Income Tax Assessment Act 1997

s 820-930 — Equity interest in a trust or partnership

Application of provisions (1) For the purposes of this Division and Division 230, an equity interest in an entity that is a trust or partnership has the meaning given by the provisions in Division 974 that are applied with the following modifications: Modifications of Division 974 Item Provisions Modifications 1 Subdivisions 974 ‑ C and 974 ‑ D A reference in those provisions to a company is taken to be a reference to an entity that is a trust or a partnership 2 Subdivisions 974 ‑ C and 974 ‑ D A reference in those provisions to the equity test in subsection 974 ‑ 75(1) is taken to be a reference to the equity test in subsection (2) of this section 3 Section 974 ‑ 75 The section does not apply and subsections (2) to (4) of this section apply instead 4 Section 974 ‑ 80 The example does not apply 5 Section 974 ‑ 95 A reference in those provisions to the table in subsection 974 ‑ 75(1) is taken to be a reference to the table in subsection (2) of this section 6 Subsection 974 ‑ 95(4) The subsection does not apply 7 Subdivision 974 ‑ F The Subdivision applies for the purposes of this section 8 Subdivisions 974 ‑ C, 974 ‑ D and 974 ‑ F A reference in those provisions to the regulations is taken to be a reference to the regulations made under the provisions applied by this subsection Note: An interest that satisfies both the equity test and the debt test set out in Subdivision 974 ‑ B is treated as a debt interest and not an equity interest (see that Subdivision in conjunction with the provisions applied by subsection (1)). Equity tests (2) A * scheme satisfies the equity test in this subsection in relation to an entity that is a trust or partnership if the scheme gives rise to an interest set out in the following table: Equity interests Item Interest 1 In the case of a trust, an interest as a beneficiary of the trust In the case of a partnership, an interest as a partner in the partnership 2 An interest that carries a right to a variable or fixed return from the entity if either the right itself, or the amount of the return, is in substance or effect * contingent on aspects of the economic performance (whether past, current or future) of: (a) the entity; or (b) a part of the entity’s activities; or (c) an * associate of the entity or a part of the activities of an associate of the entity The return may be a return of an amount invested in the interest 3 An interest that carries a right to a variable or fixed return from the entity if either the right itself, or the amount of the return, is at the discretion of: (a) the entity; or (b) an * associate of the entity The return may be a return of an amount invested in the interest 4 An * interest issued by the entity that: (a) gives its holder (or an * associate of the holder) a right to be issued with an * equity interest in the entity or an associate of the entity; or (b) is an interest that will, or may, convert into an equity interest in the entity or an associate of the entity This subsection has effect subject to subsection (3) (requirement for financing arrangement). Note: Section 974 ‑ 90 as applied by subsection (1) allows regulations to be made clarifying when a right or return is taken to be at the discretion of an entity or an associate. Financing arrangement (3) A * scheme that would otherwise give rise to an * equity interest in an entity that is a trust or partnership because of an item in the table in subsection (2) (other than item 1) does not give rise to an equity interest in the entity unless the scheme is a * financing arrangement (see section 974 ‑ 130 as applied by this section) for the trust or partnership. Form interest may take (4) The interest referred to in item 2, 3 or 4 in the table in subsection (2) may take the form of a proprietary right, a chose in action or any other form. Regulations (5) Subject to regulations made under subsection (6), the regulations made under Subdivisions 974 ‑ C, 974 ‑ D and 974 ‑ F are applied for the purposes of this section as if they were regulations made under the provisions applied by subsection (1). (6) Regulations may be made under the provisions applied by subsection (1) specifically in relation to: (a) an * equity interest in a trust; or (b) an equity interest in a partnership.

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 10 of 2016, effective Sch 1 (items 1–32, 38, 39) and Sch 2 (items 3–9, 30): 26 Feb 2016 (s 2(1) items 2, 4)

s 820-931 — What this Subdivision is about

This Subdivision provides for the meanings of worldwide debt, worldwide equity, statement worldwide debt, statement worldwide equity and statement worldwide assets. Table of sections Operative provisions 820 ‑ 932 Worldwide debt and worldwide equity 820 ‑ 933 Statement worldwide debt, statement worldwide equity and statement worldwide assets 820 ‑ 935 Meaning of audited consolidated financial statements

