Product Ruling PR 2024/6
Date of effect: 1 September 2023

What this ruling is about: 1. This Ruling sets out the income tax consequences for entities that participate as an Investor in the scheme referred to as the Anadara Deferred Purchase Agreement (DPA), offered by Anadara Specialist Investments Pty Ltd (the Issuer) and arranged by Viriathus Capital Pty Ltd (the Arranger). 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Terms which are defined in the Anadara Specialist Investments Pty Ltd Master Information Memorandum (Master IM) referred to in paragraph 11 of this Ruling have been capitalised. 3. This Ruling does not address: Who this Ruling applies to 4. This Ruling applies to you if you: 5. This Ruling does not apply to you if you: Requirements of the Superannuation Industry (Supervision) Act 1993 6. This Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. 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 Superannuation Industry (Supervision) Act 1993. 7. This Ruling applies from 1 September 2023 to Investors specified in paragraph 4 of this Ruling who enter into the scheme described in paragraphs 11 to 14 of this Ruling on a relevant Commencement Date from 1 September 2023 until 30 June 2026. 8. 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different from the scheme described at paragraphs 11 to 14 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 10 of this Ruling: Assumptions 10. This Ruling is made on the basis of the following necessary assumptions: 11. 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. 12. For the purposes of describing the scheme, there are no other agreements (whether formal or informal, and whether or not legally enforceable) which an Investor, or any associate of an Investor, will be a party to which are a part of the scheme. 13. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. Overview of scheme 14. The details of the DPA are summarised as follows: Commissioner of Taxation 22 May 2024 Coupons assessable as ordinary income under section 6-5 15. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. 16. Any Coupons paid or credited by the Issuer on the Units held by the Investor are ordinary income of the Investor and included as assessable income under section 6-5 in the income year in which they are paid or credited to the Investor. Deductibility of interest under section 8-1 17. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 18. Where there is a possibility that Coupons may be received, interest incurred by the Investor on the Investment Loan in respect of the Units has a sufficient connection with the gaining of assessable income (being the Coupons) to be deductible under section 8-1 and is deductible in full on the basis that the Investor's purpose of investing in the Units is to derive a return from these assessable amounts in excess of their expenditure. 19. For Units in a Series that do not offer the possibility of paying Coupons, interest incurred on the Investment Loan is not deductible under section 8-1. The interest incurred by the Investor under these circumstances does not have a sufficient connection with the gaining of assessable income to be deductible under section 8-1 and is not deductible on the basis that the Investor's purpose of investing in the Units is to derive a return of a capital nature. Section 51AAA of the ITAA 1936 20. Section 51AAA of the ITAA 1936 denies a deduction under section 8-1 where the deduction would only be allowable because a net capital gain has been included in a taxpayer's assessable income. As interest incurred by the Investor on the Investment Loan under a Series which offers the possibility of Coupons being paid 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 under those circumstances. Section 82KL of the ITAA 1936 21. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits' (as defined in section 82KH of the ITAA 1936). Insufficient additional benefits will be provided to trigger the application of section 82KL of the ITAA 1936. Section 82KL of the ITAA 1936 will not apply to deny the deductions otherwise allowable under section 8-1. Subdivision H of Division 3 of Part III of the ITAA 1936 22. 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 of expenditure that are of a capital nature. Subdivision 328-C  small business entities for the purposes of Subdivision H of the ITAA 1936 23. Under section 328-110, an Investor carrying on a business in an income year will be a small business entity for that year (the current year) if: The eligible service period for the purposes of Subdivision H of the ITAA 1936 24. The Prepaid Interest charged on the Investment Loan that is deductible under section 8-1 may or may not be in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the 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 25. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 26. 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 DPA, including the financing. 27. Section 82KZMF of the ITAA 1936 will have operation and apportion over the relevant period each Prepaid Interest amount incurred by the Investor which is allowable as a deduction under section 8-1 where: 28. Each of the other requirements for the agreement under subsection 82KZME(3) of the ITAA 1936 are met and none of the other exceptions contained in subsections 82KZME(5), (8) or (9) of the ITAA 1936 apply to exclude Prepaid Interest incurred from the operation of section 82KZMF of the ITAA 1936. 29. For each of the years of income during which part of the Prepaid Interest Period falls, the Investor can deduct an amount using the following formula set out in paragraph 82KZMF(1)(b) of the ITAA 1936: 30. Where sections 82KZME and 82KZMF of the ITAA 1936 do not apply to set the amount and timing of deductions for Prepaid Interest amounts incurred by the Investor, the deductibility of the Prepaid Interest must be considered under the prepayment rules contained in paragraphs 31 to 35 of this Ruling. Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities 31. