Product Ruling PR 2012/21
Date of effect: 30 May 2012

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified in the Ruling section apply to the defined class of entities, who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling the scheme is referred to as the Macquarie Step Facility or the Facility, offered by Macquarie Bank Limited (Macquarie). 3. This Product Ruling does not address: Class of entities 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities who: Superannuation Industry (Supervision) Act 1993 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. Qualifications 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 18 to 22 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 10. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Investors. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities who: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 18 to 22 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 10. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 11. This Product Ruling applies prospectively from 30 May 2012, the date it is published. It therefore applies only to the specified class of entities that enter into the scheme on a relevant Issue Date (see paragraph 5 of this Product Ruling). This Product Ruling provides advice to the specified class of entities for the income years up to 30 June 2014 being its period of application. Where relevant, this Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into on a relevant Issue Date. 12. However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 13. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. 14. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 15. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. | Goods and Services Tax: 16. All fees and expenditure referred to in this Product Ruling include the Goods and Services Tax (GST) where applicable. In order for an entity (referred to in this Ruling as an Investor) to be entitled to claim input tax credits for the GST included in its expenditure, it must be registered or required to be registered for GST and hold a valid tax invoice and the expenditure incurred by the Investor must qualify as a creditable acquisition. | Application of this Ruling: 17. Subject to paragraph 3 and the assumptions in paragraph 22 of this Ruling: 18. The scheme that is the subject of this Ruling is identified and described in the following documents: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 19. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor, or any associate of an Investor, will be a party to, which are a part of the scheme. 20. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 21. The details of the Macquarie Step Facility are summarised as follows: | Assumptions: 22. This Ruling is made on the basis of the following assumptions: Commissioner of Taxation 30 May 2012 | Section 108-5: CGT asset: 23. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. 24. The rights of an Investor under a DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). | Section 109-5: acquisition of CGT asset: 25. The CGT asset comprising the Investor's contractual rights under a DPA is taken to have been acquired when the Investor enters into the DPA, that is, the Issue Date (subsection 109-5(1)). | Section 104-25: CGT event C2: 26. Consideration as to whether a CGT event C2 happens as a result of the satisfaction of an investor's rights under a Deferred Purchase Agreement warrant by the delivery of Delivery Assets is set out in Taxation Determination TD 2008/22, with regard to the specific features of a Deferred Purchase Agreement warrant in TD 2008/22. 27. Where the Deliverable Parcel is delivered to the Investor or to Macquarie (or its nominee) on behalf of the Investor at maturity, the Investor's ownership of the contractual rights under a DPA are discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 28. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 29. The Investor's capital proceeds under either a Physical Settlement or the Sale Facility will be equal to the market value of the Deliverable Securities received on the date of delivery, as well as any further cash amount (the Rounding Amount) payable by Macquarie (if any) (section 116-20). 30. At the time of entering into the DPA the Investor acquires a CGT asset with a cost base or reduced cost base that includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base or reduced cost base of the Investor's rights under the DPA also includes, as its second element, the Establishment Fee, if any (subsections 110-25(3) and 110-55(2)). | Section 115-5: discount capital gains: 31. