Product Ruling PR 2007/51
Date of effect: 30 May 2007

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified in the Ruling section (below) apply to the defined class of entities, who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Ruling this scheme is referred to as the Calliva SuperAccess arrangement or simply as the scheme. The Calliva SuperAccess scheme consists of the acquisition of Property Notes, to be issued by Calliva Finance Ltd (CFL), and the Lease which will be entered into by the participant in the scheme and AET Structured Finance Services Pty Ltd as trustee for Calliva Series 2006-1 Asset Trust ('Asset Trustee' or 'Lessor'). Class of entities 3. This part of the Product Ruling specifies which entities can rely on the tax outcomes set out in the Ruling section of this Product Ruling and which entities can not rely on those tax outcomes. 4. The class of entities to which this Ruling applies consists of trustees of complying regulated self managed superannuation funds who enter into the scheme described below on or after the date this Product Ruling is published. For the purpose of this Ruling these trustees of complying regulated self managed superannuation funds are referred to as 'Investor(s)' or 'Lessee'. 5. The class of entities who can rely on the tax outcomes set out in the Ruing section of this Product Ruling does not include entities: Superannuation Industry (Supervision) Act 1993 6. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this product may contravene the provisions of SISA 1993. Qualifications 7. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 23 to 26 of this Ruling. 8. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 9. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. This part of the Product Ruling specifies which entities can rely on the tax outcomes set out in the Ruling section of this Product Ruling and which entities can not rely on those tax outcomes. 4. The class of entities to which this Ruling applies consists of trustees of complying regulated self managed superannuation funds who enter into the scheme described below on or after the date this Product Ruling is published. For the purpose of this Ruling these trustees of complying regulated self managed superannuation funds are referred to as 'Investor(s)' or 'Lessee'. 5. The class of entities who can rely on the tax outcomes set out in the Ruing section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 6. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this product may contravene the provisions of SISA 1993. | Qualifications: 7. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 23 to 26 of this Ruling. 8. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 9. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 10. This Product Ruling applies prospectively from 30 May 2007, the date this Ruling is published. It therefore applies to the specified class of entities that enter into the scheme from 30 May 2007 until 30 June 2007. This Product Ruling provides advice on the availability of tax benefits to the specified class of entities up to 30 June 2010. 11. However, the Product Ruling only applies to the extent that: 12. If this Product Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 13. If this Product Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Product Ruling is made, the following two conditions are met: If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). | Changes in the law: 14. Although this Product Ruling deals with the laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of the Ruling and, to that extent, this Product Ruling will have no effect. 15. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 16. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Tax Office suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling is issued. | Goods and Services Tax: 17. The rent and outgoings referred to in this Product Ruling include the Goods and Services Tax (GST). For an entity (referred to in this Product Ruling as a Investor) to be entitled to claim input tax credits for the GST included in these expenditure, it must be registered or required to be registered for GST and hold a valid tax invoice. 18. This part of the Product Ruling sets out the taxation outcomes for an Investor who enters into the scheme described at paragraphs 23 to 26 of this Ruling. 19. Subject to the assumptions listed in paragraph 20 of this Ruling: | Assumptions: 20. This Ruling is made on the basis of the following assumptions: 21. This Product Ruling does not address the tax implications of CGT events arising from : The Investor may request a private ruling for advice on possible tax outcomes on these events . 22. The scheme that is the subject of this Product Ruling is described below. The scheme is incorporated within the following documents: Note : certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 23. The documents highlighted are those that an Investor may enter into. For the purposes of describing the scheme to which this Product Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor or any associate of an Investor, will be a party to, which are a part of the scheme. The effect of these agreements is summarised as follows. 24. All Australian Securities and Investment Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 25. The details of the scheme subject to this Ruling are summarised as follows: 26. Entities are outside the scope of this Product Ruling if entities do not fall within the class of entities to which this Ruling applies, or are outside the assumption outlined in paragraph 20 of this Ruling, or the scheme actually carried out is not carried out in accordance with the scheme described in paragraph 26 of this Ruling. Entities who are outside the scope of this Ruling may request a private ruling for advice on possible tax outcomes on these events. Commissioner of Taxation 30 May 2007 | Ordinary income under section 6-5: 27. Subsection 6-5(1) provides that the assessable income of an Australian resident includes income according to ordinary concepts. 