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure that an Investor (other than a small business entity, or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [2] , for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 32. For these Investors, the amount of Prepaid Interest incurred under the Investment Loan which is allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure 33. Subject to paragraph 34 of this Ruling, section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 for the year of income in which the prepaid expenditure is incurred under an agreement by a taxpayer that is either: 34. Section 82KZM of the ITAA 1936 applies if: 35. Where the Prepaid Interest is not excluded expenditure and the eligible service period in relation to the deductible Prepaid Interest under the Investment Loan is more than 12 months, section 82KZM of the ITAA 1936 will have application to Investors referred to in paragraph 33 of this Ruling. Application of the capital gains tax provisions to Units under the Anadara Deferred Purchase Agreement 36. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of an Investor under the Terms to the DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 37. Where the Delivery Parcel is delivered to the Investor or the Sale Monies under the Agency Sale Option are applied on behalf of, or paid to, the Investor either in respect of the Investor's entitlement to the Final Value or a Performance Coupon (as a Final Coupon), as specified in the relevant Term Sheet IM, the Investor's ownership of the contractual rights under the DPA is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 38. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 39. The Investor's capital proceeds from the CGT event will be equal to the Sale Monies applied against the Investment Loan on behalf of the Investor or received by the Investor under the Agency Sale Option, or the market value of the Delivery Parcel received on (or shortly after) the Settlement Date, as applicable (section 116-20). 40. The cost base or reduced cost base of the Investor's rights under the DPA includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base of the Investor's rights under the DPA will also include, as its third element, non-deductible interest incurred by the Investor (where their Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons; subsection 110-25(4)). Such interest is not included in the reduced cost base of the Investor's rights under the DPA (subsections 110-55(2) and (3)). 41. Where part or all of the capital proceeds from the CGT event also represents Coupons received by an Investor and are included in assessable income under section 6-5 (about ordinary income), subsection 118-20(1) will apply to reduce any capital made by the Investor to nil if it does not exceed the amount included as assessable income. Therefore, for Units in a Series that only pays a Performance Coupon (as a Final Coupon) at (or shortly after) Maturity and does not pay a Final Value, the Investor will not make any capital gain or capital loss from CGT event C2 pursuant to the application of subsection 118-20(1) to the capital proceeds that are attributed to that Coupon that is included as ordinary income. 42. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under the DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). Division 245  commercial debt forgiveness 43. The Investment Loan will be treated as a 'commercial debt' under section 245-10. 44. Where the limited recourse provisions of the Investment Loan come into effect, an Investor is not required to repay the shortfall between the Loan Amount and the redemption proceeds of the Units. This will result in the forgiveness of a commercial debt at that time, under paragraph 245-35(a). 45. Under Division 245, where the forgiveness of a commercial debt results in the Investor having a positive 'net forgiven amount', the Investor will be required to reduce certain tax attributes that could otherwise reduce their taxable income (in the same or a later income year), to the extent of the net forgiven amount. 46. To calculate the net forgiven amount of a debt, it is first necessary to calculate the 'gross forgiven amount' of a debt. In the Investor's circumstances, Division 245 will have no practical effect as there will be no gross forgiven amount in respect of the Investment Loan. The gross forgiven amount is equal to the value of the debt when it is forgiven (worked out under section 245-60) less the amount (if any) that is offset against the value of the debt when it is forgiven (worked out under section 245-65). 47. As the value of the Investment Loan when it is forgiven will be equal to the amount that is offset against the value of that loan when it is forgiven, there will be no gross forgiven amount in respect of the Investment Loan (subsection 245-75(2)). 48. Accordingly, the commercial debt forgiveness rules in Division 245 will not reduce the tax attributes of an Investor as a result of the debt forgiveness that occurs when the limited recourse provisions of the Investment Loan come into effect. Subsection 159GP(1) of the ITAA 1936  a Unit is not a 'security' 49. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 50. The Units issued under the DPA are not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor do they fall within paragraphs (a), (b) or (c) of that definition. Therefore, such Units do not meet the definition of security under subsection 159GP(1) of the ITAA 1936. Section 25-25  loan establishment fee 51. A loan establishment fee, if applicable, incurred by an Investor upon successful application for an Investment Loan will be an allowable deduction pursuant to section 25-25 where it is a cost of borrowing money used for the purpose of producing assessable income and section 51AAA of the ITAA 1936 does not apply to deny the deduction under section 25-25 because the deduction would only be allowable as a consequence of a net capital gain having been included in the Investor's assessable income. Where the Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons, the loan establishment fee is not deductible under section 51AAA of the ITAA 1936. 