Product Ruling PR 2023/13
Date of effect: 1 July 2023

What this ruling is about: 1. This Ruling sets out the income tax consequences for entities that participate as an investor in the UBS Structured Option and Loan Facility (UBS SOLF) offered by both UBS AG, Australia Branch and UBS Investments Australia Pty Limited (together, and for the purposes of this Ruling, referred to as UBS) and issued under the UBS Structured Option and Loan Facility Product Disclosure Statement (PDS). 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated. Terms which are defined in the PDS and Security Trust Deed referred to in paragraph 12 of this Ruling have been capitalised. 3. This Ruling does not address: 4. Subject to paragraph 3 of this Ruling, this Ruling addresses the tax consequences associated with the following scenarios: Who this Ruling applies to 5. This Ruling applies to you if: 6. This Ruling does not apply to you if you: Requirements of the Superannuation Industry (Supervision) Act 1993 7. This 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 Ruling as to whether investment in this scheme may contravene the provisions of the SISA. 8. This Ruling applies from 1 July 2023 to investors specified in paragraph 5 of this Ruling that enter into the scheme from 1 July 2023 until 30 June 2026. 9. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the investor's involvement in the scheme. If the scheme carried out is materially different from the scheme described at paragraphs 12 to 45 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 10. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 11 of this Ruling: Assumptions 11. This Ruling is made on the basis of the following necessary assumptions: 12. The scheme is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 13. For the purposes of describing the scheme, there are no other agreements (whether formal or informal, and whether legally enforceable) which an investor, or any associate of an investor, will be a party to which are a part of the scheme. 14. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. Overview of the scheme 15. UBS SOLF includes a Loan Facility and an Option Facility offered by UBS AG, Australia Branch and UBS Investments Australia Pty Limited. An investor may enter into a Transaction under either or both Facilities. Where an investor enters into both Facilities as Related Transactions, either of these UBS entities will be both the Lender under the Related Loan and Issuer under the Related Option. 16. The investor must complete and sign the Application Form. Upon acceptance by UBS of an investor's Application Form, the investor is bound by the Facility Terms and may request a Quote Sheet from UBS in relation to a Transaction. The Quote Sheet is prepared on the basis of the investor's specified parameters and will set out the financial terms of a Transaction under the Loan Facility or the Option Facility or both. Where the investor wishes to proceed with a Transaction on the terms set out in the Quote Sheet, the investor (or the investor's designated Financial Adviser) must sign and return the Quote Sheet. By doing so the investor irrevocably offers to enter into the Transaction on those terms. 17. Under the Loan Facility, the investor can obtain a loan from UBS (the Principal Loan) up to an agreed Facility Amount. The Principal Loan can be used by the investor, or the Nominee on behalf of an investor that enters into a Transaction in the capacity of a regulated superannuation fund (referred to as a Superannuation Fund investor for the purposes of this Ruling), to finance up to 100% of the purchase price of: 18. Where the Principal Loan finances less than 100% of the relevant purchase price, the investor is required to make a Capital Contribution towards the purchase price equal to the difference between the total cost of purchasing the Underlying Securities, Portfolio or Basket and the amount of the Principal Loan. 19. The Underlying Securities are selected by the investor from a list of securities approved by UBS (Approved Securities or Basket of Approved Securities). A Portfolio or a Basket will comprise 2 or more types of Approved Securities. Approved Securities are shares or trust units that are listed for quotation on an Approved Exchange (including units in a cash trust that are listed for quotation) or units in an Approved Cash Trust. An Approved Cash Trust is a cash trust that is approved by UBS and is not listed on any exchange. The Underlying Securities purchased with a Single Principal Loan cannot be units in an Approved Cash Trust. An investor may select their own combination of Approved Securities to form a Portfolio or Basket, or may invest in a Portfolio or Basket selected by UBS. 20. Interest on the outstanding Principal Loan Balance is payable in advance on each Interest Payment Date specified in the relevant Confirmation (unless agreed otherwise with UBS). Principal Loans with a term of greater than one year are made up of multiple Interest Periods each of 12 months or less. Subject to drawing down at least the Minimum Initial Drawdown Amount, the investor is not obliged to drawdown their entire Principal Loan on the first Drawdown Date (to finance the purchase price of the Underlying Securities). Where the investor's Principal Loan Balance is less than the Facility Amount, Interest Amounts payable on the Principal Loan may be funded by a drawdown of the Principal Loan up to the Available Amount. 21. The Interest Rate applicable to a Single Principal Loan will be generally fixed and determined by UBS taking into account a number of factors including market interest rates, the identity of the Underlying Securities and the Maturity Date. Different Interest Rates may apply to Single Principal Loans used to acquire different Underlying Securities. 22. The Interest Rate applicable to a Portfolio Principal Loan will be a single blended Interest Rate determined by UBS taking into account, among other things, market interest rates, the identity of all of the Underlying Securities in the Portfolio, the size of each parcel of Underlying Securities and the Maturity Date. The inclusion in the Portfolio of listed cash trust units, or units in an unlisted Approved Cash Trust (that is, where an Allocated Portfolio Loan Amount is used to acquire such units) will lower the blended Interest Rate on the Portfolio Principal Loan. 23. The Interest Rate applicable to a Basket Principal Loan will be generally fixed and determined by UBS taking into account, among other things, market interest rates, the type and size of the securities included in the Basket and the Maturity Date. The inclusion in a Basket of listed cash trust units, or units in an unlisted Approved Cash Trust will lower the Interest Rate on the Basket Principal Loan. 24. Each Principal Loan will be for a fixed term, as agreed with UBS, and where it is part of a Related Transaction, will be repayable in full no later than 3 Business Days after the Maturity Date of the Related Option. 25. The currency that the Principal Loan is provided in must be the same as the Settlement Currency for any Related Option Transaction to which the Principal Loan relates or, in the absence of a Related Option Transaction, the currency in which the Underlying Securities are denominated. 26. As security for the Principal Loan, Supplementary Loan and Related Option (as applicable), an investor other than a Superannuation Fund investor must grant a Security Interest to UBS over the Secured Property, including the Underlying Securities acquired with the Principal Loan and any Related Option. As further security, the Nominee will hold legal title to the Secured Property as bare nominee on behalf of the investor pursuant to the Facility Terms and until the Security Interest granted is released in respect of the Secured Property. 27. Underlying Securities acquired with a Principal Loan advanced to a Superannuation Fund investor will be acquired by the Nominee and will be subject to a Security Interest granted by the Nominee to UBS over the Secured Property held by the Nominee. The Nominee will hold the Secured Property in a Separate Trust in accordance with the Facility Terms, the Security Trust Deed and the Nominee Deed to secure the due and punctual discharge of the Superannuation Fund investor's Secured Obligations relating to the Secured Property. 28. A Personal Guarantor may also guarantee the obligations of an investor under the UBS SOLF. 29. The Principal Loan will be limited recourse at Maturity. Subject to paragraph 31 of this Ruling, this means that UBS's right of recourse against the investor (other than a Superannuation Fund investor) for repayment of the Principal Loan Balance on the Maturity Date is limited to the amount which UBS can obtain by enforcing its rights in respect of the Secured Property securing the Principal Loan Balance. UBS's rights of recourse against an investor (other than a Superannuation Fund investor) are not limited in respect of the investor's obligation to pay Interest Amounts or any other amounts under the Principal Loan, or at any time prior to the Maturity Date. There is no limitation on UBS's rights of recourse where the investor or a Personal Guarantor of the investor breaches the Facility Terms or in certain other circumstances stated in the Facility Terms. 30. Subject to paragraph 31 of this Ruling, UBS's rights of recourse against a Superannuation Fund investor in respect of all of the Superannuation Fund investor's obligations under a Principal Loan is limited to the amount UBS can obtain by enforcing its rights in respect of the Secured Property securing the Principal Loan. 31. Under a Portfolio Principal Loan, UBS's recourse for repayment of each Allocated Portfolio Loan Amount on the Maturity Date (and for a Superannuation Fund investor, other obligations under the Principal Loan) is limited to the amount UBS can obtain by enforcing its rights in respect of the Secured Property securing the Allocated Portfolio Loan Amount. This means there will be no offsetting of gains from one parcel of Underlying Securities in the Portfolio against losses from another parcel of Underlying Securities. Under a Basket Principal Loan, UBS's recourse for repayment of the entire Basket Principal Loan is limited to the entirety of the Basket. This means that gains from one Component Security will be offset by losses on another Component Security within the Basket. 32. Investors that are not Superannuation Fund investors may, subject to approval by UBS and payment of a Facility Adjustment Fee, increase their Facility Amount after entering into a Principal Loan. As an alternative to charging a Facility Adjustment Fee, UBS may also approve an increase in the Facility Amount in consideration of UBS charging a higher Interest Rate on any additional drawdowns under the Principal Loan or making adjustments to the Strike Price of any Related Options or increasing the amount of Secured Property provided to secure the Principal Loan. 33. Investors that are not Superannuation Fund investors may obtain, at UBS's discretion, one or more Supplementary Loans from UBS under the Loan Facility to pay for, among other costs associated with the UBS SOLF, all or part of the Interest Amount on the Principal Loan. The term of the Supplementary Loan will be less than or equal to the term of the relevant Principal Loan. The Interest Rate on the Supplementary Loan will be determined by UBS at the time of drawdown of the particular Supplementary Loan. The Supplementary Loan is repayable by regular payments of principal as specified in the investor's Confirmation. Interest on the Supplementary Loan is payable in full upfront or in periodic instalments as specified by UBS. UBS's recourse to the investor for all amounts payable under the Supplementary Loan is not limited (it is a full recourse loan). 34. The investor will at all times hold the beneficial interest in the Underlying Securities and accordingly may, by agreement with UBS, direct that dividends and distributions paid in respect of Underlying Securities be applied to repay principal (including the Allocated Portfolio Loan Amount under a Portfolio Principal Loan) or Interest on the Principal Loan and any Supplementary Loan. 35. An investor may request a Principal Loan together with either a Put Option or a Collar. The Principal Loan (including an Allocated Portfolio Loan Amount forming a portion of a Portfolio Principal Loan) and Put Option or Collar can be combined as Related Transactions and referred to as a Related Loan and Related Option respectively if the type of Underlying Securities for the Put Option or Collar is the same as the type of Underlying Securities securing the Principal Loan and the Principal Loan and Put Option or Collar are designated as related in the Confirmation. A Portfolio Principal Loan may have a number of Related Options (in respect of each Underlying Security in the Portfolio). Part of the cost of a Related Option may be factored into the determination of the Interest Rate payable on the Related Loan, which may alter the amount of the First Premium Amount. 36. Under the Option Facility, investors can acquire a Put Option or Collar over a range of Approved Securities which must be listed for trading on an Approved Exchange (unless it is part of a Basket and then it may include a unit in an Approved Cash Trust). For Superannuation Fund investors, where the Put Option or Collar has a Related Loan, the Put Option or Collar must be over a single Approved Security or a group of identical Approved Securities (or in the case of a Portfolio Principal Loan, over the Approved Securities corresponding to each Allocated Portfolio Loan Amount). 37. The acquired Put Option or Collar will provide the investor with the right to sell the Underlying Securities to UBS at the Strike Price at Maturity. Where the Put Option or Collar is over a Basket, the Strike Price will be a single, aggregated Strike Price for the entire Basket. 38. Each Put Option or Collar acquired by the investor will generally be for a term of 3 months to 5 years and have a minimum Transaction Value on Trade Date of $250,000 (or for shorter or longer terms or a different amount as agreed by UBS in its discretion) and have a Settlement Currency which will generally be the same as that in which the Underlying Securities are denominated. 39. The cost of a Put Option will be the First Premium Amount (if any). The cost of a Collar will be the sum of the First Premium Amount (if any) and the Second Premium Amount (if any). The First Premium Amount (if any) must be paid by no later than the third Business Day after the Trade Date for the Put Option or Collar. The Second Premium Amount must be paid on the Option Settlement Date if the Closing Price of the Underlying Security is above the Cap Level at Maturity. 40. The First Premium Amount (if any) will be determined by UBS taking into account a number of factors and will be specified in the Confirmation. The Second Premium Amount will be equal to a fixed percentage of the excess of the Market Price of the Underlying Securities at Maturity over the Cap Level specified in the Confirmation. The fixed percentage will be determined as one minus the Participation Rate applicable to that Cap Level, as specified in the Confirmation. A Confirmation may specify that more than one Cap Level and Participation Rate apply in the calculation of the Second Premium Amount in respect of a single Collar. 