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under a DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). | A DPA is not a traditional security: 32. Consideration as to whether a Deferred Purchase Agreement warrant is a traditional security for the purposes of section 26BB and 70B of the ITAA 1936 is set out in Taxation Determination TD 2008/21, with regard to the specific features of a Deferred Purchase Agreement warrant in TD 2008/21. 33. A traditional security, in relation to a taxpayer, is defined in subsection 26BB(1) of the ITAA 1936. That definition requires a consideration as to whether the taxpayer holds a security, defined in subsection 26BB(1) as having the same meaning as in Division 16E of the ITAA 1936. 34. Under subsection 159GP(1) of Division 16E of the ITAA 1936, 'security' means: 35. A DPA offered under the Facility is not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor does it fall within paragraphs (a), (b) or (c) of that definition. Therefore, such DPAs do not meet the definition of security under subsection 159GP(1) and, as such, are not a traditional security for the purposes of sections 26BB and 70B of the ITAA 1936. | A DPA is not a qualifying security: 36. A qualifying security is defined in subsection 159GP(1) of Division 16E of the ITAA 1936. For the purposes of determining whether an arrangement is a qualifying security, that arrangement must be a security, also defined in subsection 159GP(1) (see paragraph 34 of this Ruling). 37. For reasons set out in paragraph 35 of this Ruling, a DPA offered under the Facility does not meet the definition of security under subsection 159GP(1) of the ITAA 1936 and, therefore, is not a qualifying security for the purposes of Division 16E of the ITAA 1936. | Division 775: forex gains and losses: 38. Division 775 operates to include in assessable income or allow as a deduction, a forex realisation gain or loss which results from a forex realisation event (FRE) happening. 39. FRE 1 happens when an entity disposes of foreign currency, or a right, or part of a right, to receive foreign currency (subsection 775-40(1)). FRE 2 happens when an entity ceases to have a right, or part of a right, to receive foreign currency which is created or acquired in return for paying an amount of Australian currency or foreign currency (subsection 775-45(1)). 40. A right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect (subsection 775-135(1)). A currency exchange rate effect includes any currency exchange rate fluctuations (subsection 775-105(1)(a)). 41. Where a DPA includes a Performance Currency that is not Australian dollars (AUD), there is no right to receive an amount of foreign currency or an amount calculated by reference to a currency exchange rate effect. Any amount calculated by reference to the performance of a Reference Asset is only determined at maturity and is converted, where required, to AUD at the Conversion FX (that is, the exchange rate on the Last Exposure End Date) in order to determine the Performance Value. A FRE does not therefore happen in respect of an Investor's DPA. | Division 230: taxation of financial arrangements: 42. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 43. Where an arrangement is not a qualifying security for the purposes of Division 16E of the ITAA 1936 and an election under section 230-455 to have Division 230 of the ITAA 1997 apply to financial arrangements has not been made, then pursuant to section 230-455 of the ITAA 1997, Division 230 of the ITAA 1997 does not apply in relation to gains or losses from a financial arrangement held by: | Section 108-5: CGT asset: 44. Deliverable Securities received by the Investor under Physical Settlement, or by Macquarie (or its nominee) on behalf of the Investor under the Sale Facility, are CGT assets according to the definition in subsection 108-5(1). | Section 109-5: acquisition of CGT asset: 45. Each Deliverable Security is taken to have been acquired by the Investor at the time it is delivered to the Investor or Macquarie (or its nominee) to be held on behalf of the Investor (subsection 109-5(1)). | Section 104-10: CGT event A1: 46. A sale of a Deliverable Security by the Investor after Physical Settlement or by Macquarie (or its nominee) on behalf of the Investor under the Sale Facility gives rise to a CGT event A1 (section 104-10). 47. The Investor will make a capital gain from this CGT event if the capital proceeds from the disposal of the Investor's asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 48. The Investor's capital proceeds will be the amount they receive, or are entitled to receive, from the disposal. The cost base or the reduced cost base of a Deliverable Security is its market value on the date of its delivery to the Investor or Macquarie (or its nominee) to be held on behalf of the Investor, plus any incidental costs incurred by the Investor in acquiring the Deliverable Security (sections 110-25, 110-55 and 112-20). 