52. Where deductible, the loan establishment fee will be deductible on a straight-line basis over the period of the shorter of the term of the Investment Loan or 5 years. © 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: 14. The details of the DPA are summarised as follows: Commissioner of Taxation 22 May 2024 | Coupons assessable as ordinary income under section 6-5: 15. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. 16. Any Coupons paid or credited by the Issuer on the Units held by the Investor are ordinary income of the Investor and included as assessable income under section 6-5 in the income year in which they are paid or credited to the Investor. | Deductibility of interest under section 8-1: 17. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 18. Where there is a possibility that Coupons may be received, interest incurred by the Investor on the Investment Loan in respect of the Units has a sufficient connection with the gaining of assessable income (being the Coupons) to be deductible under section 8-1 and is deductible in full on the basis that the Investor's purpose of investing in the Units is to derive a return from these assessable amounts in excess of their expenditure. 19. For Units in a Series that do not offer the possibility of paying Coupons, interest incurred on the Investment Loan is not deductible under section 8-1. The interest incurred by the Investor under these circumstances does not have a sufficient connection with the gaining of assessable income to be deductible under section 8-1 and is not deductible on the basis that the Investor's purpose of investing in the Units is to derive a return of a capital nature. | Section 51AAA of the ITAA 1936: 20. Section 51AAA of the ITAA 1936 denies a deduction under section 8-1 where the deduction would only be allowable because a net capital gain has been included in a taxpayer's assessable income. As interest incurred by the Investor on the Investment Loan under a Series which offers the possibility of Coupons being paid 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 under those circumstances. | Section 82KL of the ITAA 1936: 21. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits' (as defined in section 82KH of the ITAA 1936). Insufficient additional benefits will be provided to trigger the application of section 82KL of the ITAA 1936. Section 82KL of the ITAA 1936 will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 22. 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 of expenditure that are of a capital nature. | Subdivision 328-C  small business entities for the purposes of Subdivision H of the ITAA 1936: 23. Under section 328-110, an Investor carrying on a business in an income year will be a small business entity for that year (the current year) if: | The eligible service period for the purposes of Subdivision H of the ITAA 1936: 24. The Prepaid Interest charged on the Investment Loan that is deductible under section 8-1 may or may not be in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the 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: 25. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 26. 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 DPA, including the financing. 27. Section 82KZMF of the ITAA 1936 will have operation and apportion over the relevant period each Prepaid Interest amount incurred by the Investor which is allowable as a deduction under section 8-1 where: 28. Each of the other requirements for the agreement under subsection 82KZME(3) of the ITAA 1936 are met and none of the other exceptions contained in subsections 82KZME(5), (8) or (9) of the ITAA 1936 apply to exclude Prepaid Interest incurred from the operation of section 82KZMF of the ITAA 1936. 29. For each of the years of income during which part of the Prepaid Interest Period falls, the Investor can deduct an amount using the following formula set out in paragraph 82KZMF(1)(b) of the ITAA 1936: 30. Where sections 82KZME and 82KZMF of the ITAA 1936 do not apply to set the amount and timing of deductions for Prepaid Interest amounts incurred by the Investor, the deductibility of the Prepaid Interest must be considered under the prepayment rules contained in paragraphs 31 to 35 of this Ruling. | Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 31. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure that an Investor (other than a small business entity, or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [2] , for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 32. For these Investors, the amount of Prepaid Interest incurred under the Investment Loan which is allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 33. Subject to paragraph 34 of this Ruling, section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 for the year of income in which the prepaid expenditure is incurred under an agreement by a taxpayer that is either: 34. Section 82KZM of the ITAA 1936 applies if: 35. Where the Prepaid Interest is not excluded expenditure and the eligible service period in relation to the deductible Prepaid Interest under the Investment Loan is more than 12 months, section 82KZM of the ITAA 1936 will have application to Investors referred to in paragraph 33 of this Ruling. | Application of the capital gains tax provisions to Units under the Anadara Deferred Purchase Agreement: 36. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of an Investor under the Terms to the DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 37. Where the Delivery Parcel is delivered to the Investor or the Sale Monies under the Agency Sale Option are applied on behalf of, or paid to, the Investor either in respect of the Investor's entitlement to the Final Value or a Performance Coupon (as a Final Coupon), as specified in the relevant Term Sheet IM, the Investor's ownership of the contractual rights under the DPA is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 38. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 39. The Investor's capital proceeds from the CGT event will be equal to the Sale Monies applied against the Investment Loan on behalf of the Investor or received by the Investor under the Agency Sale Option, or the market value of the Delivery Parcel received on (or shortly after) the Settlement Date, as applicable (section 116-20). 40. The cost base or reduced cost base of the Investor's rights under the DPA includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base of the Investor's rights under the DPA will also include, as its third element, non-deductible interest incurred by the Investor (where their Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons; subsection 110-25(4)). Such interest is not included in the reduced cost base of the Investor's rights under the DPA (subsections 110-55(2) and (3)). 41. Where part or all of the capital proceeds from the CGT event also represents Coupons received by an Investor and are included in assessable income under section 6-5 (about ordinary income), subsection 118-20(1) will apply to reduce any capital made by the Investor to nil if it does not exceed the amount included as assessable income. Therefore, for Units in a Series that only pays a Performance Coupon (as a Final Coupon) at (or shortly after) Maturity and does not pay a Final Value, the Investor will not make any capital gain or capital loss from CGT event C2 pursuant to the application of subsection 118-20(1) to the capital proceeds that are attributed to that Coupon that is included as ordinary income. 42. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under the DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). | Division 245  commercial debt forgiveness: 43. The Investment Loan will be treated as a 'commercial debt' under section 245-10. 44. Where the limited recourse provisions of the Investment Loan come into effect, an Investor is not required to repay the shortfall between the Loan Amount and the redemption proceeds of the Units. This will result in the forgiveness of a commercial debt at that time, under paragraph 245-35(a). 45. Under Division 245, where the forgiveness of a commercial debt results in the Investor having a positive 'net forgiven amount', the Investor will be required to reduce certain tax attributes that could otherwise reduce their taxable income (in the same or a later income year), to the extent of the net forgiven amount. 46. To calculate the net forgiven amount of a debt, it is first necessary to calculate the 'gross forgiven amount' of a debt. In the Investor's circumstances, Division 245 will have no practical effect as there will be no gross forgiven amount in respect of the Investment Loan. The gross forgiven amount is equal to the value of the debt when it is forgiven (worked out under section 245-60) less the amount (if any) that is offset against the value of the debt when it is forgiven (worked out under section 245-65). 47. As the value of the Investment Loan when it is forgiven will be equal to the amount that is offset against the value of that loan when it is forgiven, there will be no gross forgiven amount in respect of the Investment Loan (subsection 245-75(2)). 48. Accordingly, the commercial debt forgiveness rules in Division 245 will not reduce the tax attributes of an Investor as a result of the debt forgiveness that occurs when the limited recourse provisions of the Investment Loan come into effect. | Subsection 159GP(1) of the ITAA 1936  a Unit is not a 'security': 49. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 50. The Units issued under the DPA are not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor do they fall within paragraphs (a), (b) or (c) of that definition. Therefore, such Units do not meet the definition of security under subsection 159GP(1) of the ITAA 1936. | Section 25-25  loan establishment fee: 51. A loan establishment fee, if applicable, incurred by an Investor upon successful application for an Investment Loan will be an allowable deduction pursuant to section 25-25 where it is a cost of borrowing money used for the purpose of producing assessable income and section 51AAA of the ITAA 1936 does not apply to deny the deduction under section 25-25 because the deduction would only be allowable as a consequence of a net capital gain having been included in the Investor's assessable income. Where the Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons, the loan establishment fee is not deductible under section 51AAA of the ITAA 1936. 52. Where deductible, the loan establishment fee will be deductible on a straight-line basis over the period of the shorter of the term of the Investment Loan or 5 years. © 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 scheme referred to as the Anadara Deferred Purchase Agreement (DPA), offered by Anadara Specialist Investments Pty Ltd (the Issuer) and arranged by Viriathus Capital Pty Ltd (the Arranger). 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Terms which are defined in the Anadara Specialist Investments Pty Ltd Master Information Memorandum (Master IM) referred to in paragraph 11 of this Ruling have been capitalised. 3. This Ruling does not address: | Who this Ruling applies to: 4. This Ruling applies to you if you: 5. This Ruling does not apply to you if you: | Requirements of the Superannuation Industry (Supervision) Act 1993: 6. This Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. 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 Superannuation Industry (Supervision) Act 1993. 7. This Ruling applies from 1 September 2023 to Investors specified in paragraph 4 of this Ruling who enter into the scheme described in paragraphs 11 to 14 of this Ruling on a relevant Commencement Date from 1 September 2023 until 30 June 2026. 8. 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 11 to 14 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 10 of this Ruling: | Assumptions: 10. This Ruling is made on the basis of the following necessary assumptions: 11. 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. 