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. 28. Under the scheme, the Investor will sublease the Property to a sublessee after entering into the Lease with the Asset Trustee over the Property. The sublessee agrees to pay the Investor the commercial rent, which will be determined by an independent real estate valuer, during the term of the Sublease. 29. The characterisation of the Sublease which the Investor and the sublessee are party to indicates that the Sublease is a genuine and commercial arrangement. The rent which will be paid by the sublessee to the Investor under the Sublease is dealt with at arms-length. 30. Therefore, whilst the rent due from the sublessee will be remitted to the Asset Trustee directly, it is assessable in the hand of the Investor under section 6-5 as income according to ordinary concepts. | Division 16E of Part III: 31. The return on the Property Notes is deferred until the scheme is terminated and the Property Notes are redeemed. Division 16E of the ITAA 1936 sets out the timing of taxation consequences for holders and issuers of certain securities. It contains a formula for working out the amount to be included in assessable income of the holder and the amount to be allowed as a deduction to the issuer. 32. The Property Notes fall within the definition of 'qualifying security' in section 159GP(1) of the ITAA 1936 and are thus securities to which Division 16E of the ITAA 1936 applies. Section 159GQ of the ITAA 1936 provides that if a taxpayer holds a qualifying security for all or part of a year of income, the accrual amount for each accrual period in the year of income must be added together to determine the effect on the taxpayer's taxable income. If the sum of the accrual amounts is a positive amount, the amount is included in the assessable income of the taxpayer for that income year. 33. Under section 159GQ of the ITAA 1936 the Investor will be assessed on the deferred return over the term of the scheme. The Investor will, by virtue of section 159GQ, include in its assessable income the accrual amount on the Property Note calculated under Division 16E of the ITAA 1936 for a particular income year, where the accrual amount is positive. | Section 273: 34. Where the sublessee is an associate of the Investor the rental income is determined at a market rate by an independent valuer. As the Investor deals with the sublessee on an arms length basis, the rent is not greater than the rental income that would otherwise be expected and is not 'special income' of the Investor for the purpose of section 273 of the ITAA 1936. 35. This is further supported by the fact that where the parties to the Lease are not associates, the market value of the Property, which is also determined by the independent valuer, will be used to determine the rent under the Lease. | Capital gains and losses under Part 3-1: 36. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. 37. On entering into the Lease, the Investor acquires a CGT asset being the contractual right granted to the Investor to acquire an option to purchase the Property. 38. The contractual right is acquired by the Investor when the contract is entered into, or if there is no contract, when the right is granted (Event Number D1 in the table in subsection 109-5(2)). 39. The first element of the cost base and reduced cost base of the contractual right will be $1,850 being the cost of the contractual right (subsection 110-25(2)). | Section 8-1: 40. The rent and outgoings payable under the Lease by the Investor will relate to the gaining of the rental income from the sublessee, and hence have a sufficient connection to overall investment activities of the Investor under the scheme. They will thus be deductible under subsection 8-1(1). The exclusions in subsection 8-1(2) do not apply. 41. The fact that the rent derived from the Sublease will be paid directly to the Asset Trustee itself will not deny the Investor's entitlement to claim the rent as a deduction under section 8-1. | Sections 82KZL to 82KZMF: 42. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example, the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. 43. For this Project, the only prepayment provisions that are relevant are section 82KZL of the ITAA 1936 (an interpretive provision) and sections 82KZME and 82KZMF of the ITAA 1936 (operative provisions). | Application of the prepayment provisions to the scheme: 44. Under the scheme to which this Product Ruling applies rent payable by the Lessee to the Lessor is incurred monthly in advance, payable on the first day of the month. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this scheme. 45. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Lessee prepays all or some of the rent payable under the Lease. 46. Lessees who prepay rent are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Section 82KL - recouped expenditure: 47. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefit(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL of the ITAA 1936. It will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general anti-avoidance provisions: 48. For Part IVA of the ITAA 1936 to apply there must be a 'scheme' (section 177A), a 'tax benefit' (section 177C) and a dominant purpose of entering into the scheme to obtain a tax benefit (section 177D). 