49. The Investor will realise a capital gain or loss under the Sale Facility where the market value of their Deliverable Securities on the date of delivery to Macquarie (or its nominee) to be held on behalf of the Investor differs to the amount of the cash proceeds from their subsequent sale by Macquarie (or its nominee) on the Investor's behalf. | Section 115-5: discount capital gains: 50. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the sale of the Deliverable Securities will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those Deliverable Securities for at least 12 months (excluding the days of acquisition and disposal). | Part IVA - anti-avoidance: 51. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply in relation to a DPA offered under the Facility. 52. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 17. Subject to paragraph 3 and the assumptions in paragraph 22 of this Ruling: 18. The scheme that is the subject of this Ruling is identified and described in the following documents: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 19. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor, or any associate of an Investor, will be a party to, which are a part of the scheme. 20. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 21. The details of the Macquarie Step Facility are summarised as follows: | Assumptions: 22. This Ruling is made on the basis of the following assumptions: Commissioner of Taxation 30 May 2012 | Section 108-5: CGT asset: 23. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. 24. The rights of an Investor under a DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). | Section 109-5: acquisition of CGT asset: 25. The CGT asset comprising the Investor's contractual rights under a DPA is taken to have been acquired when the Investor enters into the DPA, that is, the Issue Date (subsection 109-5(1)). | Section 104-25: CGT event C2: 26. Consideration as to whether a CGT event C2 happens as a result of the satisfaction of an investor's rights under a Deferred Purchase Agreement warrant by the delivery of Delivery Assets is set out in Taxation Determination TD 2008/22, with regard to the specific features of a Deferred Purchase Agreement warrant in TD 2008/22. 27. Where the Deliverable Parcel is delivered to the Investor or to Macquarie (or its nominee) on behalf of the Investor at maturity, the Investor's ownership of the contractual rights under a DPA are discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 28. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 29. The Investor's capital proceeds under either a Physical Settlement or the Sale Facility will be equal to the market value of the Deliverable Securities received on the date of delivery, as well as any further cash amount (the Rounding Amount) payable by Macquarie (if any) (section 116-20). 30. At the time of entering into the DPA the Investor acquires a CGT asset with a cost base or reduced cost base that includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base or reduced cost base of the Investor's rights under the DPA also includes, as its second element, the Establishment Fee, if any (subsections 110-25(3) and 110-55(2)). | Section 115-5: discount capital gains: 31. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under a DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). | A DPA is not a traditional security: 32. Consideration as to whether a Deferred Purchase Agreement warrant is a traditional security for the purposes of section 26BB and 70B of the ITAA 1936 is set out in Taxation Determination TD 2008/21, with regard to the specific features of a Deferred Purchase Agreement warrant in TD 2008/21. 33. A traditional security, in relation to a taxpayer, is defined in subsection 26BB(1) of the ITAA 1936. That definition requires a consideration as to whether the taxpayer holds a security, defined in subsection 26BB(1) as having the same meaning as in Division 16E of the ITAA 1936. 34. Under subsection 159GP(1) of Division 16E of the ITAA 1936, 'security' means: 35. A DPA offered under the Facility is not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor does it fall within paragraphs (a), (b) or (c) of that definition. Therefore, such DPAs do not meet the definition of security under subsection 159GP(1) and, as such, are not a traditional security for the purposes of sections 26BB and 70B of the ITAA 1936. | A DPA is not a qualifying security: 36. A qualifying security is defined in subsection 159GP(1) of Division 16E of the ITAA 1936. For the purposes of determining whether an arrangement is a qualifying security, that arrangement must be a security, also defined in subsection 159GP(1) (see paragraph 34 of this Ruling). 