Amendment history: Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7)

s 820-932 — Worldwide debt and worldwide equity

Worldwide debt (1) An entity’s worldwide debt at a particular time, means the total of the following amounts: (a) all the * debt interests issued by the entity: (i) to entities other than any * Australian controlled foreign entities (the controlled entities ) of which the entity is an * Australian controller at that time; and (ii) that are still * on issue at that time; (b) all the debt interests issued by the controlled entities: (i) to entities other than the entity or other controlled entities; and (ii) that are still on issue at that time. Worldwide equity (2) An entity’s worldwide equity at a particular time, means the total of the following amounts: (a) all the * equity capital of the entity as at that time, but worked out disregarding * equity interests in the entity held at that time by * Australian controlled foreign entities (the controlled entities ) of which the entity is an * Australian controller at that time; (b) all the equity capital of the controlled entities as at that time, but worked out disregarding equity interests in the controlled entities held at that time by: (i) the entity; or (ii) other controlled entities.

Amendment history: Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7)

s 820-933 — Statement worldwide debt, statement worldwide equity and statement worldwide assets

Statement worldwide debt (1) An entity’s statement worldwide debt for a period is the amount (see subsection (4)) of liabilities for the entity for the period, reduced (but not below zero) by the sum of the following amounts (see subsection (4)) for the entity for the period: (a) provisions; (b) liabilities in relation to distributions to equity participants; (c) trade payables; (d) deferred tax liabilities; (e) liabilities relating to employee benefits; (f) current tax liabilities; (g) deferred revenue; (h) liabilities relating to insurance; (i) any other amount specified in a legislative instrument under subsection (5). Statement worldwide equity (2) An entity’s statement worldwide equity for a period means the amount (see subsection (4)) of net assets for the entity for the period. Statement worldwide assets (3) An entity’s statement worldwide assets for a period means the amount (see subsection (4)) of assets for the entity for the period. Amounts from audited consolidated financial statements to be used (4) For the purposes of this section: (a) an amount for an entity for a period is taken to be that amount as shown in the * audited consolidated financial statements for the entity for the period; and (b) sections 820 ‑ 680 and 820 ‑ 682 do not apply. Other amounts (5) The Minister may, by legislative instrument, specify one or more amounts for the purposes of paragraph (1)(i).

Amendment history: Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7) | Amended by No 65 of 2019, effective Sch 1 (items 4–18): 1 Oct 2019 (s 2(1) item 2)

s 820-935 — Meaning of audited consolidated financial statements

(1) Audited consolidated financial statements for an entity for a period are: (a) the financial statements that meet the requirements in subsection (2) for the entity for the period; or (b) if more than one set of financial statements meet the requirements in subsection (2) for the entity for the period—whichever of those sets of financial statements the entity chooses. (2) Financial statements meet the requirements in this subsection for an entity for a period (the relevant period ) if: (a) the statements have been prepared on a consolidated basis in relation to the entity and one or more other entities in accordance with standards covered by subsection (3) or (4) (the recognised overseas accounting standards ); and (b) one of the entities is a worldwide parent entity mentioned in subsection (6); and (c) the statements show the amounts mentioned in subsections 820 ‑ 933(1), (2) and (3) (however described) on that consolidated basis and in accordance with those standards; and (d) the statements have been audited (and the auditor’s report is unqualified) in accordance with a requirement in the law of: (i) a foreign jurisdiction mentioned in subsection (3) of this section; or (ii) another jurisdiction that has adopted the standards mentioned in subsection (4); and (e) the statements are for the most recent period ending: (i) no later than the end of the relevant period; and (ii) no earlier than 12 months before the start of the relevant period. Recognised overseas accounting standards (3) This subsection covers the standards (however described) that apply to the preparation of financial statements and are made, or adopted, by the responsible body in any of the following (a foreign jurisdiction ): (a) the European Union; (aa) the United Kingdom; (b) the United States of America; (c) Canada; (d) Japan; (e) New Zealand; (f) a jurisdiction specified in an instrument under subsection (5). (4) This subsection covers the international financial reporting standards that are made or adopted by the International Accounting Standards Board. (5) The Minister may, by legislative instrument, specify one or more jurisdictions for the purposes of paragraph (3)(f). Worldwide parent entity (6) For the purposes of paragraph (2)(b), an entity in relation to which financial statements have been prepared is a worldwide parent entity if, for the purposes of the standards in accordance with which the statements were prepared, the entity is not controlled by another entity.