49. An Investor participating in the Calliva SuperAccess Property Notes and entering into the Lease will be a 'scheme'. An Investor will obtain a 'tax benefit' from entering into the scheme, in the form of tax deductions detailed in paragraph 19 of this Ruling. Tax deductions that would not have been obtained but for the scheme. However, it is not possible to conclude the scheme will be entered into or carried out with the dominant purpose of obtaining this tax benefit. 50. Investors to whom this Ruling applies intend to carry out the scheme described. There are no facts that would suggest that Investors have the opportunity of obtaining a tax advantage other than the tax advantages identified in this Ruling. There is no indication that the parties are not dealing at arm's length or, if any parties are not dealing at arm's length, that any adverse tax consequences result. Further, having regard to the factors to be considered under paragraph 177D(b) of the ITAA 1936 it cannot be concluded, on the information available, that participants will enter into the scheme for the dominant purpose of obtaining a tax benefit. 51. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: This Product Ruling has been given on the basis that the entity(s) 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. 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified in the Ruling section (below) apply to the defined class of entities, who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Ruling this scheme is referred to as the Calliva SuperAccess arrangement or simply as the scheme. The Calliva SuperAccess scheme consists of the acquisition of Property Notes, to be issued by Calliva Finance Ltd (CFL), and the Lease which will be entered into by the participant in the scheme and AET Structured Finance Services Pty Ltd as trustee for Calliva Series 2006-1 Asset Trust ('Asset Trustee' or 'Lessor'). | Class of entities: 3. This part of the Product Ruling specifies which entities can rely on the tax outcomes set out in the Ruling section of this Product Ruling and which entities can not rely on those tax outcomes. 4. The class of entities to which this Ruling applies consists of trustees of complying regulated self managed superannuation funds who enter into the scheme described below on or after the date this Product Ruling is published. For the purpose of this Ruling these trustees of complying regulated self managed superannuation funds are referred to as 'Investor(s)' or 'Lessee'. 5. The class of entities who can rely on the tax outcomes set out in the Ruing section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 6. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this product may contravene the provisions of SISA 1993. | Qualifications: 7. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 23 to 26 of this Ruling. 8. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 9. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:


Appendix: Ordinary income under section 6-5: 27. Subsection 6-5(1) provides that the assessable income of an Australian resident includes income according to ordinary concepts. 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. 28. Under the scheme, the Investor will sublease the Property to a sublessee after entering into the Lease with the Asset Trustee over the Property. The sublessee agrees to pay the Investor the commercial rent, which will be determined by an independent real estate valuer, during the term of the Sublease. 29. The characterisation of the Sublease which the Investor and the sublessee are party to indicates that the Sublease is a genuine and commercial arrangement. The rent which will be paid by the sublessee to the Investor under the Sublease is dealt with at arms-length. 30. Therefore, whilst the rent due from the sublessee will be remitted to the Asset Trustee directly, it is assessable in the hand of the Investor under section 6-5 as income according to ordinary concepts. | Division 16E of Part III: 31. The return on the Property Notes is deferred until the scheme is terminated and the Property Notes are redeemed. Division 16E of the ITAA 1936 sets out the timing of taxation consequences for holders and issuers of certain securities. It contains a formula for working out the amount to be included in assessable income of the holder and the amount to be allowed as a deduction to the issuer. 32. The Property Notes fall within the definition of 'qualifying security' in section 159GP(1) of the ITAA 1936 and are thus securities to which Division 16E of the ITAA 1936 applies. Section 159GQ of the ITAA 1936 provides that if a taxpayer holds a qualifying security for all or part of a year of income, the accrual amount for each accrual period in the year of income must be added together to determine the effect on the taxpayer's taxable income. If the sum of the accrual amounts is a positive amount, the amount is included in the assessable income of the taxpayer for that income year. 33. Under section 159GQ of the ITAA 1936 the Investor will be assessed on the deferred return over the term of the scheme. The Investor will, by virtue of section 159GQ, include in its assessable income the accrual amount on the Property Note calculated under Division 16E of the ITAA 1936 for a particular income year, where the accrual amount is positive. | Section 273: 34. Where the sublessee is an associate of the Investor the rental income is determined at a market rate by an independent valuer. As the Investor deals with the sublessee on an arms length basis, the rent is not greater than the rental income that would otherwise be expected and is not 'special income' of the Investor for the purpose of section 273 of the ITAA 1936. 35. This is further supported by the fact that where the parties to the Lease are not associates, the market value of the Property, which is also determined by the independent valuer, will be used to determine the rent under the Lease. | Capital gains and losses under Part 3-1: 36. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. 37. On entering into the Lease, the Investor acquires a CGT asset being the contractual right granted to the Investor to acquire an option to purchase the Property. 38. The contractual right is acquired by the Investor when the contract is entered into, or if there is no contract, when the right is granted (Event Number D1 in the table in subsection 109-5(2)). 39. The first element of the cost base and reduced cost base of the contractual right will be $1,850 being the cost of the contractual right (subsection 110-25(2)). | Section 8-1: 40. The rent and outgoings payable under the Lease by the Investor will relate to the gaining of the rental income from the sublessee, and hence have a sufficient connection to overall investment activities of the Investor under the scheme. They will thus be deductible under subsection 8-1(1). The exclusions in subsection 8-1(2) do not apply. 41. The fact that the rent derived from the Sublease will be paid directly to the Asset Trustee itself will not deny the Investor's entitlement to claim the rent as a deduction under section 8-1. | Sections 82KZL to 82KZMF: 42. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example, the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. 43. For this Project, the only prepayment provisions that are relevant are section 82KZL of the ITAA 1936 (an interpretive provision) and sections 82KZME and 82KZMF of the ITAA 1936 (operative provisions). | Application of the prepayment provisions to the scheme: 44. Under the scheme to which this Product Ruling applies rent payable by the Lessee to the Lessor is incurred monthly in advance, payable on the first day of the month. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this scheme. 45. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Lessee prepays all or some of the rent payable under the Lease. 46. Lessees who prepay rent are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Section 82KL - recouped expenditure: 47. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefit(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL of the ITAA 1936. It will not apply to deny the deductions otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general anti-avoidance provisions: 48. For Part IVA of the ITAA 1936 to apply there must be a 'scheme' (section 177A), a 'tax benefit' (section 177C) and a dominant purpose of entering into the scheme to obtain a tax benefit (section 177D). 49. An Investor participating in the Calliva SuperAccess Property Notes and entering into the Lease will be a 'scheme'. An Investor will obtain a 'tax benefit' from entering into the scheme, in the form of tax deductions detailed in paragraph 19 of this Ruling. Tax deductions that would not have been obtained but for the scheme. However, it is not possible to conclude the scheme will be entered into or carried out with the dominant purpose of obtaining this tax benefit. 50. Investors to whom this Ruling applies intend to carry out the scheme described. There are no facts that would suggest that Investors have the opportunity of obtaining a tax advantage other than the tax advantages identified in this Ruling. There is no indication that the parties are not dealing at arm's length or, if any parties are not dealing at arm's length, that any adverse tax consequences result. Further, having regard to the factors to be considered under paragraph 177D(b) of the ITAA 1936 it cannot be concluded, on the information available, that participants will enter into the scheme for the dominant purpose of obtaining a tax benefit.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a taxation provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | No guarantee of commercial success: The Tax Office does not sanction or guarantee this product. Further, we give no assurance that the product is commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based. | Potential participants must form their own view about the commercial and financial viability of the product. This will involve a consideration of important issues such as whether projected returns are realistic, the 'track record' of the management, the level of fees in comparison to similar products and how the product fits an existing portfolio. We recommend a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. | If the scheme is not carried out as described, participants lose the protection of this Product Ruling. Potential participants may wish to seek assurances from the promoter that the scheme will be carried out as described in this Product Ruling. | Potential participants should be aware that the Tax Office will be undertaking review activities to confirm the scheme has been implemented as described below and to ensure that the participants in the scheme include in their income tax returns income derived in those future years. | Deductibility of rent and outgoings | Appendix 2 - Detailed contents list


Related rulings: PR 1999/95
Legislative references: ITAA 1936 82KL ITAA 1936 82KZL ITAA 1936 82KZM ITAA 1936 82KZMA ITAA 1936 82KZMB ITAA 1936 82KZMC ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZME(2) ITAA 1936 82KZME(3) ITAA 1936 82KZME(7) ITAA 1936 82KZMF ITAA 1936 Pt IVA ITAA 1936 177A ITAA 1936 177C ITAA 1936 177D ITAA 1936 177D(b) ITAA 1936 Pt III Div 16E ITAA 1936 159GP(1) ITAA 1936 159GQ ITAA 1936 273 ITAA 1997 6-5 ITAA 1997 6-5(1) ITAA 1997 8-1 ITAA 1997 8-1(1) ITAA 1997 8-1(2) ITAA 1997 Part 3-1 ITAA 1997 108-5(1) ITAA 1997 109-5(2) ITAA 1997 110-25(2) TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968 SISA 1993
Subject references: capital gains deductions financial products ordinary income product rulings public rulings qualifying security special income tax avoidance