41. Where an investor other than a Superannuation Fund investor acquires a Put Option, pays any First Premium Amount for that Put Option in full and there is no Related Loan in respect of that Put Option, they do not have to provide collateral to UBS or have the Nominee hold the Underlying Securities on their behalf. In contrast, where an investor other than a Superannuation Fund investor enters into a Collar with UBS, full collateral must be provided in the form of the Underlying Securities. To that end, legal title to the Underlying Securities will be transferred to the Nominee and held by the Nominee on the investor's behalf as part of the Secured Property subject to the Security Interest granted to UBS. Where a Superannuation Fund investor enters into a Collar with UBS, the Underlying Securities must be acquired and held by the Nominee on their behalf subject to a Security Interest in favour of UBS. 42. At the Maturity Date, the Put Option or Collar can only be exercised by delivery of a valid Exercise Notice by the investor to UBS, or if Automatic Exercise is specified in the Confirmation to apply. All Put Options (other than Quanto Options) and Collars over an Underlying Security will be physically settled when exercised at Maturity, unless UBS exercises its rights under the Facility Terms to cash settle. If the investor does not provide an Exercise Notice prior to the Maturity Date for a Put Option or Collar that is In The Money, the Put Option or Collar may be Cash Settled at UBS's discretion. 43. Where the Put Option or Collar is exercised and Physical Settlement applies, the Underlying Securities will be transferred (sold) to UBS. UBS will pay to the investor an amount equal to the Strike Price for the Underlying Securities, less any costs incurred in connection with the transfer. Where the investor has a Related Loan, UBS will instead set off its obligation to pay an amount equal to the Strike Price against the investor's Principal Loan Balance. 44. Where UBS elects Cash Settlement in respect of a Put Option or Collar held by the investor that is In The Money, the investor will keep the Underlying Securities and, if applicable, will be required to pay all amounts owing on a Related Loan to UBS (subject to the operation of the limited recourse terms). On the Cash Settlement Date UBS will be required to pay to the investor a Cash Settlement Amount determined by UBS in accordance with the Facility Terms. 45. At the Maturity Date, the Put Option or Collar may expire unexercised and automatically lapse. If the Underlying Securities are subject to the Security Interest, UBS may offer to acquire those securities at the Market Price or arrange for the sale of the Underlying Securities in the market on behalf of the investor at the Market Price. Under either of these circumstances, UBS will apply the proceeds of the sale against the investor's obligation to pay any amount to UBS under the Facility Terms. This may include a Second Premium Amount or any other amount owing under a Principal Loan (subject to the operation of the limited recourse terms). Any excess will be paid to the investor. Alternatively, the investor may retain the Underlying Securities and pay any amounts outstanding from their own funds. Commissioner of Taxation 19 July 2023 Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest 46. The interest paid on a borrowing used to acquire income-producing assets such as the Underlying Securities is generally treated as deductible under section 8-1 where it is expected that dividends, trust distributions or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1) - relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 47. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 48. Division 247 applies to the Principal Loan where the investor uses the Principal Loan to acquire a beneficial interest in the Underlying Securities and the investor is protected against the fall in the market value of those Underlying Securities. 49. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3). 50. Where the investor has a Principal Loan and does not acquire a Related Option: 51. Where the cost of the Related Option that is a Put Option or Collar is factored into the Interest Rate charged on the Principal Loan; or the investor pays the First Premium Amount as an upfront lump sum: 52. Where an investor has acquired a Portfolio or a Basket and UBS has applied a single Interest Rate to the Principal Loan, the investment will be treated as one arrangement for the purposes of Division 247. 53. There is no element of capital protection connected with the Supplementary Loan. No part of the Interest incurred by the investor on the Supplementary Loan for the income year will therefore be attributable to the cost of capital protection and the Interest on the Supplementary Loan will be deductible under section 8-1 to the extent the Supplementary Loan is applied to fund Interest on the Principal Loan. Section 51AAA of the ITAA 1936 54. By acquiring the Underlying Securities, it is contemplated that an investor will derive assessable income by way of the receipt of dividend income or trust income, or both, as well as by way of capital gain. As Interest incurred on the Principal Loan and Supplementary Loan would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor that enters into a Transaction under the Loan Facility. Section 82KL of the ITAA 1936 55. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. It will not apply to deny the deductions otherwise allowable under section 8-1. Subdivision H of Division 3 of Part III of the ITAA 1936 56. Subdivision H of Division 3 of Part III of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in the carrying on of a business, whether the investor is a small or medium business entity, whether the investor is an individual and whether the investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature. Subdivision 328-C - small business entities for the purposes of Subdivision H of the ITAA 1936 57. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if the: The eligible service period for the purposes of Subdivision H of the ITAA 1936 58. The Interest charged on the Principal Loan and the Supplementary Loan that is deductible under section 8-1 is in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates and not to the period of the loan. Sections 82KZME and 82KZMF of the ITAA 1936 - prepaid expenditure and 'tax shelter' style arrangements 59. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 60. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with participation in the UBS SOLF, including the financing, Underlying Security acquisition and Underlying Security disposal arrangements. 61. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid Interest allowable as a deduction under section 8-1 on borrowings under the Principal Loan and Supplementary Loan from the operation of section 82KZMF of the ITAA 1936 as: 62. Deductibility of the prepaid Interest must therefore be considered under the prepayment rules contained in paragraphs 63 to 68 of this Ruling. Section 82KZM of the ITAA 1936 - prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure 63. Section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction for prepaid expenditure incurred by a taxpayer that is either: 64. Section 82KZM of the ITAA 1936 applies if the: 65. As the eligible service period in relation to the deductible Interest payment under the Principal Loan and Supplementary Loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to investors referred to in paragraph 63 of this Ruling. Such investors will be able to claim an immediate deduction for prepaid Interest incurred under the Principal Loan and Supplementary Loan. Sections 82KZMA and 82KZMD of the ITAA 1936 - prepaid non-business expenditure incurred by non-individual and non-small and medium business entities 66. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [3] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 67. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 68. For these investors, the amount of prepaid Interest incurred under the Principal Loan and Supplementary Loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. Division 235 - look-through treatment for instalment trusts 69. The object of Division 235 is to ensure that, for most income tax purposes, the consequences of ownership of a certain type of asset (referred to as an 'instalment trust asset') flow to the investor that has a beneficial interest in that asset as the beneficiary of an 'instalment trust', instead of to the trustee of the instalment trust. Essentially, this means treating the investor (and not the trust) as the owner of the asset and treating any act done by the trustee in relation to the asset as if the act had been done by the investor (instead of by the trustee) (subsections 235-820(1) and (2)). 70. Each trust created under the Facility Terms for the purposes of holding Underlying Securities on trust by the Nominee as trustee for an investor (other than a Superannuation Fund investor), as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(a) on the basis that they will be covered by section 235-830 (about instalment trust arrangements), and satisfy the requirements in section 235-835 (about the type of asset being held on trust). 71. Each Separate Trust created under the Facility Terms, Security Trust Deed and Nominee Deed for the purposes of holding the Underlying Securities of a Superannuation Fund investor on trust by the Nominee as trustee for the Superannuation Fund investor, as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(b) on the basis that they will be covered by section 235-840 (about limited recourse borrowings by regulated superannuation funds). Parts 3-1 and 3-3 - application of CGT provisions to the Put Option, Collar and Underlying Securities 72. For the purposes of Parts 3-1 and 3-3 (about capital gains and losses), paragraph 106-60(1)(a) ignores the vesting of a CGT asset in a security holder where the vesting is for the purpose of enforcing, giving effect to or maintaining a security, charge or encumbrance over the asset, and the security, charge or encumbrance remains over the asset just after the vesting. 73. Where the investor has purchased a Collar without a Related Loan (as referred to in paragraph 41 of this Ruling), a transfer of the Underlying Securities by the investor (the security provider) to the Nominee (the security holder) constitutes a vesting of those CGT assets in the Nominee for the purpose of giving effect to a security over the assets and that security will remain over the Underlying Securities 'just after the vesting'. As paragraph 106-60(1)(a) will ignore the vesting of the Underlying Securities in the Nominee upon their transfer by the investor to the Nominee, those assets will, for the purposes of Parts 3-1 and 3-3, be treated as though they continue to be owned by the investor. 74. If an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are invoked at Maturity, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. Any capital gain or capital loss on exercise of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling will be disregarded (subsection 134-1(4)). 75. If an investor's Put Option or Collar is exercised and physically settled, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid. Any capital gain or capital loss on exercise of the Put Option or Collar will be disregarded (subsection 134-1(4)). 76. If an investor's Put Option or Collar is exercised and Cash Settled, CGT event C2 will arise for the investor in respect of the exercise of the Put Option or Collar (section 104-25). The cost base and reduced cost base of the Put Option or Collar will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid (sections 110-25- and 110-55). No CGT event will occur in relation to the Underlying Securities. 77. Where an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are not invoked at Maturity, CGT event C2 will arise for the investor in relation to the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of this put option, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the put option. Under section 110-55, the reduced cost base of this put option will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. 78. Where the Put Option or Collar expire unexercised, CGT event C2 will arise for the investor in relation to the Put Option or Collar at that time (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of the Put Option or Collar, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the Put Option or Collar. Under section 110-55, the reduced cost base of the Put Option or Collar will include: 79. Under section 110-25 and 110-55 respectively, the investor's cost base and reduced cost base in the Underlying Securities acquired by the investor under the UBS SOLF will include the amount of the Principal Loan used to finance the acquisition of the Underlying Securities, their Capital Contribution (if any) and incidental costs incurred by the investor in acquiring and disposing of the Underlying Securities (this includes stamp duty and costs of transfer). As per paragraphs 74 and 75 of this Ruling, where the limited recourse provisions of the Principal Loan are invoked or the investor's Put Option or Collar is exercised and physically settled, the investor's cost base and reduced cost base in the Underlying Securities also includes the cost base or reduced cost base of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling, the Put Option or the Collar (as applicable). 80. 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 on the sale of the Underlying Securities or exercise of the Put Option or Collar under a Cash Settlement will be treated as a discount capital gain where the investor is an individual, a complying superannuation entity or a trust and has held the Underlying Securities, Put Option or Collar for more than 12 months (excluding the days of acquisition and disposal). Division 230 - taxation of financial arrangements 81. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 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 apply to financial arrangements has not been made, then pursuant to section 230-455, Division 230 does not apply in relation to gains or losses from a financial arrangement held by: Assessability of dividends applied against Loans 82. Pursuant to the operation of section 235-820 (as per subparagraph 10(j) and paragraphs 69 to 71 of this Ruling), where an investor directs that any dividends or distributions paid in respect of Underlying Securities held on trust by the Nominee be applied toward repayment of principal or payment of Interest on the Principal Loan or any Supplementary Loan, the investor will be assessable on those dividends or distributions under section 44 or 97 of the ITAA 1936, as applicable. Division 770 - foreign income tax offsets 83. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year. 84. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source): © 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).