Amendment history: Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7) | Amended by No 141 of 2020, effective Sch 1 (item 1) and Sch 4 (items 82–101): 1 Jan 2021 (s 2(1) items 2, 7) Sch 4 (item 146): 18 Dec 2020 (s 2(1) item 16)

s 820-940 — What this Subdivision is about

The zero ‑ capital amount represents the value of certain assets that receive special treatment in working out the maximum allowable debt of a financial entity. This Subdivision sets out the rules about the calculation of this amount. Table of sections 820 ‑ 942 How to work out the zero ‑ capital amount

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b))

s 820-942 — How to work out the zero ‑ capital amount

(1) An entity’s zero ‑ capital amount at a particular time is the result of the method statement in this subsection. Method statement Step 1. Work out the total value, as at that particular time, of all the assets of the entity that represent * debt interests that: (a) are of a kind commonly dealt in by entities that carry on a * business of dealing in securities; and (b) the entity has sold under a reciprocal purchase agreement (otherwise known as a repurchase agreement), sell ‑ buyback arrangement or securities loan arrangement; and (c) the entity has not yet repurchased under the agreement or arrangement. Step 2. Add to the result of step 1 the total value, as at that time, of all the * debt interests issued to the entity to which the following paragraphs apply at that time: (a) the debt interests remain * on issue; (b) each of the debt interests is a loan of money for which no fees, charges or other consideration for the purpose of enhancing the credit rating of the issuer of the interest has been paid or is payable to the entity, any of the entity’s * associates or another entity that is a * foreign entity; (c) each of the entities issuing the interests has the required credit rating for the interests concerned in accordance with subsections (4) and (5). Step 3. Add to the result of step 2 the total value, as at that time, of all the * debt interests that are assets of the entity (whether they are debt interests issued to the entity or not) and to which the following paragraphs apply at that time: (a) the risk weight of each of the debt interests is either 0% or 20% under the * prudential standards; (b) the debt interests do not satisfy all of the paragraphs in step 2. Step 3A . Add to the result of step 3 the total value, as at that time, of all the assets of the entity, to the extent that they: (a) consist of rights to the return of assets covered by subsection (2A); and (b) are covered by none of steps 1, 2 and 3. Step 4. Add to the result of step 3A the total value, as at that time, of all the * securitised assets that the entity has at that time if the entity is a * securitisation vehicle at that time (see subsections (2) and (3)). The result is the zero ‑ capital amount . (2A) This subsection covers an asset that: (a) the entity provided as security for the performance of its obligations in relation to securities it acquired under a reciprocal purchase agreement (otherwise known as a repurchase agreement), sell ‑ buyback arrangement or securities loan arrangement; and (b) does not consist of * shares. Securitisation vehicle (2) An entity is a securitisation vehicle if: (a) it is an entity established for the purposes of acquiring, funding and holding * securitised assets (see subsection (3)); and (b) it has acquired the securitised assets from another entity (the originator ); and (c) the acquisition of the securitised assets is wholly funded by the issuing of * debt interests by the entity; and (d) in issuing the debt interests, the entity does not receive any guarantee, security or other form of credit support from any of its * associate entities, the originator or any associate entity of the originator; and (e) the entity has not issued debt interests for any purpose other than for the purpose of funding the acquisition of the securitised assets; and (f) there are no debt interests issued to the entity by any of the entity’s associate entities, the originator or any associate entity of the originator; and (g) any * arrangements the entity has with any of its associate entities, the originator or any associate entity of the originator are those that would reasonably be expected to have been entered into by parties dealing at * arm’s length with each other. Note: An entity that does not qualify as a securitisation vehicle may be exempt from the thin capitalisation rules under section 820 ‑ 39. Securitised assets (3) An asset of an entity is a securitised asset if: (a) the entity is a * securitisation vehicle; and (b) the asset consists of: (i) * debt interests issued by an entity other than the originator in relation to the securitisation vehicle that is mentioned in paragraph (2)(b); or (ii) a lease for the hire of goods that would be a lease covered by paragraph (b) of the definition of on ‑ lent amount if a reference to an entity in that definition were a reference to that originator; or (iii) a * scheme that, apart from the operation of paragraph 974 ‑ 25(1)(b), would have given rise to a debt interest covered by subparagraph (i); and (c) the asset provides security for the issuing of debt interests that funded the acquisition of the asset by the securitisation vehicle (see paragraph (2)(c)). What is the required credit rating? (4) For the purposes of step 2 of the method statement in subsection (1), the required credit rating for an entity issuing a * debt interest is: (a) if the interest is a * subordinated debt interest—a long ‑ term foreign currency corporate credit rating of at least A (or equivalent) given to the entity by an internationally recognised rating agency; or (b) if the interest is a not a subordinated debt interest—a long ‑ term foreign currency corporate credit rating of at least BBB (or equivalent) given to the entity by an internationally recognised rating agency. When must an entity have the required credit rating (5) The entity must have the required credit rating as specified in any of the following paragraphs: (a) the entity had the required credit rating for the * debt interest when the interest was issued; (b) the following subparagraphs apply: (i) the entity did not have any long ‑ term foreign currency corporate credit rating given to it by an internationally recognised rating agency when the debt interest was issued; but (ii) the entity had the required credit rating for that interest at any time during the period of 6 months immediately before the interest was issued; (c) the following subparagraphs apply: (i) when the debt interest was issued, and throughout the period of 6 months immediately before the interest was issued, the entity did not have any long ‑ term foreign currency corporate credit rating given to it by an internationally recognised rating agency; but (ii) the entity has the required credit rating for that interest at any time during the period of 6 months immediately after the interest was issued.