12. For the purposes of describing the scheme, there are no other agreements (whether formal or informal, and whether or not legally enforceable) which an Investor, or any associate of an Investor, will be a party to which are a part of the scheme. 13. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview of scheme: 14. The details of the DPA are summarised as follows: Commissioner of Taxation 22 May 2024 | Coupons assessable as ordinary income under section 6-5: 15. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. 16. Any Coupons paid or credited by the Issuer on the Units held by the Investor are ordinary income of the Investor and included as assessable income under section 6-5 in the income year in which they are paid or credited to the Investor. | Deductibility of interest under section 8-1: 17. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 18. Where there is a possibility that Coupons may be received, interest incurred by the Investor on the Investment Loan in respect of the Units has a sufficient connection with the gaining of assessable income (being the Coupons) to be deductible under section 8-1 and is deductible in full on the basis that the Investor's purpose of investing in the Units is to derive a return from these assessable amounts in excess of their expenditure. 19. For Units in a Series that do not offer the possibility of paying Coupons, interest incurred on the Investment Loan is not deductible under section 8-1. The interest incurred by the Investor under these circumstances does not have a sufficient connection with the gaining of assessable income to be deductible under section 8-1 and is not deductible on the basis that the Investor's purpose of investing in the Units is to derive a return of a capital nature. | Section 51AAA of the ITAA 1936: 20. Section 51AAA of the ITAA 1936 denies a deduction under section 8-1 where the deduction would only be allowable because a net capital gain has been included in a taxpayer's assessable income. As interest incurred by the Investor on the Investment Loan under a Series which offers the possibility of Coupons being paid 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 under those circumstances. | Section 82KL of the ITAA 1936: 21. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits' (as defined in section 82KH of the ITAA 1936). Insufficient additional benefits will be provided to trigger the application of section 82KL of the ITAA 1936. Section 82KL of the ITAA 1936 will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 22. 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 of expenditure that are of a capital nature. | Subdivision 328-C  small business entities for the purposes of Subdivision H of the ITAA 1936: 23. Under section 328-110, an Investor carrying on a business in an income year will be a small business entity for that year (the current year) if: | The eligible service period for the purposes of Subdivision H of the ITAA 1936: 24. The Prepaid Interest charged on the Investment Loan that is deductible under section 8-1 may or may not be in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the 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: 25. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 26. 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 DPA, including the financing. 27. Section 82KZMF of the ITAA 1936 will have operation and apportion over the relevant period each Prepaid Interest amount incurred by the Investor which is allowable as a deduction under section 8-1 where: 28. Each of the other requirements for the agreement under subsection 82KZME(3) of the ITAA 1936 are met and none of the other exceptions contained in subsections 82KZME(5), (8) or (9) of the ITAA 1936 apply to exclude Prepaid Interest incurred from the operation of section 82KZMF of the ITAA 1936. 29. For each of the years of income during which part of the Prepaid Interest Period falls, the Investor can deduct an amount using the following formula set out in paragraph 82KZMF(1)(b) of the ITAA 1936: 30. Where sections 82KZME and 82KZMF of the ITAA 1936 do not apply to set the amount and timing of deductions for Prepaid Interest amounts incurred by the Investor, the deductibility of the Prepaid Interest must be considered under the prepayment rules contained in paragraphs 31 to 35 of this Ruling. | Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 31. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure that an Investor (other than a small business entity, or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [2] , for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 32. For these Investors, the amount of Prepaid Interest incurred under the Investment Loan which is allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 33. Subject to paragraph 34 of this Ruling, section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 for the year of income in which the prepaid expenditure is incurred under an agreement by a taxpayer that is either: 34. Section 82KZM of the ITAA 1936 applies if: 35. Where the Prepaid Interest is not excluded expenditure and the eligible service period in relation to the deductible Prepaid Interest under the Investment Loan is more than 12 months, section 82KZM of the ITAA 1936 will have application to Investors referred to in paragraph 33 of this Ruling. | Application of the capital gains tax provisions to Units under the Anadara Deferred Purchase Agreement: 36. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of an Investor under the Terms to the DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 37. Where the Delivery Parcel is delivered to the Investor or the Sale Monies under the Agency Sale Option are applied on behalf of, or paid to, the Investor either in respect of the Investor's entitlement to the Final Value or a Performance Coupon (as a Final Coupon), as specified in the relevant Term Sheet IM, the Investor's ownership of the contractual rights under the DPA is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 38. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 39. The Investor's capital proceeds from the CGT event will be equal to the Sale Monies applied against the Investment Loan on behalf of the Investor or received by the Investor under the Agency Sale Option, or the market value of the Delivery Parcel received on (or shortly after) the Settlement Date, as applicable (section 116-20). 40. The cost base or reduced cost base of the Investor's rights under the DPA includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base of the Investor's rights under the DPA will also include, as its third element, non-deductible interest incurred by the Investor (where their Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons; subsection 110-25(4)). Such interest is not included in the reduced cost base of the Investor's rights under the DPA (subsections 110-55(2) and (3)). 41. Where part or all of the capital proceeds from the CGT event also represents Coupons received by an Investor and are included in assessable income under section 6-5 (about ordinary income), subsection 118-20(1) will apply to reduce any capital made by the Investor to nil if it does not exceed the amount included as assessable income. Therefore, for Units in a Series that only pays a Performance Coupon (as a Final Coupon) at (or shortly after) Maturity and does not pay a Final Value, the Investor will not make any capital gain or capital loss from CGT event C2 pursuant to the application of subsection 118-20(1) to the capital proceeds that are attributed to that Coupon that is included as ordinary income. 42. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under the DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). | Division 245  commercial debt forgiveness: 43. The Investment Loan will be treated as a 'commercial debt' under section 245-10. 44. Where the limited recourse provisions of the Investment Loan come into effect, an Investor is not required to repay the shortfall between the Loan Amount and the redemption proceeds of the Units. This will result in the forgiveness of a commercial debt at that time, under paragraph 245-35(a). 45. Under Division 245, where the forgiveness of a commercial debt results in the Investor having a positive 'net forgiven amount', the Investor will be required to reduce certain tax attributes that could otherwise reduce their taxable income (in the same or a later income year), to the extent of the net forgiven amount. 46. To calculate the net forgiven amount of a debt, it is first necessary to calculate the 'gross forgiven amount' of a debt. In the Investor's circumstances, Division 245 will have no practical effect as there will be no gross forgiven amount in respect of the Investment Loan. The gross forgiven amount is equal to the value of the debt when it is forgiven (worked out under section 245-60) less the amount (if any) that is offset against the value of the debt when it is forgiven (worked out under section 245-65). 47. As the value of the Investment Loan when it is forgiven will be equal to the amount that is offset against the value of that loan when it is forgiven, there will be no gross forgiven amount in respect of the Investment Loan (subsection 245-75(2)). 48. Accordingly, the commercial debt forgiveness rules in Division 245 will not reduce the tax attributes of an Investor as a result of the debt forgiveness that occurs when the limited recourse provisions of the Investment Loan come into effect. | Subsection 159GP(1) of the ITAA 1936  a Unit is not a 'security': 49. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 50. The Units issued under the DPA are not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor do they fall within paragraphs (a), (b) or (c) of that definition. Therefore, such Units do not meet the definition of security under subsection 159GP(1) of the ITAA 1936. | Section 25-25  loan establishment fee: 51. A loan establishment fee, if applicable, incurred by an Investor upon successful application for an Investment Loan will be an allowable deduction pursuant to section 25-25 where it is a cost of borrowing money used for the purpose of producing assessable income and section 51AAA of the ITAA 1936 does not apply to deny the deduction under section 25-25 because the deduction would only be allowable as a consequence of a net capital gain having been included in the Investor's assessable income. Where the Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons, the loan establishment fee is not deductible under section 51AAA of the ITAA 1936. 52. Where deductible, the loan establishment fee will be deductible on a straight-line basis over the period of the shorter of the term of the Investment Loan or 5 years. © 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: Coupons assessable as ordinary income under section 6-5: 15. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. 16. Any Coupons paid or credited by the Issuer on the Units held by the Investor are ordinary income of the Investor and included as assessable income under section 6-5 in the income year in which they are paid or credited to the Investor. | Deductibility of interest under section 8-1: 17. A loss or outgoing is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 18. Where there is a possibility that Coupons may be received, interest incurred by the Investor on the Investment Loan in respect of the Units has a sufficient connection with the gaining of assessable income (being the Coupons) to be deductible under section 8-1 and is deductible in full on the basis that the Investor's purpose of investing in the Units is to derive a return from these assessable amounts in excess of their expenditure. 19. For Units in a Series that do not offer the possibility of paying Coupons, interest incurred on the Investment Loan is not deductible under section 8-1. The interest incurred by the Investor under these circumstances does not have a sufficient connection with the gaining of assessable income to be deductible under section 8-1 and is not deductible on the basis that the Investor's purpose of investing in the Units is to derive a return of a capital nature. | Section 51AAA of the ITAA 1936: 20. Section 51AAA of the ITAA 1936 denies a deduction under section 8-1 where the deduction would only be allowable because a net capital gain has been included in a taxpayer's assessable income. As interest incurred by the Investor on the Investment Loan under a Series which offers the possibility of Coupons being paid 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 under those circumstances. | Section 82KL of the ITAA 1936: 21. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits' (as defined in section 82KH of the ITAA 1936). Insufficient additional benefits will be provided to trigger the application of section 82KL of the ITAA 1936. Section 82KL of the ITAA 1936 will not apply to deny the deductions otherwise allowable under section 8-1. | Subdivision H of Division 3 of Part III of the ITAA 1936: 22. 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 of expenditure that are of a capital nature. | Subdivision 328-C  small business entities for the purposes of Subdivision H of the ITAA 1936: 23. Under section 328-110, an Investor carrying on a business in an income year will be a small business entity for that year (the current year) if: | The eligible service period for the purposes of Subdivision H of the ITAA 1936: 24. The Prepaid Interest charged on the Investment Loan that is deductible under section 8-1 may or may not be in relation to a prepayment of loan interest for a period that is 12 months or less. Paragraph 82KZL(2)(a) of the ITAA 1936 provides that a payment of interest that is made in return for the making available of a loan principal is to be taken, for the purposes of Subdivision H of Division 3 of Part III of the ITAA 1936, to be expenditure incurred under an agreement in return for the doing of a thing under the agreement for the period to which the 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: 25. The rules in sections 82KZME and 82KZMF of the ITAA 1936 apply, subject to the exceptions in section 82KZME of the ITAA 1936, where expenditure is incurred in relation to a 'tax shelter' style arrangement for the doing of a thing under an agreement that is not to be wholly done within the expenditure year, and where certain requirements for that agreement are met. 26. 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 DPA, including the financing. 27. Section 82KZMF of the ITAA 1936 will have operation and apportion over the relevant period each Prepaid Interest amount incurred by the Investor which is allowable as a deduction under section 8-1 where: 28. Each of the other requirements for the agreement under subsection 82KZME(3) of the ITAA 1936 are met and none of the other exceptions contained in subsections 82KZME(5), (8) or (9) of the ITAA 1936 apply to exclude Prepaid Interest incurred from the operation of section 82KZMF of the ITAA 1936. 29. For each of the years of income during which part of the Prepaid Interest Period falls, the Investor can deduct an amount using the following formula set out in paragraph 82KZMF(1)(b) of the ITAA 1936: 30. Where sections 82KZME and 82KZMF of the ITAA 1936 do not apply to set the amount and timing of deductions for Prepaid Interest amounts incurred by the Investor, the deductibility of the Prepaid Interest must be considered under the prepayment rules contained in paragraphs 31 to 35 of this Ruling. | Sections 82KZMA and 82KZMD of the ITAA 1936  prepaid non-business expenditure incurred by non-individual and non-small and medium business entities: 31. Sections 82KZMA and 82KZMD of the ITAA 1936 set the amount and timing of deductions for expenditure that an Investor (other than a small business entity, or an entity covered by subsection 82KZMA(2A) of the ITAA 1936 [2] , for the year of income that has not chosen to apply section 82KZMD of the ITAA 1936 to the expenditure) that is not an individual and does not incur the expenditure in carrying on a business. The expenditure must not be excluded expenditure and must be incurred in return for the doing of a thing under an agreement that is not to be wholly done within the expenditure year. 32. For these Investors, the amount of Prepaid Interest incurred under the Investment Loan which is allowable as a deduction under section 8-1 will be apportioned over the relevant interest payment period. | Section 82KZM of the ITAA 1936  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 33. Subject to paragraph 34 of this Ruling, section 82KZM of the ITAA 1936 operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 for the year of income in which the prepaid expenditure is incurred under an agreement by a taxpayer that is either: 34. Section 82KZM of the ITAA 1936 applies if: 35. Where the Prepaid Interest is not excluded expenditure and the eligible service period in relation to the deductible Prepaid Interest under the Investment Loan is more than 12 months, section 82KZM of the ITAA 1936 will have application to Investors referred to in paragraph 33 of this Ruling. | Application of the capital gains tax provisions to Units under the Anadara Deferred Purchase Agreement: 36. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of an Investor under the Terms to the DPA are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 37. Where the Delivery Parcel is delivered to the Investor or the Sale Monies under the Agency Sale Option are applied on behalf of, or paid to, the Investor either in respect of the Investor's entitlement to the Final Value or a Performance Coupon (as a Final Coupon), as specified in the relevant Term Sheet IM, the Investor's ownership of the contractual rights under the DPA is discharged or satisfied. This discharge or satisfaction of the contractual rights gives rise to CGT event C2 (paragraph 104-25(1)(b)). 38. The Investor will make a capital gain from this CGT event if the capital proceeds from the ending of the Investor's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 39. The Investor's capital proceeds from the CGT event will be equal to the Sale Monies applied against the Investment Loan on behalf of the Investor or received by the Investor under the Agency Sale Option, or the market value of the Delivery Parcel received on (or shortly after) the Settlement Date, as applicable (section 116-20). 