Class of entities or scheme: 15. UBS SOLF includes a Loan Facility and an Option Facility offered by UBS AG, Australia Branch and UBS Investments Australia Pty Limited. An investor may enter into a Transaction under either or both Facilities. Where an investor enters into both Facilities as Related Transactions, either of these UBS entities will be both the Lender under the Related Loan and Issuer under the Related Option. 16. The investor must complete and sign the Application Form. Upon acceptance by UBS of an investor's Application Form, the investor is bound by the Facility Terms and may request a Quote Sheet from UBS in relation to a Transaction. The Quote Sheet is prepared on the basis of the investor's specified parameters and will set out the financial terms of a Transaction under the Loan Facility or the Option Facility or both. Where the investor wishes to proceed with a Transaction on the terms set out in the Quote Sheet, the investor (or the investor's designated Financial Adviser) must sign and return the Quote Sheet. By doing so the investor irrevocably offers to enter into the Transaction on those terms. 17. Under the Loan Facility, the investor can obtain a loan from UBS (the Principal Loan) up to an agreed Facility Amount. The Principal Loan can be used by the investor, or the Nominee on behalf of an investor that enters into a Transaction in the capacity of a regulated superannuation fund (referred to as a Superannuation Fund investor for the purposes of this Ruling), to finance up to 100% of the purchase price of: 18. Where the Principal Loan finances less than 100% of the relevant purchase price, the investor is required to make a Capital Contribution towards the purchase price equal to the difference between the total cost of purchasing the Underlying Securities, Portfolio or Basket and the amount of the Principal Loan. 19. The Underlying Securities are selected by the investor from a list of securities approved by UBS (Approved Securities or Basket of Approved Securities). A Portfolio or a Basket will comprise 2 or more types of Approved Securities. Approved Securities are shares or trust units that are listed for quotation on an Approved Exchange (including units in a cash trust that are listed for quotation) or units in an Approved Cash Trust. An Approved Cash Trust is a cash trust that is approved by UBS and is not listed on any exchange. The Underlying Securities purchased with a Single Principal Loan cannot be units in an Approved Cash Trust. An investor may select their own combination of Approved Securities to form a Portfolio or Basket, or may invest in a Portfolio or Basket selected by UBS. 20. Interest on the outstanding Principal Loan Balance is payable in advance on each Interest Payment Date specified in the relevant Confirmation (unless agreed otherwise with UBS). Principal Loans with a term of greater than one year are made up of multiple Interest Periods each of 12 months or less. Subject to drawing down at least the Minimum Initial Drawdown Amount, the investor is not obliged to drawdown their entire Principal Loan on the first Drawdown Date (to finance the purchase price of the Underlying Securities). Where the investor's Principal Loan Balance is less than the Facility Amount, Interest Amounts payable on the Principal Loan may be funded by a drawdown of the Principal Loan up to the Available Amount. 21. The Interest Rate applicable to a Single Principal Loan will be generally fixed and determined by UBS taking into account a number of factors including market interest rates, the identity of the Underlying Securities and the Maturity Date. Different Interest Rates may apply to Single Principal Loans used to acquire different Underlying Securities. 22. The Interest Rate applicable to a Portfolio Principal Loan will be a single blended Interest Rate determined by UBS taking into account, among other things, market interest rates, the identity of all of the Underlying Securities in the Portfolio, the size of each parcel of Underlying Securities and the Maturity Date. The inclusion in the Portfolio of listed cash trust units, or units in an unlisted Approved Cash Trust (that is, where an Allocated Portfolio Loan Amount is used to acquire such units) will lower the blended Interest Rate on the Portfolio Principal Loan. 23. The Interest Rate applicable to a Basket Principal Loan will be generally fixed and determined by UBS taking into account, among other things, market interest rates, the type and size of the securities included in the Basket and the Maturity Date. The inclusion in a Basket of listed cash trust units, or units in an unlisted Approved Cash Trust will lower the Interest Rate on the Basket Principal Loan. 24. Each Principal Loan will be for a fixed term, as agreed with UBS, and where it is part of a Related Transaction, will be repayable in full no later than 3 Business Days after the Maturity Date of the Related Option. 25. The currency that the Principal Loan is provided in must be the same as the Settlement Currency for any Related Option Transaction to which the Principal Loan relates or, in the absence of a Related Option Transaction, the currency in which the Underlying Securities are denominated. 26. As security for the Principal Loan, Supplementary Loan and Related Option (as applicable), an investor other than a Superannuation Fund investor must grant a Security Interest to UBS over the Secured Property, including the Underlying Securities acquired with the Principal Loan and any Related Option. As further security, the Nominee will hold legal title to the Secured Property as bare nominee on behalf of the investor pursuant to the Facility Terms and until the Security Interest granted is released in respect of the Secured Property. 27. Underlying Securities acquired with a Principal Loan advanced to a Superannuation Fund investor will be acquired by the Nominee and will be subject to a Security Interest granted by the Nominee to UBS over the Secured Property held by the Nominee. The Nominee will hold the Secured Property in a Separate Trust in accordance with the Facility Terms, the Security Trust Deed and the Nominee Deed to secure the due and punctual discharge of the Superannuation Fund investor's Secured Obligations relating to the Secured Property. 28. A Personal Guarantor may also guarantee the obligations of an investor under the UBS SOLF. 29. The Principal Loan will be limited recourse at Maturity. Subject to paragraph 31 of this Ruling, this means that UBS's right of recourse against the investor (other than a Superannuation Fund investor) for repayment of the Principal Loan Balance on the Maturity Date is limited to the amount which UBS can obtain by enforcing its rights in respect of the Secured Property securing the Principal Loan Balance. UBS's rights of recourse against an investor (other than a Superannuation Fund investor) are not limited in respect of the investor's obligation to pay Interest Amounts or any other amounts under the Principal Loan, or at any time prior to the Maturity Date. There is no limitation on UBS's rights of recourse where the investor or a Personal Guarantor of the investor breaches the Facility Terms or in certain other circumstances stated in the Facility Terms. 30. Subject to paragraph 31 of this Ruling, UBS's rights of recourse against a Superannuation Fund investor in respect of all of the Superannuation Fund investor's obligations under a Principal Loan is limited to the amount UBS can obtain by enforcing its rights in respect of the Secured Property securing the Principal Loan. 31. Under a Portfolio Principal Loan, UBS's recourse for repayment of each Allocated Portfolio Loan Amount on the Maturity Date (and for a Superannuation Fund investor, other obligations under the Principal Loan) is limited to the amount UBS can obtain by enforcing its rights in respect of the Secured Property securing the Allocated Portfolio Loan Amount. This means there will be no offsetting of gains from one parcel of Underlying Securities in the Portfolio against losses from another parcel of Underlying Securities. Under a Basket Principal Loan, UBS's recourse for repayment of the entire Basket Principal Loan is limited to the entirety of the Basket. This means that gains from one Component Security will be offset by losses on another Component Security within the Basket. 32. Investors that are not Superannuation Fund investors may, subject to approval by UBS and payment of a Facility Adjustment Fee, increase their Facility Amount after entering into a Principal Loan. As an alternative to charging a Facility Adjustment Fee, UBS may also approve an increase in the Facility Amount in consideration of UBS charging a higher Interest Rate on any additional drawdowns under the Principal Loan or making adjustments to the Strike Price of any Related Options or increasing the amount of Secured Property provided to secure the Principal Loan. 33. Investors that are not Superannuation Fund investors may obtain, at UBS's discretion, one or more Supplementary Loans from UBS under the Loan Facility to pay for, among other costs associated with the UBS SOLF, all or part of the Interest Amount on the Principal Loan. The term of the Supplementary Loan will be less than or equal to the term of the relevant Principal Loan. The Interest Rate on the Supplementary Loan will be determined by UBS at the time of drawdown of the particular Supplementary Loan. The Supplementary Loan is repayable by regular payments of principal as specified in the investor's Confirmation. Interest on the Supplementary Loan is payable in full upfront or in periodic instalments as specified by UBS. UBS's recourse to the investor for all amounts payable under the Supplementary Loan is not limited (it is a full recourse loan). 34. The investor will at all times hold the beneficial interest in the Underlying Securities and accordingly may, by agreement with UBS, direct that dividends and distributions paid in respect of Underlying Securities be applied to repay principal (including the Allocated Portfolio Loan Amount under a Portfolio Principal Loan) or Interest on the Principal Loan and any Supplementary Loan. 35. An investor may request a Principal Loan together with either a Put Option or a Collar. The Principal Loan (including an Allocated Portfolio Loan Amount forming a portion of a Portfolio Principal Loan) and Put Option or Collar can be combined as Related Transactions and referred to as a Related Loan and Related Option respectively if the type of Underlying Securities for the Put Option or Collar is the same as the type of Underlying Securities securing the Principal Loan and the Principal Loan and Put Option or Collar are designated as related in the Confirmation. A Portfolio Principal Loan may have a number of Related Options (in respect of each Underlying Security in the Portfolio). Part of the cost of a Related Option may be factored into the determination of the Interest Rate payable on the Related Loan, which may alter the amount of the First Premium Amount. 36. Under the Option Facility, investors can acquire a Put Option or Collar over a range of Approved Securities which must be listed for trading on an Approved Exchange (unless it is part of a Basket and then it may include a unit in an Approved Cash Trust). For Superannuation Fund investors, where the Put Option or Collar has a Related Loan, the Put Option or Collar must be over a single Approved Security or a group of identical Approved Securities (or in the case of a Portfolio Principal Loan, over the Approved Securities corresponding to each Allocated Portfolio Loan Amount). 37. The acquired Put Option or Collar will provide the investor with the right to sell the Underlying Securities to UBS at the Strike Price at Maturity. Where the Put Option or Collar is over a Basket, the Strike Price will be a single, aggregated Strike Price for the entire Basket. 38. Each Put Option or Collar acquired by the investor will generally be for a term of 3 months to 5 years and have a minimum Transaction Value on Trade Date of $250,000 (or for shorter or longer terms or a different amount as agreed by UBS in its discretion) and have a Settlement Currency which will generally be the same as that in which the Underlying Securities are denominated. 39. The cost of a Put Option will be the First Premium Amount (if any). The cost of a Collar will be the sum of the First Premium Amount (if any) and the Second Premium Amount (if any). The First Premium Amount (if any) must be paid by no later than the third Business Day after the Trade Date for the Put Option or Collar. The Second Premium Amount must be paid on the Option Settlement Date if the Closing Price of the Underlying Security is above the Cap Level at Maturity. 