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Amended by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15)

s 820-945 — What this Subdivision is about

This Subdivision sets out the meaning of cost ‑ free debt capital, and excluded equity interest, for the purposes of this Division. Table of sections 820 ‑ 946 Cost ‑ free debt capital and excluded equity interest

Amendment history: Inserted by No 53 of 2002, effective Schedules 3 and 4: 1 July 2002 Remainder: Royal Assent | Amended by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13)

s 820-946 — Cost ‑ free debt capital and excluded equity interest

(1) This subsection applies to an entity for a period (the relevant period ) that is all or a part of an income year if the entity satisfies all of the following: (a) the entity is an * outward investing financial entity (non ‑ ADI) or * inward investing financial entity (non ‑ ADI) for that period; (b) if the entity is a * foreign entity—the entity holds any of the following assets throughout that period: (i) assets that are attributable to the entity’s * Australian permanent establishments; (ii) other assets that are held for the purposes of producing the entity’s assessable income; (c) neither section 820 ‑ 35 ($2 million debt deductions threshold) nor section 820 ‑ 37 (exemption for entity with 90% Australian assets) prevents Subdivision 820 ‑ B, 820 ‑ C, 820 ‑ D or 820 ‑ E from disallowing any * debt deduction of the entity for the income year; (da) for some or all of that period, the entity does not meet the conditions in subsection 820 ‑ 39(3) (about exemption of certain special purpose entities); (d) the entity is not an * exempt entity for the income year. Note: Paragraph (c) corresponds to the threshold tests for this Division set out in sections 820 ‑ 35 and 820 ‑ 37. (2) The cost ‑ free debt capital of the entity at a particular time during the relevant period is the total value of all the * debt interests * issued by the entity that satisfy all of the following: (a) the interests are * on issue at that time; (b) none of the interests gives rise to any cost, at any time, that is covered by paragraph 820 ‑ 40(1)(a); (c) each of the interests is covered by subsection (3) or (4) of this section at that time. (2A) An * equity interest in the entity is an excluded equity interest at a particular time during the relevant period if, and only if: (a) if subsection (1) does not apply to the holder of the interest for all or part of the relevant period: (i) the entity is an * associate of the holder; and (ii) at that time, the interest has been * on issue for a period of less than 180 days; or (b) if subsection (1) applies to the holder for all or part of the relevant period: (i) the entity is an associate of the holder; and (ii) at that time, the interest has been on issue for a period of less than 180 days; and (iii) the interest is covered by subsection (3) at that time. However, the interest is taken not to have been an excluded equity interest at the time if the total period for which the interest remains on issue is 180 days or more. (3) This subsection covers a * debt interest or * equity interest held by an entity (the holder ) at the particular time mentioned in subsection (2) or (2A) if: (a) subsection (1) also applies to the holder for a period (the overlapped period ) that is, or includes, all or a part of the relevant period; and (b) for the purposes of applying this Division to both the holder and the issuer of the interest (the issuer ), and in relation to only that part of the overlapped period that falls within the relevant period, either or both of the following apply: (i) the * valuation days used to calculate the average value of the holder’s assets are different from the valuation days used to calculate the issuer’s * adjusted average debt; (ii) the number of valuation days used to calculate the average value of the holder’s assets are different from the number of valuation days used to calculate the issuer’s adjusted average debt. (4) This subsection covers a * debt interest held by an entity (the holder ) at the particular time mentioned in subsection (2) if: (a) subsection (1) does not apply to the holder for a period that is, or includes, all or a part of the relevant period; and (b) at that time, the debt interest has been * on issue for a period of less than 180 days. However, if the total period for which the interest remains on issue is 180 days or more, this subsection is taken not to have covered the interest at that time. (5) For the purposes of subsection (2), take into account the value of a * debt interest issued by a * foreign entity only to the extent that the interest is attributable to assets covered by subparagraph (1)(b)(i) or (ii) that are held by the foreign entity throughout the relevant period.

