragraph 45B(5)(b) of the ITAA 1936 by virtue of subsection 45B(7) of the ITAA 1936 as it will constitute a non-share capital return). 194. For the provision to apply, among other things, paragraph 45B(2)(c) of the ITAA 1936 requires that, having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, entered into the scheme or carried out the scheme or any part of the scheme for a purpose, other than an incidental purpose, of enabling a taxpayer to obtain a tax benefit. A non-exhaustive list of relevant circumstances of the scheme are provided in subsection 45B(8) of the ITAA 1936. 195. Having regard to the relevant circumstances of the scheme, it cannot be concluded that Westpac, the Holders or any other person entered into or carried out any part of the scheme did so for more than an incidental purpose of enabling Holders to obtain a tax benefit. 196. Accordingly, the Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit provided to Holders when Ordinary Shares are issued to the Holders on Conversion or Redemption.


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. | Acquisition time of the WCN 3 - CGT implications | Application of section 45, 45A and 45B of the ITAA 1936 | Acquisition of the WCN 3 - CGT implications | Appendix 2 - Detailed contents list


Related rulings: TR 96/14 TR 2006/10
Legislative references: ITAA 1936 ITAA 1936 6(1) ITAA 1936 26BB ITAA 1936 26BB(1) ITAA 1936 26BB(1)(b)(ii) ITAA 1936 26C ITAA 1936 43B(1)(a) ITAA 1936 43B(1)(b) ITAA 1936 44(1) ITAA 1936 44(1)(a) ITAA 1936 44(1)(a)(ii) ITAA 1936 45 ITAA 1936 45A ITAA 1936 45A(2) ITAA 1936 45A(3) ITAA 1936 45A(3)(a) ITAA 1936 45A(3A) ITAA 1936 45B ITAA 1936 45B(2) ITAA 1936 45B(2)(c) ITAA 1936 45B(3)(b) ITAA 1936 45B(5)(a) ITAA 1936 45B(5)(b) ITAA 1936 45B(7) ITAA 1936 45B(8) ITAA 1936 45C ITAA 1936 70B 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 III Div 2 SubdivD ITAA 1936 Pt IIIAA Div 1A ITAA 1936 160AOA ITAA 1936 160APHJ ITAA 1936 160APHJ(2) ITAA 1936 160APHM ITAA 1936 160APHN ITAA 1936 160APHO ITAA 1936 160APHO(1)(a) ITAA 1936 160APHO(1)(b) ITAA 1936 160APHO(2) ITAA 1936 160APHO(3) ITAA 1936 177EA ITAA 1936 177EA(3) ITAA 1936 177EA(3)(a) ITAA 1936 177EA(3)(b) ITAA 1936 177EA(3)(c) ITAA 1936 177EA(3)(d) ITAA 1936 177EA(3)(e) ITAA 1936 177EA(5) ITAA 1936 177EA(5)(b) ITAA 1936 177EA(12) ITAA 1936 177EA(12)(a) ITAA 1936 177EA(14)(a) ITAA 1936 177EA(17) ITAA 1997 ITAA 1997 6-5 ITAA 1997 6-10(2) ITAA 1997 8-1 ITAA 1997 10-5 ITAA 1997 Div 67 ITAA 1997 67-25 ITAA 1997 67-25(1C) ITAA 1997 67-25(1D) ITAA 1997 102-5 ITAA 1997 104-10 ITAA 1997 104-10(2) ITAA 1997 104-25 ITAA 1997 104-25(1)(f) ITAA 1997 104-25(3) ITAA 1997 109-10 ITAA 1997 110-25(2) ITAA 1997 110-25(2)(a) ITAA 1997 110-55(2) ITAA 1997 Subdiv 130-C ITAA 1997 130-60(1) ITAA 1997 130-60(2) ITAA 1997 130-60(3) ITAA 1997 Div 197 ITAA 1997 202-40 ITAA 1997 Subdiv 204-D ITAA 1997 204-30 ITAA 1997 204-30(1)(a) ITAA 1997 204-30(1)(b) ITAA 1997 204-30(1)(c) ITAA 1997 204-30(3)(c) ITAA 1997 Div 207 ITAA 1997 Subdiv 207-D ITAA 1997 Subdiv 207-E ITAA 1997 Subdiv 207-F ITAA 1997 207-20 ITAA 1997 207-20(1) ITAA 1997 207-20(2) ITAA 1997 207-145 ITAA 1997 207-145(1) ITAA 1997 207-145(1)(a) ITAA 1997 207-145(1)(b) ITAA 1997 207-145(1)(c) ITAA 1997 207-145(1)(d) ITAA 1997 215-20 ITAA 1997 Div 230 ITAA 1997 Div 974 ITAA 1997 974-75(1) ITAA 1997 974-75(1)(b) ITAA 1997 974-115(b)(ii) ITAA 1997 974-120 ITAA 1997 974-120(1) ITAA 1997 974-120(2) ITAA 1997 974-165 ITAA 1997 974-165(a) ITAA 1997 974-165(b)(i) ITAA 1997 995-1(1) Banking Act 1959
Subject references: acquisition dates anti-avoidance measures capital gains tax CGT cost base dividend imputation qualified persons
Other references: Explanatory Memorandum to the New Business Tax System (Imputation) Bill 2002