40. The First Premium Amount (if any) will be determined by UBS taking into account a number of factors and will be specified in the Confirmation. The Second Premium Amount will be equal to a fixed percentage of the excess of the Market Price of the Underlying Securities at Maturity over the Cap Level specified in the Confirmation. The fixed percentage will be determined as one minus the Participation Rate applicable to that Cap Level, as specified in the Confirmation. A Confirmation may specify that more than one Cap Level and Participation Rate apply in the calculation of the Second Premium Amount in respect of a single Collar. 41. Where an investor other than a Superannuation Fund investor acquires a Put Option, pays any First Premium Amount for that Put Option in full and there is no Related Loan in respect of that Put Option, they do not have to provide collateral to UBS or have the Nominee hold the Underlying Securities on their behalf. In contrast, where an investor other than a Superannuation Fund investor enters into a Collar with UBS, full collateral must be provided in the form of the Underlying Securities. To that end, legal title to the Underlying Securities will be transferred to the Nominee and held by the Nominee on the investor's behalf as part of the Secured Property subject to the Security Interest granted to UBS. Where a Superannuation Fund investor enters into a Collar with UBS, the Underlying Securities must be acquired and held by the Nominee on their behalf subject to a Security Interest in favour of UBS. 42. At the Maturity Date, the Put Option or Collar can only be exercised by delivery of a valid Exercise Notice by the investor to UBS, or if Automatic Exercise is specified in the Confirmation to apply. All Put Options (other than Quanto Options) and Collars over an Underlying Security will be physically settled when exercised at Maturity, unless UBS exercises its rights under the Facility Terms to cash settle. If the investor does not provide an Exercise Notice prior to the Maturity Date for a Put Option or Collar that is In The Money, the Put Option or Collar may be Cash Settled at UBS's discretion. 43. Where the Put Option or Collar is exercised and Physical Settlement applies, the Underlying Securities will be transferred (sold) to UBS. UBS will pay to the investor an amount equal to the Strike Price for the Underlying Securities, less any costs incurred in connection with the transfer. Where the investor has a Related Loan, UBS will instead set off its obligation to pay an amount equal to the Strike Price against the investor's Principal Loan Balance. 44. Where UBS elects Cash Settlement in respect of a Put Option or Collar held by the investor that is In The Money, the investor will keep the Underlying Securities and, if applicable, will be required to pay all amounts owing on a Related Loan to UBS (subject to the operation of the limited recourse terms). On the Cash Settlement Date UBS will be required to pay to the investor a Cash Settlement Amount determined by UBS in accordance with the Facility Terms. 45. At the Maturity Date, the Put Option or Collar may expire unexercised and automatically lapse. If the Underlying Securities are subject to the Security Interest, UBS may offer to acquire those securities at the Market Price or arrange for the sale of the Underlying Securities in the market on behalf of the investor at the Market Price. Under either of these circumstances, UBS will apply the proceeds of the sale against the investor's obligation to pay any amount to UBS under the Facility Terms. This may include a Second Premium Amount or any other amount owing under a Principal Loan (subject to the operation of the limited recourse terms). Any excess will be paid to the investor. Alternatively, the investor may retain the Underlying Securities and pay any amounts outstanding from their own funds. Commissioner of Taxation 19 July 2023 | Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest: 46. The interest paid on a borrowing used to acquire income-producing assets such as the Underlying Securities is generally treated as deductible under section 8-1 where it is expected that dividends, trust distributions or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1) - relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 47. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 48. Division 247 applies to the Principal Loan where the investor uses the Principal Loan to acquire a beneficial interest in the Underlying Securities and the investor is protected against the fall in the market value of those Underlying Securities. 49. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3). 50. Where the investor has a Principal Loan and does not acquire a Related Option: 51. Where the cost of the Related Option that is a Put Option or Collar is factored into the Interest Rate charged on the Principal Loan; or the investor pays the First Premium Amount as an upfront lump sum: 52. Where an investor has acquired a Portfolio or a Basket and UBS has applied a single Interest Rate to the Principal Loan, the investment will be treated as one arrangement for the purposes of Division 247. 53. There is no element of capital protection connected with the Supplementary Loan. No part of the Interest incurred by the investor on the Supplementary Loan for the income year will therefore be attributable to the cost of capital protection and the Interest on the Supplementary Loan will be deductible under section 8-1 to the extent the Supplementary Loan is applied to fund Interest on the Principal Loan. | Section 51AAA of the ITAA 1936: 54. By acquiring the Underlying Securities, it is contemplated that an investor will derive assessable income by way of the receipt of dividend income or trust income, or both, as well as by way of capital gain. As Interest incurred on the Principal Loan and Supplementary Loan would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor that enters into a Transaction under the Loan Facility. | Section 82KL of the ITAA 1936: 55. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. It will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 56. Subdivision H of Division 3 of Part III of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in the carrying on of a business, whether the investor is a small or medium business entity, whether the investor is an individual and whether the investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature. | Subdivision 328-C - small business entities for the purposes of Subdivision H of the ITAA 1936: 57. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if the: | The eligible service period for the purposes of Subdivision H of the ITAA 1936: 58. The Interest charged on the Principal Loan and the Supplementary Loan that is deductible under section 8-1 is in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates and not to the period of the loan. | Sections 82KZME and 82KZMF of the ITAA 1936 - prepaid expenditure and 'tax shelter' style arrangements: 59. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 60. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with participation in the UBS SOLF, including the financing, Underlying Security acquisition and Underlying Security disposal arrangements. 61. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid Interest allowable as a deduction under section 8-1 on borrowings under the Principal Loan and Supplementary Loan from the operation of section 82KZMF of the ITAA 1936 as: 62. Deductibility of the prepaid Interest must therefore be considered under the prepayment rules contained in paragraphs 63 to 68 of this Ruling. | Section 82KZM of the ITAA 1936 - prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 63. Section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction for prepaid expenditure incurred by a taxpayer that is either: 64. Section 82KZM of the ITAA 1936 applies if the: 65. As the eligible service period in relation to the deductible Interest payment under the Principal Loan and Supplementary Loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to investors referred to in paragraph 63 of this Ruling. Such investors will be able to claim an immediate deduction for prepaid Interest incurred under the Principal Loan and Supplementary Loan. | Sections 82KZMA and 82KZMD of the ITAA 1936 - prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 66. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [3] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 67. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 68. For these investors, the amount of prepaid Interest incurred under the Principal Loan and Supplementary Loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Division 235 - look-through treatment for instalment trusts: 69. The object of Division 235 is to ensure that, for most income tax purposes, the consequences of ownership of a certain type of asset (referred to as an 'instalment trust asset') flow to the investor that has a beneficial interest in that asset as the beneficiary of an 'instalment trust', instead of to the trustee of the instalment trust. Essentially, this means treating the investor (and not the trust) as the owner of the asset and treating any act done by the trustee in relation to the asset as if the act had been done by the investor (instead of by the trustee) (subsections 235-820(1) and (2)). 70. Each trust created under the Facility Terms for the purposes of holding Underlying Securities on trust by the Nominee as trustee for an investor (other than a Superannuation Fund investor), as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(a) on the basis that they will be covered by section 235-830 (about instalment trust arrangements), and satisfy the requirements in section 235-835 (about the type of asset being held on trust). 71. Each Separate Trust created under the Facility Terms, Security Trust Deed and Nominee Deed for the purposes of holding the Underlying Securities of a Superannuation Fund investor on trust by the Nominee as trustee for the Superannuation Fund investor, as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(b) on the basis that they will be covered by section 235-840 (about limited recourse borrowings by regulated superannuation funds). | Parts 3-1 and 3-3 - application of CGT provisions to the Put Option, Collar and Underlying Securities: 72. For the purposes of Parts 3-1 and 3-3 (about capital gains and losses), paragraph 106-60(1)(a) ignores the vesting of a CGT asset in a security holder where the vesting is for the purpose of enforcing, giving effect to or maintaining a security, charge or encumbrance over the asset, and the security, charge or encumbrance remains over the asset just after the vesting. 73. Where the investor has purchased a Collar without a Related Loan (as referred to in paragraph 41 of this Ruling), a transfer of the Underlying Securities by the investor (the security provider) to the Nominee (the security holder) constitutes a vesting of those CGT assets in the Nominee for the purpose of giving effect to a security over the assets and that security will remain over the Underlying Securities 'just after the vesting'. As paragraph 106-60(1)(a) will ignore the vesting of the Underlying Securities in the Nominee upon their transfer by the investor to the Nominee, those assets will, for the purposes of Parts 3-1 and 3-3, be treated as though they continue to be owned by the investor. 74. If an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are invoked at Maturity, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. Any capital gain or capital loss on exercise of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling will be disregarded (subsection 134-1(4)). 75. If an investor's Put Option or Collar is exercised and physically settled, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid. Any capital gain or capital loss on exercise of the Put Option or Collar will be disregarded (subsection 134-1(4)). 76. If an investor's Put Option or Collar is exercised and Cash Settled, CGT event C2 will arise for the investor in respect of the exercise of the Put Option or Collar (section 104-25). The cost base and reduced cost base of the Put Option or Collar will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid (sections 110-25- and 110-55). No CGT event will occur in relation to the Underlying Securities. 