37. For reasons set out in paragraph 35 of this Ruling, a DPA offered under the Facility does not meet the definition of security under subsection 159GP(1) of the ITAA 1936 and, therefore, is not a qualifying security for the purposes of Division 16E of the ITAA 1936. | Division 775: forex gains and losses: 38. Division 775 operates to include in assessable income or allow as a deduction, a forex realisation gain or loss which results from a forex realisation event (FRE) happening. 39. FRE 1 happens when an entity disposes of foreign currency, or a right, or part of a right, to receive foreign currency (subsection 775-40(1)). FRE 2 happens when an entity ceases to have a right, or part of a right, to receive foreign currency which is created or acquired in return for paying an amount of Australian currency or foreign currency (subsection 775-45(1)). 40. A right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect (subsection 775-135(1)). A currency exchange rate effect includes any currency exchange rate fluctuations (subsection 775-105(1)(a)). 41. Where a DPA includes a Performance Currency that is not Australian dollars (AUD), there is no right to receive an amount of foreign currency or an amount calculated by reference to a currency exchange rate effect. Any amount calculated by reference to the performance of a Reference Asset is only determined at maturity and is converted, where required, to AUD at the Conversion FX (that is, the exchange rate on the Last Exposure End Date) in order to determine the Performance Value. A FRE does not therefore happen in respect of an Investor's DPA. | Division 230: taxation of financial arrangements: 42. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 43. Where an arrangement is not a qualifying security for the purposes of Division 16E of the ITAA 1936 and an election under section 230-455 to have Division 230 of the ITAA 1997 apply to financial arrangements has not been made, then pursuant to section 230-455 of the ITAA 1997, Division 230 of the ITAA 1997 does not apply in relation to gains or losses from a financial arrangement held by: | Section 108-5: CGT asset: 44. Deliverable Securities received by the Investor under Physical Settlement, or by Macquarie (or its nominee) on behalf of the Investor under the Sale Facility, are CGT assets according to the definition in subsection 108-5(1). | Section 109-5: acquisition of CGT asset: 45. Each Deliverable Security is taken to have been acquired by the Investor at the time it is delivered to the Investor or Macquarie (or its nominee) to be held on behalf of the Investor (subsection 109-5(1)). | Section 104-10: CGT event A1: 46. A sale of a Deliverable Security by the Investor after Physical Settlement or by Macquarie (or its nominee) on behalf of the Investor under the Sale Facility gives rise to a CGT event A1 (section 104-10). 47. The Investor will make a capital gain from this CGT event if the capital proceeds from the disposal of the Investor's asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 48. The Investor's capital proceeds will be the amount they receive, or are entitled to receive, from the disposal. The cost base or the reduced cost base of a Deliverable Security is its market value on the date of its delivery to the Investor or Macquarie (or its nominee) to be held on behalf of the Investor, plus any incidental costs incurred by the Investor in acquiring the Deliverable Security (sections 110-25, 110-55 and 112-20). 49. The Investor will realise a capital gain or loss under the Sale Facility where the market value of their Deliverable Securities on the date of delivery to Macquarie (or its nominee) to be held on behalf of the Investor differs to the amount of the cash proceeds from their subsequent sale by Macquarie (or its nominee) on the Investor's behalf. | Section 115-5: discount capital gains: 50. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the sale of the Deliverable Securities will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those Deliverable Securities for at least 12 months (excluding the days of acquisition and disposal). | Part IVA - anti-avoidance: 51. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply in relation to a DPA offered under the Facility. 52. The following is a detailed contents list for this Ruling: Not previously issued as a draft