Amendment history: Inserted by No 53 of 2002, effective Schedules 3 and 4: 1 July 2002 Remainder: Royal Assent | Amended by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7) | Amended by No 23 of 2024, effective sch 2 (items 3 ‑ 142, 144 ‑ 146): 1 July 2024 (s 2(1) item 3)

s 820-950 — What this Subdivision is about

This Subdivision sets out special record keeping requirements and related provisions about the following: (a) an entity that carries on its business at or through its Australian permanent establishments; (b) an arm’s length debt amount or arm’s length capital amount worked out under this Division. Table of sections Records about Australian permanent establishments 820 ‑ 960 Records about Australian permanent establishments 820 ‑ 962 Records about Australian permanent establishments—exemptions from Australian accounting standards 820 ‑ 965 Review of Commissioner’s decision Records about arm’s length amounts 820 ‑ 980 Records about arm’s length capital amount 820 ‑ 985 Records about group ratio Offences committed by certain entities 820 ‑ 990 Offences—treatment of partnerships 820 ‑ 995 Offences—treatment of unincorporated companies

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b))

s 820-960 — Records about Australian permanent establishments

(1) If an entity: (a) is an * inward investor (financial) or * inward investing entity (ADI), for all or a part of an income year; and (b) carries on its * business at or through one or more of its * Australian permanent establishments throughout that year; and (c) has total revenues attributable to those Australian permanent establishments for that year that are at least $2,000,000; the entity must keep for that year the records for which subsection (1A) or (1B) provides. Note: A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section) . Australian accounting standards (1A) If the entity chooses this subsection, it must keep the following records for the * Australian permanent establishments: (a) a statement of financial position (within the meaning of the * accounting standards); (b) a statement of financial performance (within the meaning of those standards). The statements must: (c) be prepared in accordance with the * accounting standards (in particular, but not limited to, accounting standards AASB 1001, AASB 1018 and AASB 1040); and (d) include all the notes required to accompany them under the standards. Note: For exemptions, see section 820 ‑ 962. Overseas and international accounting standards (1B) If the entity chooses this subsection, it must keep for the * Australian permanent establishments the statements (however described) that, under standards covered by subsection (1C) or (1D) (the overseas or international accounting standards ), correspond to the statements referred to in subsection (1A). The statements must: (a) be prepared in accordance with those standards; and (b) include all the notes required to accompany them under those standards. (1C) This subsection covers the standards (however described) that correspond to the * accounting standards and are made by the responsible body in: (a) the United Kingdom of Great Britain and Northern Ireland; or (b) the United States of America; or (c) Canada; or (d) New Zealand; or (e) Japan; or (f) the French Republic; or (g) the Federal Republic of Germany. (1D) This subsection covers the international accounting standards made or adopted by the International Accounting Standards Board. Requirements for the records under subsection (1A) or (1B) (2) The entity must prepare the records for which subsection (1A) or (1B) provides: (a) before the time by which the entity must lodge its * income tax return for the income year; and (b) as if: (i) the * Australian permanent establishments were an entity (the notional entity ) for which those records would be required to be prepared under the * accounting standards or the overseas or international accounting standards, as appropriate; and (ii) for the purposes of the statement of financial position or the corresponding statement, as appropriate—the assets, liabilities (including * debt capital) and * equity capital that are attributable to the Australian permanent establishments for that income year were assets, liabilities and equity of the notional entity for that year; and (iii) for the purposes of the statement of financial performance or the corresponding statement, as appropriate—the revenues and expenses that are attributable to the Australian permanent establishments for that year were the revenues and expenses of the notional entity for that year; and (iv) the * accounting standards, or the overseas or international accounting standards, as appropriate, referred to income years instead of financial years or the corresponding term in the overseas or international accounting standards. Excluding Australian permanent establishments not covered by applicable double tax treaty (6) An entity need not comply with this section for an income year in relation to an * Australian permanent establishment if: (a) throughout that year, the entity was, for the purposes of a double tax agreement (within the meaning of Part X of the Income Tax Assessment Act 1936 ) in relation to a foreign country, a resident of that foreign country (even if the entity was also an Australian resident or a resident of another foreign country); and (b) throughout the period during that year when the entity was carrying on its * business at or through that Australian permanent establishment, the Australian permanent establishment was not a permanent establishment within the meaning of that double tax agreement.