77. Where an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are not invoked at Maturity, CGT event C2 will arise for the investor in relation to the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of this put option, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the put option. Under section 110-55, the reduced cost base of this put option will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. 78. Where the Put Option or Collar expire unexercised, CGT event C2 will arise for the investor in relation to the Put Option or Collar at that time (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of the Put Option or Collar, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the Put Option or Collar. Under section 110-55, the reduced cost base of the Put Option or Collar will include: 79. Under section 110-25 and 110-55 respectively, the investor's cost base and reduced cost base in the Underlying Securities acquired by the investor under the UBS SOLF will include the amount of the Principal Loan used to finance the acquisition of the Underlying Securities, their Capital Contribution (if any) and incidental costs incurred by the investor in acquiring and disposing of the Underlying Securities (this includes stamp duty and costs of transfer). As per paragraphs 74 and 75 of this Ruling, where the limited recourse provisions of the Principal Loan are invoked or the investor's Put Option or Collar is exercised and physically settled, the investor's cost base and reduced cost base in the Underlying Securities also includes the cost base or reduced cost base of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling, the Put Option or the Collar (as applicable). 80. 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 on the sale of the Underlying Securities or exercise of the Put Option or Collar under a Cash Settlement will be treated as a discount capital gain where the investor is an individual, a complying superannuation entity or a trust and has held the Underlying Securities, Put Option or Collar for more than 12 months (excluding the days of acquisition and disposal). | Division 230 - taxation of financial arrangements: 81. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 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 apply to financial arrangements has not been made, then pursuant to section 230-455, Division 230 does not apply in relation to gains or losses from a financial arrangement held by: | Assessability of dividends applied against Loans: 82. Pursuant to the operation of section 235-820 (as per subparagraph 10(j) and paragraphs 69 to 71 of this Ruling), where an investor directs that any dividends or distributions paid in respect of Underlying Securities held on trust by the Nominee be applied toward repayment of principal or payment of Interest on the Principal Loan or any Supplementary Loan, the investor will be assessable on those dividends or distributions under section 44 or 97 of the ITAA 1936, as applicable. | Division 770 - foreign income tax offsets: 83. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year. 84. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source): © 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).

Ruling: 1. This Ruling sets out the income tax consequences for entities that participate as an investor in the UBS Structured Option and Loan Facility (UBS SOLF) offered by both UBS AG, Australia Branch and UBS Investments Australia Pty Limited (together, and for the purposes of this Ruling, referred to as UBS) and issued under the UBS Structured Option and Loan Facility Product Disclosure Statement (PDS). 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated. Terms which are defined in the PDS and Security Trust Deed referred to in paragraph 12 of this Ruling have been capitalised. 3. This Ruling does not address: 4. Subject to paragraph 3 of this Ruling, this Ruling addresses the tax consequences associated with the following scenarios: | Who this Ruling applies to: 5. This Ruling applies to you if: 6. This Ruling does not apply to you if you: | Requirements of the Superannuation Industry (Supervision) Act 1993: 7. This 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 Ruling as to whether investment in this scheme may contravene the provisions of the SISA. 8. This Ruling applies from 1 July 2023 to investors specified in paragraph 5 of this Ruling that enter into the scheme from 1 July 2023 until 30 June 2026. 9. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the investor's involvement in the scheme. If the scheme carried out is materially different from the scheme described at paragraphs 12 to 45 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 10. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 11 of this Ruling: | Assumptions: 11. This Ruling is made on the basis of the following necessary assumptions: 12. The scheme is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 13. For the purposes of describing the scheme, there are no other agreements (whether formal or informal, and whether legally enforceable) which an investor, or any associate of an investor, will be a party to which are a part of the scheme. 14. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview of the scheme: 15. UBS SOLF includes a Loan Facility and an Option Facility offered by UBS AG, Australia Branch and UBS Investments Australia Pty Limited. An investor may enter into a Transaction under either or both Facilities. Where an investor enters into both Facilities as Related Transactions, either of these UBS entities will be both the Lender under the Related Loan and Issuer under the Related Option. 16. The investor must complete and sign the Application Form. Upon acceptance by UBS of an investor's Application Form, the investor is bound by the Facility Terms and may request a Quote Sheet from UBS in relation to a Transaction. The Quote Sheet is prepared on the basis of the investor's specified parameters and will set out the financial terms of a Transaction under the Loan Facility or the Option Facility or both. Where the investor wishes to proceed with a Transaction on the terms set out in the Quote Sheet, the investor (or the investor's designated Financial Adviser) must sign and return the Quote Sheet. By doing so the investor irrevocably offers to enter into the Transaction on those terms. 17. Under the Loan Facility, the investor can obtain a loan from UBS (the Principal Loan) up to an agreed Facility Amount. The Principal Loan can be used by the investor, or the Nominee on behalf of an investor that enters into a Transaction in the capacity of a regulated superannuation fund (referred to as a Superannuation Fund investor for the purposes of this Ruling), to finance up to 100% of the purchase price of: 18. Where the Principal Loan finances less than 100% of the relevant purchase price, the investor is required to make a Capital Contribution towards the purchase price equal to the difference between the total cost of purchasing the Underlying Securities, Portfolio or Basket and the amount of the Principal Loan. 19. The Underlying Securities are selected by the investor from a list of securities approved by UBS (Approved Securities or Basket of Approved Securities). A Portfolio or a Basket will comprise 2 or more types of Approved Securities. Approved Securities are shares or trust units that are listed for quotation on an Approved Exchange (including units in a cash trust that are listed for quotation) or units in an Approved Cash Trust. An Approved Cash Trust is a cash trust that is approved by UBS and is not listed on any exchange. The Underlying Securities purchased with a Single Principal Loan cannot be units in an Approved Cash Trust. An investor may select their own combination of Approved Securities to form a Portfolio or Basket, or may invest in a Portfolio or Basket selected by UBS. 20. Interest on the outstanding Principal Loan Balance is payable in advance on each Interest Payment Date specified in the relevant Confirmation (unless agreed otherwise with UBS). Principal Loans with a term of greater than one year are made up of multiple Interest Periods each of 12 months or less. Subject to drawing down at least the Minimum Initial Drawdown Amount, the investor is not obliged to drawdown their entire Principal Loan on the first Drawdown Date (to finance the purchase price of the Underlying Securities). Where the investor's Principal Loan Balance is less than the Facility Amount, Interest Amounts payable on the Principal Loan may be funded by a drawdown of the Principal Loan up to the Available Amount. 21. The Interest Rate applicable to a Single Principal Loan will be generally fixed and determined by UBS taking into account a number of factors including market interest rates, the identity of the Underlying Securities and the Maturity Date. Different Interest Rates may apply to Single Principal Loans used to acquire different Underlying Securities. 22. The Interest Rate applicable to a Portfolio Principal Loan will be a single blended Interest Rate determined by UBS taking into account, among other things, market interest rates, the identity of all of the Underlying Securities in the Portfolio, the size of each parcel of Underlying Securities and the Maturity Date. The inclusion in the Portfolio of listed cash trust units, or units in an unlisted Approved Cash Trust (that is, where an Allocated Portfolio Loan Amount is used to acquire such units) will lower the blended Interest Rate on the Portfolio Principal Loan. 23. The Interest Rate applicable to a Basket Principal Loan will be generally fixed and determined by UBS taking into account, among other things, market interest rates, the type and size of the securities included in the Basket and the Maturity Date. The inclusion in a Basket of listed cash trust units, or units in an unlisted Approved Cash Trust will lower the Interest Rate on the Basket Principal Loan. 24. Each Principal Loan will be for a fixed term, as agreed with UBS, and where it is part of a Related Transaction, will be repayable in full no later than 3 Business Days after the Maturity Date of the Related Option. 25. The currency that the Principal Loan is provided in must be the same as the Settlement Currency for any Related Option Transaction to which the Principal Loan relates or, in the absence of a Related Option Transaction, the currency in which the Underlying Securities are denominated. 26. As security for the Principal Loan, Supplementary Loan and Related Option (as applicable), an investor other than a Superannuation Fund investor must grant a Security Interest to UBS over the Secured Property, including the Underlying Securities acquired with the Principal Loan and any Related Option. As further security, the Nominee will hold legal title to the Secured Property as bare nominee on behalf of the investor pursuant to the Facility Terms and until the Security Interest granted is released in respect of the Secured Property. 27. Underlying Securities acquired with a Principal Loan advanced to a Superannuation Fund investor will be acquired by the Nominee and will be subject to a Security Interest granted by the Nominee to UBS over the Secured Property held by the Nominee. The Nominee will hold the Secured Property in a Separate Trust in accordance with the Facility Terms, the Security Trust Deed and the Nominee Deed to secure the due and punctual discharge of the Superannuation Fund investor's Secured Obligations relating to the Secured Property. 28. A Personal Guarantor may also guarantee the obligations of an investor under the UBS SOLF. 29. The Principal Loan will be limited recourse at Maturity. Subject to paragraph 31 of this Ruling, this means that UBS's right of recourse against the investor (other than a Superannuation Fund investor) for repayment of the Principal Loan Balance on the Maturity Date is limited to the amount which UBS can obtain by enforcing its rights in respect of the Secured Property securing the Principal Loan Balance. UBS's rights of recourse against an investor (other than a Superannuation Fund investor) are not limited in respect of the investor's obligation to pay Interest Amounts or any other amounts under the Principal Loan, or at any time prior to the Maturity Date. There is no limitation on UBS's rights of recourse where the investor or a Personal Guarantor of the investor breaches the Facility Terms or in certain other circumstances stated in the Facility Terms. 