Appendix: Section 108-5: CGT asset: 23. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. 24. The rights of an Investor under a DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). | Section 109-5: acquisition of CGT asset: 25. The CGT asset comprising the Investor's contractual rights under a DPA is taken to have been acquired when the Investor enters into the DPA, that is, the Issue Date (subsection 109-5(1)). | Section 104-25: CGT event C2: 26. Consideration as to whether a CGT event C2 happens as a result of the satisfaction of an investor's rights under a Deferred Purchase Agreement warrant by the delivery of Delivery Assets is set out in Taxation Determination TD 2008/22, with regard to the specific features of a Deferred Purchase Agreement warrant in TD 2008/22. 27. Where the Deliverable Parcel is delivered to the Investor or to Macquarie (or its nominee) on behalf of the Investor at maturity, the Investor's ownership of the contractual rights under a DPA are discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 28. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 29. The Investor's capital proceeds under either a Physical Settlement or the Sale Facility will be equal to the market value of the Deliverable Securities received on the date of delivery, as well as any further cash amount (the Rounding Amount) payable by Macquarie (if any) (section 116-20). 30. At the time of entering into the DPA the Investor acquires a CGT asset with a cost base or reduced cost base that includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base or reduced cost base of the Investor's rights under the DPA also includes, as its second element, the Establishment Fee, if any (subsections 110-25(3) and 110-55(2)). | Section 115-5: discount capital gains: 31. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under a DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). | A DPA is not a traditional security: 32. Consideration as to whether a Deferred Purchase Agreement warrant is a traditional security for the purposes of section 26BB and 70B of the ITAA 1936 is set out in Taxation Determination TD 2008/21, with regard to the specific features of a Deferred Purchase Agreement warrant in TD 2008/21. 33. A traditional security, in relation to a taxpayer, is defined in subsection 26BB(1) of the ITAA 1936. That definition requires a consideration as to whether the taxpayer holds a security, defined in subsection 26BB(1) as having the same meaning as in Division 16E of the ITAA 1936. 34. Under subsection 159GP(1) of Division 16E of the ITAA 1936, 'security' means: 35. A DPA offered under the Facility is not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor does it fall within paragraphs (a), (b) or (c) of that definition. Therefore, such DPAs do not meet the definition of security under subsection 159GP(1) and, as such, are not a traditional security for the purposes of sections 26BB and 70B of the ITAA 1936. | A DPA is not a qualifying security: 36. A qualifying security is defined in subsection 159GP(1) of Division 16E of the ITAA 1936. For the purposes of determining whether an arrangement is a qualifying security, that arrangement must be a security, also defined in subsection 159GP(1) (see paragraph 34 of this Ruling). 37. For reasons set out in paragraph 35 of this Ruling, a DPA offered under the Facility does not meet the definition of security under subsection 159GP(1) of the ITAA 1936 and, therefore, is not a qualifying security for the purposes of Division 16E of the ITAA 1936. | Division 775: forex gains and losses: 38. Division 775 operates to include in assessable income or allow as a deduction, a forex realisation gain or loss which results from a forex realisation event (FRE) happening. 39. FRE 1 happens when an entity disposes of foreign currency, or a right, or part of a right, to receive foreign currency (subsection 775-40(1)). FRE 2 happens when an entity ceases to have a right, or part of a right, to receive foreign currency which is created or acquired in return for paying an amount of Australian currency or foreign currency (subsection 775-45(1)). 40. A right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect (subsection 775-135(1)). A currency exchange rate effect includes any currency exchange rate fluctuations (subsection 775-105(1)(a)). 41. Where a DPA includes a Performance Currency that is not Australian dollars (AUD), there is no right to receive an amount of foreign currency or an amount calculated by reference to a currency exchange rate effect. Any amount calculated by reference to the performance of a Reference Asset is only determined at maturity and is converted, where required, to AUD at the Conversion FX (that is, the exchange rate on the Last Exposure End Date) in order to determine the Performance Value. A FRE does not therefore happen in respect of an Investor's DPA. | Division 230: taxation of financial arrangements: 42. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 43. Where an arrangement is not a qualifying security for the purposes of Division 16E of the ITAA 1936 and an election under section 230-455 to have Division 230 of the ITAA 1997 apply to financial arrangements has not been made, then pursuant to section 230-455 of the ITAA 1997, Division 230 of the ITAA 1997 does not apply in relation to gains or losses from a financial arrangement held by: | Section 108-5: CGT asset: 44. Deliverable Securities received by the Investor under Physical Settlement, or by Macquarie (or its nominee) on behalf of the Investor under the Sale Facility, are CGT assets according to the definition in subsection 108-5(1). | Section 109-5: acquisition of CGT asset: 45. Each Deliverable Security is taken to have been acquired by the Investor at the time it is delivered to the Investor or Macquarie (or its nominee) to be held on behalf of the Investor (subsection 109-5(1)). | Section 104-10: CGT event A1: 46. A sale of a Deliverable Security by the Investor after Physical Settlement or by Macquarie (or its nominee) on behalf of the Investor under the Sale Facility gives rise to a CGT event A1 (section 104-10). 47. The Investor will make a capital gain from this CGT event if the capital proceeds from the disposal of the Investor's asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-10(4)). 48. The Investor's capital proceeds will be the amount they receive, or are entitled to receive, from the disposal. The cost base or the reduced cost base of a Deliverable Security is its market value on the date of its delivery to the Investor or Macquarie (or its nominee) to be held on behalf of the Investor, plus any incidental costs incurred by the Investor in acquiring the Deliverable Security (sections 110-25, 110-55 and 112-20). 49. The Investor will realise a capital gain or loss under the Sale Facility where the market value of their Deliverable Securities on the date of delivery to Macquarie (or its nominee) to be held on behalf of the Investor differs to the amount of the cash proceeds from their subsequent sale by Macquarie (or its nominee) on the Investor's behalf. | Section 115-5: discount capital gains: 50. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the sale of the Deliverable Securities will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those Deliverable Securities for at least 12 months (excluding the days of acquisition and disposal). | Part IVA - anti-avoidance: 51. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply in relation to a DPA offered under the Facility.


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. | Participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | 200 leading companies by market capitalisation listed on the Australian Securities Exchange (ASX) at the relevant time. | 500 leading companies by market capitalisation listed on either the New York Stock Exchange or NASDAQ at the relevant time. | Hang Seng H-Share Index ETF | An exchange-traded fund seeking to provide investment returns closely matching the performance of the Hang Seng China Enterprises Index. | Tracker Fund of Hong Kong | An exchange-traded fund seeking to provide investment returns closely matching the performance of the Hang Seng Index. | A market capitalisation-weighted index of the Taiwanese equity market. | A market capitalisation-weighted index of the Korean equity market. | A market capitalisation-weighted index of the Singaporean equity market. | PIMCO Total Return Bond Fund | An actively-managed fund that aims to maximise total return while minimising risk by investing in intermediate-term, investment grade securities. | Any commodity traded on a spot market as at the date the relevant DPA is offered. | Australian listed securities | Any security listed on the ASX as at the date the relevant DPA is offered. | International listed securities | Any internationally-listed security as at the date the relevant DPA is offered. | A fund investing in futures, forwards and cash or cash equivalents. | Application of the CGT provisions to a DPA | Application of the CGT provisions to the Deliverable Securities | Appendix 2 - Detailed contents list


Related rulings: TD 2008/21 TD 2008/22
Legislative references: ITAA 1936 26BB ITAA 1936 26BB(1) ITAA 1936 70B ITAA 1936 PtIII Div 16E ITAA 1936 159GP(1) ITAA 1936 Pt IVA ITAA 1997 ITAA 1997 104-10 ITAA 1997 104-10(4) ITAA 1997 104-25 ITAA 1997 104-25(1)(b) ITAA 1997 104-25(3) ITAA 1997 108-5 ITAA 1997 108-5(1) ITAA 1997 109-5 ITAA 1997 109-5(1) ITAA 1997 110-25 ITAA 1997 110-25(2) ITAA 1997 110-25(3) ITAA 1997 110-55 ITAA 1997 110-55(2) ITAA 1997 112-20 ITAA 1997 Div 115 ITAA 1997 115-5 ITAA 1997 116-20 ITAA 1997 Div 230 ITAA 1997 230-455 ITAA 1997 Div 775 ITAA 1997 775-40(1) ITAA 1997 775-45(1) ITAA 1997 775-105(1)(a) ITAA 1997 775-135(1) SISA 1993 TAA 1953 Copyright Act 1968
Subject references: capital gains tax deferred purchase agreements financial products product rulings public rulings qualifying securities tax avoidance taxation administration traditional securities