40. The cost base or reduced cost base of the Investor's rights under the DPA includes, as its first element, the Investment Amount (subsections 110-25(2) and 110-55(2)). The cost base of the Investor's rights under the DPA will also include, as its third element, non-deductible interest incurred by the Investor (where their Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons; subsection 110-25(4)). Such interest is not included in the reduced cost base of the Investor's rights under the DPA (subsections 110-55(2) and (3)). 41. Where part or all of the capital proceeds from the CGT event also represents Coupons received by an Investor and are included in assessable income under section 6-5 (about ordinary income), subsection 118-20(1) will apply to reduce any capital made by the Investor to nil if it does not exceed the amount included as assessable income. Therefore, for Units in a Series that only pays a Performance Coupon (as a Final Coupon) at (or shortly after) Maturity and does not pay a Final Value, the Investor will not make any capital gain or capital loss from CGT event C2 pursuant to the application of subsection 118-20(1) to the capital proceeds that are attributed to that Coupon that is included as ordinary income. 42. Division 115 allows a taxpayer a discount on capital gains in certain circumstances. In accordance with section 115-5, any capital gain realised by an Investor as a result of the satisfaction of the Investor's rights under the DPA will be treated as a discount capital gain where the Investor is an individual, a complying superannuation entity, or a trust and has held those rights under the DPA for at least 12 months (excluding the days of acquisition and disposal). | Division 245  commercial debt forgiveness: 43. The Investment Loan will be treated as a 'commercial debt' under section 245-10. 44. Where the limited recourse provisions of the Investment Loan come into effect, an Investor is not required to repay the shortfall between the Loan Amount and the redemption proceeds of the Units. This will result in the forgiveness of a commercial debt at that time, under paragraph 245-35(a). 45. Under Division 245, where the forgiveness of a commercial debt results in the Investor having a positive 'net forgiven amount', the Investor will be required to reduce certain tax attributes that could otherwise reduce their taxable income (in the same or a later income year), to the extent of the net forgiven amount. 46. To calculate the net forgiven amount of a debt, it is first necessary to calculate the 'gross forgiven amount' of a debt. In the Investor's circumstances, Division 245 will have no practical effect as there will be no gross forgiven amount in respect of the Investment Loan. The gross forgiven amount is equal to the value of the debt when it is forgiven (worked out under section 245-60) less the amount (if any) that is offset against the value of the debt when it is forgiven (worked out under section 245-65). 47. As the value of the Investment Loan when it is forgiven will be equal to the amount that is offset against the value of that loan when it is forgiven, there will be no gross forgiven amount in respect of the Investment Loan (subsection 245-75(2)). 48. Accordingly, the commercial debt forgiveness rules in Division 245 will not reduce the tax attributes of an Investor as a result of the debt forgiveness that occurs when the limited recourse provisions of the Investment Loan come into effect. | Subsection 159GP(1) of the ITAA 1936  a Unit is not a 'security': 49. Under subsection 159GP(1) of the ITAA 1936, a 'security' means: 50. The Units issued under the DPA are not considered to have sufficient debt like obligations to be a contract to which paragraph (d) of the definition of security in subsection 159GP(1) of the ITAA 1936 applies, nor do they fall within paragraphs (a), (b) or (c) of that definition. Therefore, such Units do not meet the definition of security under subsection 159GP(1) of the ITAA 1936. | Section 25-25  loan establishment fee: 51. A loan establishment fee, if applicable, incurred by an Investor upon successful application for an Investment Loan will be an allowable deduction pursuant to section 25-25 where it is a cost of borrowing money used for the purpose of producing assessable income and section 51AAA of the ITAA 1936 does not apply to deny the deduction under section 25-25 because the deduction would only be allowable as a consequence of a net capital gain having been included in the Investor's assessable income. Where the Investment Loan is used to acquire Units in a Series that does not have the potential to pay Coupons, the loan establishment fee is not deductible under section 51AAA of the ITAA 1936. 52. Where deductible, the loan establishment fee will be deductible on a straight-line basis over the period of the shorter of the term of the Investment Loan or 5 years. © 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. | 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.


Legislative references: ITAA 1936 51AAA ITAA 1936 82KH ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL(1) ITAA 1936 82KZL(2)(a) ITAA 1936 82KZM ITAA 1936 82KZM(1A) ITAA 1936 82KZMA ITAA 1936 82KZMA(2A) ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZME(3) ITAA 1936 82KZME(4) ITAA 1936 82KZME(5) ITAA 1936 82KZME(8) ITAA 1936 82KZME(9) ITAA 1936 82KZMF ITAA 1936 82KZMF(1)(b) ITAA 1936 159GP(1) ITAA 1936 159GP(1)(a) ITAA 1936 159GP(1)(b) ITAA 1936 159GP(1)(c) ITAA 1936 159GP(1)(d) ITAA 1936 Pt IVA ITAA 1997 6-5 ITAA 1997 8-1 ITAA 1997 25-25 ITAA 1997 104-25 ITAA 1997 104-25(1)(b) ITAA 1997 104-25(3) ITAA 1997 108-5(1) ITAA 1997 110-25(2) ITAA 1997 110-25(4) ITAA 1997 110-55(2) ITAA 1997 110-55(3) ITAA 1997 Div 115 ITAA 1997 115-5 ITAA 1997 116-20 ITAA 1997 118-20(1) ITAA 1997 Div 230 ITAA 1997 230-455 ITAA 1997 Div 245 ITAA 1997 245-10 ITAA 1997 245-35(a) ITAA 1997 245-60 ITAA 1997 245-65 ITAA 1997 245-75(2) ITAA 1997 Subdiv 328-C ITAA 1997 328-110 SISA 1993