30. Subject to paragraph 31 of this Ruling, UBS's rights of recourse against a Superannuation Fund investor in respect of all of the Superannuation Fund investor's obligations under a Principal Loan is limited to the amount UBS can obtain by enforcing its rights in respect of the Secured Property securing the Principal Loan. 31. Under a Portfolio Principal Loan, UBS's recourse for repayment of each Allocated Portfolio Loan Amount on the Maturity Date (and for a Superannuation Fund investor, other obligations under the Principal Loan) is limited to the amount UBS can obtain by enforcing its rights in respect of the Secured Property securing the Allocated Portfolio Loan Amount. This means there will be no offsetting of gains from one parcel of Underlying Securities in the Portfolio against losses from another parcel of Underlying Securities. Under a Basket Principal Loan, UBS's recourse for repayment of the entire Basket Principal Loan is limited to the entirety of the Basket. This means that gains from one Component Security will be offset by losses on another Component Security within the Basket. 32. Investors that are not Superannuation Fund investors may, subject to approval by UBS and payment of a Facility Adjustment Fee, increase their Facility Amount after entering into a Principal Loan. As an alternative to charging a Facility Adjustment Fee, UBS may also approve an increase in the Facility Amount in consideration of UBS charging a higher Interest Rate on any additional drawdowns under the Principal Loan or making adjustments to the Strike Price of any Related Options or increasing the amount of Secured Property provided to secure the Principal Loan. 33. Investors that are not Superannuation Fund investors may obtain, at UBS's discretion, one or more Supplementary Loans from UBS under the Loan Facility to pay for, among other costs associated with the UBS SOLF, all or part of the Interest Amount on the Principal Loan. The term of the Supplementary Loan will be less than or equal to the term of the relevant Principal Loan. The Interest Rate on the Supplementary Loan will be determined by UBS at the time of drawdown of the particular Supplementary Loan. The Supplementary Loan is repayable by regular payments of principal as specified in the investor's Confirmation. Interest on the Supplementary Loan is payable in full upfront or in periodic instalments as specified by UBS. UBS's recourse to the investor for all amounts payable under the Supplementary Loan is not limited (it is a full recourse loan). 34. The investor will at all times hold the beneficial interest in the Underlying Securities and accordingly may, by agreement with UBS, direct that dividends and distributions paid in respect of Underlying Securities be applied to repay principal (including the Allocated Portfolio Loan Amount under a Portfolio Principal Loan) or Interest on the Principal Loan and any Supplementary Loan. 35. An investor may request a Principal Loan together with either a Put Option or a Collar. The Principal Loan (including an Allocated Portfolio Loan Amount forming a portion of a Portfolio Principal Loan) and Put Option or Collar can be combined as Related Transactions and referred to as a Related Loan and Related Option respectively if the type of Underlying Securities for the Put Option or Collar is the same as the type of Underlying Securities securing the Principal Loan and the Principal Loan and Put Option or Collar are designated as related in the Confirmation. A Portfolio Principal Loan may have a number of Related Options (in respect of each Underlying Security in the Portfolio). Part of the cost of a Related Option may be factored into the determination of the Interest Rate payable on the Related Loan, which may alter the amount of the First Premium Amount. 36. Under the Option Facility, investors can acquire a Put Option or Collar over a range of Approved Securities which must be listed for trading on an Approved Exchange (unless it is part of a Basket and then it may include a unit in an Approved Cash Trust). For Superannuation Fund investors, where the Put Option or Collar has a Related Loan, the Put Option or Collar must be over a single Approved Security or a group of identical Approved Securities (or in the case of a Portfolio Principal Loan, over the Approved Securities corresponding to each Allocated Portfolio Loan Amount). 37. The acquired Put Option or Collar will provide the investor with the right to sell the Underlying Securities to UBS at the Strike Price at Maturity. Where the Put Option or Collar is over a Basket, the Strike Price will be a single, aggregated Strike Price for the entire Basket. 38. Each Put Option or Collar acquired by the investor will generally be for a term of 3 months to 5 years and have a minimum Transaction Value on Trade Date of $250,000 (or for shorter or longer terms or a different amount as agreed by UBS in its discretion) and have a Settlement Currency which will generally be the same as that in which the Underlying Securities are denominated. 39. The cost of a Put Option will be the First Premium Amount (if any). The cost of a Collar will be the sum of the First Premium Amount (if any) and the Second Premium Amount (if any). The First Premium Amount (if any) must be paid by no later than the third Business Day after the Trade Date for the Put Option or Collar. The Second Premium Amount must be paid on the Option Settlement Date if the Closing Price of the Underlying Security is above the Cap Level at Maturity. 40. The First Premium Amount (if any) will be determined by UBS taking into account a number of factors and will be specified in the Confirmation. The Second Premium Amount will be equal to a fixed percentage of the excess of the Market Price of the Underlying Securities at Maturity over the Cap Level specified in the Confirmation. The fixed percentage will be determined as one minus the Participation Rate applicable to that Cap Level, as specified in the Confirmation. A Confirmation may specify that more than one Cap Level and Participation Rate apply in the calculation of the Second Premium Amount in respect of a single Collar. 41. Where an investor other than a Superannuation Fund investor acquires a Put Option, pays any First Premium Amount for that Put Option in full and there is no Related Loan in respect of that Put Option, they do not have to provide collateral to UBS or have the Nominee hold the Underlying Securities on their behalf. In contrast, where an investor other than a Superannuation Fund investor enters into a Collar with UBS, full collateral must be provided in the form of the Underlying Securities. To that end, legal title to the Underlying Securities will be transferred to the Nominee and held by the Nominee on the investor's behalf as part of the Secured Property subject to the Security Interest granted to UBS. Where a Superannuation Fund investor enters into a Collar with UBS, the Underlying Securities must be acquired and held by the Nominee on their behalf subject to a Security Interest in favour of UBS. 42. At the Maturity Date, the Put Option or Collar can only be exercised by delivery of a valid Exercise Notice by the investor to UBS, or if Automatic Exercise is specified in the Confirmation to apply. All Put Options (other than Quanto Options) and Collars over an Underlying Security will be physically settled when exercised at Maturity, unless UBS exercises its rights under the Facility Terms to cash settle. If the investor does not provide an Exercise Notice prior to the Maturity Date for a Put Option or Collar that is In The Money, the Put Option or Collar may be Cash Settled at UBS's discretion. 43. Where the Put Option or Collar is exercised and Physical Settlement applies, the Underlying Securities will be transferred (sold) to UBS. UBS will pay to the investor an amount equal to the Strike Price for the Underlying Securities, less any costs incurred in connection with the transfer. Where the investor has a Related Loan, UBS will instead set off its obligation to pay an amount equal to the Strike Price against the investor's Principal Loan Balance. 44. Where UBS elects Cash Settlement in respect of a Put Option or Collar held by the investor that is In The Money, the investor will keep the Underlying Securities and, if applicable, will be required to pay all amounts owing on a Related Loan to UBS (subject to the operation of the limited recourse terms). On the Cash Settlement Date UBS will be required to pay to the investor a Cash Settlement Amount determined by UBS in accordance with the Facility Terms. 45. At the Maturity Date, the Put Option or Collar may expire unexercised and automatically lapse. If the Underlying Securities are subject to the Security Interest, UBS may offer to acquire those securities at the Market Price or arrange for the sale of the Underlying Securities in the market on behalf of the investor at the Market Price. Under either of these circumstances, UBS will apply the proceeds of the sale against the investor's obligation to pay any amount to UBS under the Facility Terms. This may include a Second Premium Amount or any other amount owing under a Principal Loan (subject to the operation of the limited recourse terms). Any excess will be paid to the investor. Alternatively, the investor may retain the Underlying Securities and pay any amounts outstanding from their own funds. Commissioner of Taxation 19 July 2023 | Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest: 46. The interest paid on a borrowing used to acquire income-producing assets such as the Underlying Securities is generally treated as deductible under section 8-1 where it is expected that dividends, trust distributions or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1) - relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 47. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 48. Division 247 applies to the Principal Loan where the investor uses the Principal Loan to acquire a beneficial interest in the Underlying Securities and the investor is protected against the fall in the market value of those Underlying Securities. 49. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3). 50. Where the investor has a Principal Loan and does not acquire a Related Option: 51. Where the cost of the Related Option that is a Put Option or Collar is factored into the Interest Rate charged on the Principal Loan; or the investor pays the First Premium Amount as an upfront lump sum: 52. Where an investor has acquired a Portfolio or a Basket and UBS has applied a single Interest Rate to the Principal Loan, the investment will be treated as one arrangement for the purposes of Division 247. 53. There is no element of capital protection connected with the Supplementary Loan. No part of the Interest incurred by the investor on the Supplementary Loan for the income year will therefore be attributable to the cost of capital protection and the Interest on the Supplementary Loan will be deductible under section 8-1 to the extent the Supplementary Loan is applied to fund Interest on the Principal Loan. | Section 51AAA of the ITAA 1936: 54. By acquiring the Underlying Securities, it is contemplated that an investor will derive assessable income by way of the receipt of dividend income or trust income, or both, as well as by way of capital gain. As Interest incurred on the Principal Loan and Supplementary Loan would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor that enters into a Transaction under the Loan Facility. | Section 82KL of the ITAA 1936: 55. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. It will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 56. Subdivision H of Division 3 of Part III of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in the carrying on of a business, whether the investor is a small or medium business entity, whether the investor is an individual and whether the investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature. | Subdivision 328-C - small business entities for the purposes of Subdivision H of the ITAA 1936: 57. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if the: | The eligible service period for the purposes of Subdivision H of the ITAA 1936: 58. The Interest charged on the Principal Loan and the Supplementary Loan that is deductible under section 8-1 is in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates and not to the period of the loan. | Sections 82KZME and 82KZMF of the ITAA 1936 - prepaid expenditure and 'tax shelter' style arrangements: 59. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 60. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with participation in the UBS SOLF, including the financing, Underlying Security acquisition and Underlying Security disposal arrangements. 61. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid Interest allowable as a deduction under section 8-1 on borrowings under the Principal Loan and Supplementary Loan from the operation of section 82KZMF of the ITAA 1936 as: 62. Deductibility of the prepaid Interest must therefore be considered under the prepayment rules contained in paragraphs 63 to 68 of this Ruling. | Section 82KZM of the ITAA 1936 - prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 63. Section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction for prepaid expenditure incurred by a taxpayer that is either: 64. Section 82KZM of the ITAA 1936 applies if the: 65. As the eligible service period in relation to the deductible Interest payment under the Principal Loan and Supplementary Loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to investors referred to in paragraph 63 of this Ruling. Such investors will be able to claim an immediate deduction for prepaid Interest incurred under the Principal Loan and Supplementary Loan. | Sections 82KZMA and 82KZMD of the ITAA 1936 - prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 66. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [3] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 67. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 68. For these investors, the amount of prepaid Interest incurred under the Principal Loan and Supplementary Loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Division 235 - look-through treatment for instalment trusts: 69. The object of Division 235 is to ensure that, for most income tax purposes, the consequences of ownership of a certain type of asset (referred to as an 'instalment trust asset') flow to the investor that has a beneficial interest in that asset as the beneficiary of an 'instalment trust', instead of to the trustee of the instalment trust. Essentially, this means treating the investor (and not the trust) as the owner of the asset and treating any act done by the trustee in relation to the asset as if the act had been done by the investor (instead of by the trustee) (subsections 235-820(1) and (2)). 70. Each trust created under the Facility Terms for the purposes of holding Underlying Securities on trust by the Nominee as trustee for an investor (other than a Superannuation Fund investor), as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(a) on the basis that they will be covered by section 235-830 (about instalment trust arrangements), and satisfy the requirements in section 235-835 (about the type of asset being held on trust). 71. Each Separate Trust created under the Facility Terms, Security Trust Deed and Nominee Deed for the purposes of holding the Underlying Securities of a Superannuation Fund investor on trust by the Nominee as trustee for the Superannuation Fund investor, as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(b) on the basis that they will be covered by section 235-840 (about limited recourse borrowings by regulated superannuation funds). | Parts 3-1 and 3-3 - application of CGT provisions to the Put Option, Collar and Underlying Securities: 72. For the purposes of Parts 3-1 and 3-3 (about capital gains and losses), paragraph 106-60(1)(a) ignores the vesting of a CGT asset in a security holder where the vesting is for the purpose of enforcing, giving effect to or maintaining a security, charge or encumbrance over the asset, and the security, charge or encumbrance remains over the asset just after the vesting. 73. Where the investor has purchased a Collar without a Related Loan (as referred to in paragraph 41 of this Ruling), a transfer of the Underlying Securities by the investor (the security provider) to the Nominee (the security holder) constitutes a vesting of those CGT assets in the Nominee for the purpose of giving effect to a security over the assets and that security will remain over the Underlying Securities 'just after the vesting'. As paragraph 106-60(1)(a) will ignore the vesting of the Underlying Securities in the Nominee upon their transfer by the investor to the Nominee, those assets will, for the purposes of Parts 3-1 and 3-3, be treated as though they continue to be owned by the investor. 74. If an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are invoked at Maturity, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. Any capital gain or capital loss on exercise of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling will be disregarded (subsection 134-1(4)). 75. If an investor's Put Option or Collar is exercised and physically settled, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid. Any capital gain or capital loss on exercise of the Put Option or Collar will be disregarded (subsection 134-1(4)). 76. If an investor's Put Option or Collar is exercised and Cash Settled, CGT event C2 will arise for the investor in respect of the exercise of the Put Option or Collar (section 104-25). The cost base and reduced cost base of the Put Option or Collar will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid (sections 110-25- and 110-55). No CGT event will occur in relation to the Underlying Securities. 77. Where an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are not invoked at Maturity, CGT event C2 will arise for the investor in relation to the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of this put option, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the put option. Under section 110-55, the reduced cost base of this put option will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. 78. Where the Put Option or Collar expire unexercised, CGT event C2 will arise for the investor in relation to the Put Option or Collar at that time (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of the Put Option or Collar, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the Put Option or Collar. Under section 110-55, the reduced cost base of the Put Option or Collar will include: 79. Under section 110-25 and 110-55 respectively, the investor's cost base and reduced cost base in the Underlying Securities acquired by the investor under the UBS SOLF will include the amount of the Principal Loan used to finance the acquisition of the Underlying Securities, their Capital Contribution (if any) and incidental costs incurred by the investor in acquiring and disposing of the Underlying Securities (this includes stamp duty and costs of transfer). As per paragraphs 74 and 75 of this Ruling, where the limited recourse provisions of the Principal Loan are invoked or the investor's Put Option or Collar is exercised and physically settled, the investor's cost base and reduced cost base in the Underlying Securities also includes the cost base or reduced cost base of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling, the Put Option or the Collar (as applicable). 80. 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 on the sale of the Underlying Securities or exercise of the Put Option or Collar under a Cash Settlement will be treated as a discount capital gain where the investor is an individual, a complying superannuation entity or a trust and has held the Underlying Securities, Put Option or Collar for more than 12 months (excluding the days of acquisition and disposal). | Division 230 - taxation of financial arrangements: 81. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 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 apply to financial arrangements has not been made, then pursuant to section 230-455, Division 230 does not apply in relation to gains or losses from a financial arrangement held by: | Assessability of dividends applied against Loans: 82. Pursuant to the operation of section 235-820 (as per subparagraph 10(j) and paragraphs 69 to 71 of this Ruling), where an investor directs that any dividends or distributions paid in respect of Underlying Securities held on trust by the Nominee be applied toward repayment of principal or payment of Interest on the Principal Loan or any Supplementary Loan, the investor will be assessable on those dividends or distributions under section 44 or 97 of the ITAA 1936, as applicable. | Division 770 - foreign income tax offsets: 83. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year. 84. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source): © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).


Appendix: Section 8-1 and Division 247 - capital protected borrowings and deductibility of interest: 46. The interest paid on a borrowing used to acquire income-producing assets such as the Underlying Securities is generally treated as deductible under section 8-1 where it is expected that dividends, trust distributions or other assessable income would be derived from the investment (refer to Taxation Ruling TR 95/33 Income tax: subsection 51(1) - relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings). However, the ability to claim interest deductions may be subject to Division 247. 47. Division 247 limits the allowable deductions for expenditure incurred under a 'capital protected borrowing'. Broadly a capital protected borrowing arises where an amount is borrowed under an arrangement where the borrower is protected against the fall in value of some specified securities, and where that borrowing is made for the purpose of investing in those securities. 48. Division 247 applies to the Principal Loan where the investor uses the Principal Loan to acquire a beneficial interest in the Underlying Securities and the investor is protected against the fall in the market value of those Underlying Securities. 49. Division 247 sets out a methodology for reasonably attributing the cost of capital protection incurred by a borrower under a capital protected borrowing (section 247-20). Division 247 ignores any amount which is not in substance for capital protection or interest in calculating the cost of capital protection, pursuant to subsection 247-20(3). 50. Where the investor has a Principal Loan and does not acquire a Related Option: 51. Where the cost of the Related Option that is a Put Option or Collar is factored into the Interest Rate charged on the Principal Loan; or the investor pays the First Premium Amount as an upfront lump sum: 52. Where an investor has acquired a Portfolio or a Basket and UBS has applied a single Interest Rate to the Principal Loan, the investment will be treated as one arrangement for the purposes of Division 247. 53. There is no element of capital protection connected with the Supplementary Loan. No part of the Interest incurred by the investor on the Supplementary Loan for the income year will therefore be attributable to the cost of capital protection and the Interest on the Supplementary Loan will be deductible under section 8-1 to the extent the Supplementary Loan is applied to fund Interest on the Principal Loan. | Section 51AAA of the ITAA 1936: 54. By acquiring the Underlying Securities, it is contemplated that an investor will derive assessable income by way of the receipt of dividend income or trust income, or both, as well as by way of capital gain. As Interest incurred on the Principal Loan and Supplementary Loan would have been deductible under section 8-1 notwithstanding the inclusion of a net capital gain in assessable income, section 51AAA of the ITAA 1936 has no application to an investor that enters into a Transaction under the Loan Facility. | Section 82KL of the ITAA 1936: 55. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits'. Insufficient additional benefits will be provided to trigger the application of section 82KL. It will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 56. Subdivision H of Division 3 of Part III of the ITAA 1936 deals with the timing of deductions for certain advance expenditure incurred under an agreement in return for the doing of a thing under that agreement that will not be wholly done within the same year of income. Separate rules apply depending on whether the expenditure is incurred in the carrying on of a business, whether the investor is a small or medium business entity, whether the investor is an individual and whether the investor is not an individual and incurs the expenditure otherwise than in carrying on a business. This Subdivision does not apply to 'excluded expenditure' which is defined in subsection 82KZL(1) of the ITAA 1936 to include amounts of less than $1,000 or amounts that are of a capital nature. | Subdivision 328-C - small business entities for the purposes of Subdivision H of the ITAA 1936: 57. Under section 328-110, an investor carrying on a business in an income year will be a small business entity for that year (the current year) if the: | The eligible service period for the purposes of Subdivision H of the ITAA 1936: 58. The Interest charged on the Principal Loan and the Supplementary Loan that is deductible under section 8-1 is in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the interest payment relates. The eligible service period in relation to a payment of loan interest is determined by reference to the period to which the interest relates and not to the period of the loan. | Sections 82KZME and 82KZMF of the ITAA 1936 - prepaid expenditure and 'tax shelter' style arrangements: 59. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing that is not to be wholly done within the expenditure year. 60. For the purposes of section 82KZME of the ITAA 1936, 'agreements' are broadly defined to include an entire scheme of which a contract may form part. Under subsection 82KZME(4) of the ITAA 1936, the relevant agreement is all the contractual arrangements and activities associated with participation in the UBS SOLF, including the financing, Underlying Security acquisition and Underlying Security disposal arrangements. 61. Exception 1, as contained in subsection 82KZME(5) of the ITAA 1936, applies to exclude the amount of prepaid Interest allowable as a deduction under section 8-1 on borrowings under the Principal Loan and Supplementary Loan from the operation of section 82KZMF of the ITAA 1936 as: 62. Deductibility of the prepaid Interest must therefore be considered under the prepayment rules contained in paragraphs 63 to 68 of this Ruling. | Section 82KZM of the ITAA 1936 - prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 63. Section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction for prepaid expenditure incurred by a taxpayer that is either: 64. Section 82KZM of the ITAA 1936 applies if the: 65. As the eligible service period in relation to the deductible Interest payment under the Principal Loan and Supplementary Loan is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM of the ITAA 1936 will have no application to investors referred to in paragraph 63 of this Ruling. Such investors will be able to claim an immediate deduction for prepaid Interest incurred under the Principal Loan and Supplementary Loan. | Sections 82KZMA and 82KZMD of the ITAA 1936 - prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 66. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure incurred by an investor (other than a small business entity or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [3] , for the year of income that has not chosen to apply section 82KZMD to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. 67. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 68. For these investors, the amount of prepaid Interest incurred under the Principal Loan and Supplementary Loan and allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Division 235 - look-through treatment for instalment trusts: 69. The object of Division 235 is to ensure that, for most income tax purposes, the consequences of ownership of a certain type of asset (referred to as an 'instalment trust asset') flow to the investor that has a beneficial interest in that asset as the beneficiary of an 'instalment trust', instead of to the trustee of the instalment trust. Essentially, this means treating the investor (and not the trust) as the owner of the asset and treating any act done by the trustee in relation to the asset as if the act had been done by the investor (instead of by the trustee) (subsections 235-820(1) and (2)). 70. Each trust created under the Facility Terms for the purposes of holding Underlying Securities on trust by the Nominee as trustee for an investor (other than a Superannuation Fund investor), as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(a) on the basis that they will be covered by section 235-830 (about instalment trust arrangements), and satisfy the requirements in section 235-835 (about the type of asset being held on trust). 71. Each Separate Trust created under the Facility Terms, Security Trust Deed and Nominee Deed for the purposes of holding the Underlying Securities of a Superannuation Fund investor on trust by the Nominee as trustee for the Superannuation Fund investor, as security for the Principal Loan, Supplementary Loan and Related Option (as applicable), will be an instalment trust pursuant to paragraph 235-825(1)(b) on the basis that they will be covered by section 235-840 (about limited recourse borrowings by regulated superannuation funds). | Parts 3-1 and 3-3 - application of CGT provisions to the Put Option, Collar and Underlying Securities: 72. For the purposes of Parts 3-1 and 3-3 (about capital gains and losses), paragraph 106-60(1)(a) ignores the vesting of a CGT asset in a security holder where the vesting is for the purpose of enforcing, giving effect to or maintaining a security, charge or encumbrance over the asset, and the security, charge or encumbrance remains over the asset just after the vesting. 73. Where the investor has purchased a Collar without a Related Loan (as referred to in paragraph 41 of this Ruling), a transfer of the Underlying Securities by the investor (the security provider) to the Nominee (the security holder) constitutes a vesting of those CGT assets in the Nominee for the purpose of giving effect to a security over the assets and that security will remain over the Underlying Securities 'just after the vesting'. As paragraph 106-60(1)(a) will ignore the vesting of the Underlying Securities in the Nominee upon their transfer by the investor to the Nominee, those assets will, for the purposes of Parts 3-1 and 3-3, be treated as though they continue to be owned by the investor. 74. If an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are invoked at Maturity, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. Any capital gain or capital loss on exercise of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling will be disregarded (subsection 134-1(4)). 75. If an investor's Put Option or Collar is exercised and physically settled, the investor will dispose of the Underlying Securities and CGT event A1 will arise for the investor in respect of the disposal (section 104-10). Under table item 2 of subsection 134-1(1), the investor's cost base and reduced cost base in the Underlying Securities for these purposes will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid. Any capital gain or capital loss on exercise of the Put Option or Collar will be disregarded (subsection 134-1(4)). 76. If an investor's Put Option or Collar is exercised and Cash Settled, CGT event C2 will arise for the investor in respect of the exercise of the Put Option or Collar (section 104-25). The cost base and reduced cost base of the Put Option or Collar will include the additional amount (if any) as per sub-subparagraph 10(b)(ii) or (c)(ii) of this Ruling, plus any Facility Adjustment Fee and First Premium Amount paid (sections 110-25- and 110-55). No CGT event will occur in relation to the Underlying Securities. 77. Where an investor procures a Principal Loan without a Related Option and the limited recourse provisions of the Principal Loan are not invoked at Maturity, CGT event C2 will arise for the investor in relation to the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of this put option, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the put option. Under section 110-55, the reduced cost base of this put option will include the amount reasonably attributable to the cost of capital protection (if any) as per sub-subparagraph 10(a)(ii) of this Ruling. 78. Where the Put Option or Collar expire unexercised, CGT event C2 will arise for the investor in relation to the Put Option or Collar at that time (section 104-25). As the investor will not receive any capital proceeds in respect of the expiry of the Put Option or Collar, a capital loss will be made by the investor in this regard, equal to the investor's reduced cost base in the Put Option or Collar. Under section 110-55, the reduced cost base of the Put Option or Collar will include: 79. Under section 110-25 and 110-55 respectively, the investor's cost base and reduced cost base in the Underlying Securities acquired by the investor under the UBS SOLF will include the amount of the Principal Loan used to finance the acquisition of the Underlying Securities, their Capital Contribution (if any) and incidental costs incurred by the investor in acquiring and disposing of the Underlying Securities (this includes stamp duty and costs of transfer). As per paragraphs 74 and 75 of this Ruling, where the limited recourse provisions of the Principal Loan are invoked or the investor's Put Option or Collar is exercised and physically settled, the investor's cost base and reduced cost base in the Underlying Securities also includes the cost base or reduced cost base of the put option referred to in sub-subparagraph 10(a)(iii) of this Ruling, the Put Option or the Collar (as applicable). 80. 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 on the sale of the Underlying Securities or exercise of the Put Option or Collar under a Cash Settlement will be treated as a discount capital gain where the investor is an individual, a complying superannuation entity or a trust and has held the Underlying Securities, Put Option or Collar for more than 12 months (excluding the days of acquisition and disposal). | Division 230 - taxation of financial arrangements: 81. Division 230 sets out the tax treatment of gains or losses from a 'financial arrangement'. 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 apply to financial arrangements has not been made, then pursuant to section 230-455, Division 230 does not apply in relation to gains or losses from a financial arrangement held by: | Assessability of dividends applied against Loans: 82. Pursuant to the operation of section 235-820 (as per subparagraph 10(j) and paragraphs 69 to 71 of this Ruling), where an investor directs that any dividends or distributions paid in respect of Underlying Securities held on trust by the Nominee be applied toward repayment of principal or payment of Interest on the Principal Loan or any Supplementary Loan, the investor will be assessable on those dividends or distributions under section 44 or 97 of the ITAA 1936, as applicable. | Division 770 - foreign income tax offsets: 83. Division 770 allows a non-refundable tax offset for an income year for foreign income tax paid where that amount of foreign income tax is paid in respect of an amount that is included in your assessable income for the year. 84. To the extent that the investor has paid, or is deemed to have paid, foreign income tax (such as withholding tax at source): © 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).


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | [ Note: This is a consolidated version of this document. Refer to the Legal database (ato.gov.au/law) to check its currency and to view the details of all changes.] | This Ruling has been given on the basis that the entity who applied for the Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Ruling. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | Parts 3-1 and 3-3 - application of capital gains tax provisions to the Put Option, Collar and Underlying Securities


Related rulings: TR 95/33
Legislative references: ITAA 1936 44 ITAA 1936 44(1) ITAA 1936 51AAA ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL(1) ITAA 1936 82KZL(2)(a) ITAA 1936 82KZM ITAA 1936 82KZM(1A) ITAA 1936 82KZMA ITAA 1936 82KZMA(2A) ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZME(4) ITAA 1936 82KZME(5) ITAA 1936 82KZME(5)(b)(ii) ITAA 1936 82KZME(5)(b)(iii) ITAA 1936 82KZMF ITAA 1936 97 ITAA 1936 97(1)(a) ITAA 1936 Pt III Div 16E ITAA 1936 Pt IVA ITAA 1997 8-1 ITAA 1997 Subdiv 83A-B ITAA 1997 Subdiv 83A-C ITAA 1997 Pt 3-1 ITAA 1997 104-10 ITAA 1997 104-25 ITAA 1997 104-25(1)(c) ITAA 1997 104-25(1)(e) ITAA 1997 104-25(3) ITAA 1997 106-60(1)(a) ITAA 1997 109-5 ITAA 1997 110-25 ITAA 1997 110-55 ITAA 1997 Div 115 ITAA 1997 115-5 ITAA 1997 Pt 3-3 ITAA 1997 134-1(1) ITAA 1997 134-1(4) ITAA 1997 Div 230 ITAA 1997 230-455 ITAA 1997 230-455(7) ITAA 1997 Div 235 ITAA 1997 235-815(2) ITAA 1997 235-820 ITAA 1997 235-820(1) ITAA 1997 235-820(2) ITAA 1997 235-825(1)(a) ITAA 1997 235-825(1)(b) ITAA 1997 235-830 ITAA 1997 235-835 ITAA 1997 235-835(1)(b)(ii) ITAA 1997 235-840 ITAA 1997 Div 247 ITAA 1997 247-20 ITAA 1997 247-20(3) ITAA 1997 247-20(4) ITAA 1997 247-20(5) ITAA 1997 247-20(5A) ITAA 1997 247-20(6) ITAA 1997 Subdiv 328-C ITAA 1997 328-110 ITAA 1997 Div 770 ITAA 1997 770-15 ITAA 1997 770-75 ITAA 1997 770-130 ITAA 1997 770-140 SISA 1993 SISA 1993 19 SISA 1993 67A(1)