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Repealed and substituted by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | Amended by No 97 of 2008, effective Sch 1 (items 3–12) and Sch 3 (items 44–173, 189): 3 Oct 2008 (s 2(1) items 2, 3–5) | Amended by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7) | Amended by No 23 of 2024, effective sch 2 (items 3 ‑ 142, 144 ‑ 146): 1 July 2024 (s 2(1) item 3)

s 820-962 — Records about Australian permanent establishments—exemptions from Australian accounting standards

General exemption (1) The Commissioner may, by legislative instrument, exempt, for the purposes of subsection 820 ‑ 960(1A), a specified class of entities from the requirement to comply with all or part of the * accounting standards for one or more income years if the Commissioner is satisfied that it would be unreasonable for the entities in that class be required to so comply. Note: The Commissioner’s power under this subsection does not extend to the overseas or international accounting standards. Application for specific exemption (2) An entity (the applicant ) may apply to the Commissioner, in the * approved form, for an exemption from the requirement to comply with all or part of the * accounting standards for one or more income years for the purposes of subsection 820 ‑ 960(1A). (3) The Commissioner may grant the exemption in whole or in part if the Commissioner is satisfied that it would be unreasonable for the applicant to be required to so comply. Note: The Commissioner’s power under this subsection does not extend to the overseas or international accounting standards. (4) The Commissioner must give the applicant written notice if the Commissioner: (a) grants the exemption; or (b) refuses to grant the exemption. (5) The Commissioner is taken to have refused to grant the exemption if the Commissioner fails to give the applicant a notice under subsection (4) within 60 days after the application is made. (6) A notice under subsection (4) is not a legislative instrument.

Amendment history: Inserted by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7)

s 820-965 — Review of Commissioner’s decision

A person who is dissatisfied with a decision of the Commissioner under subsection 820 ‑ 962(3) may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953 .

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Amended by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7)

s 820-980 — Records about arm’s length capital amount

(1) An entity must keep records under this section for an * arm’s length capital amount that the entity worked out for the purposes of this Division. (2) The records must contain particulars about the factual assumptions and relevant factors mentioned in section 820 ‑ 315 or 820 ‑ 410 (as appropriate) that have been taken into account in working out that amount. (3) The entity must prepare the records before the time by which the entity must lodge its * income tax return for the income year in relation to all or a part of which the amount is worked out. Note: A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section) .

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Amended by No 53 of 2002, effective Schedules 3 and 4: 1 July 2002 Remainder: Royal Assent | Amended by No 23 of 2024, effective sch 2 (items 3 ‑ 142, 144 ‑ 146): 1 July 2024 (s 2(1) item 3)

s 820-985 — Records about group ratio

(1) An entity must keep records under this section for a * group ratio that the entity worked out for the purposes of this Division. (2) The records must: (a) contain particulars that have been taken into account in working out the * group ratio; and (b) be sufficient for a reasonable person to understand how the group ratio has been worked out. (3) The entity must prepare the records before the earlier of the following times: (a) the time by which the entity must lodge its * income tax return for the income year in relation to all or a part of which the amount is worked out; (b) the time at which the entity lodges its * income tax return for that income year. Note: A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section).

Amendment history: Inserted by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | Amended by No 145 of 2008, effective Schedule 2: Royal Assent | Repealed by No 65 of 2019, effective Sch 1 (items 4–18): 1 Oct 2019 (s 2(1) item 2) | Inserted by No 23 of 2024, effective sch 2 (items 3 ‑ 142, 144 ‑ 146): 1 July 2024 (s 2(1) item 3)

s 820-990 — Offences—treatment of partnerships

(1) The provisions set out in the following paragraphs (the relevant provisions ) apply, in relation to records required to be kept under this Subdivision, to a partnership as if it were a person, but with the modifications set out in this section: (a) sections 820 ‑ 960, 820 ‑ 962, 820 ‑ 980 and 820 ‑ 985; (b) section 262A of the Income Tax Assessment Act 1936 ; (c) Part III of the Taxation Administration Act 1953 . (2) If the relevant provisions would otherwise require or permit something to be done by the partnership, the thing may be done by one or more of the partners on behalf of the partnership. (3) An obligation that would otherwise be imposed on the partnership by the relevant provisions: (a) is imposed on each partner instead; but (b) may be discharged by any of the partners. (4) The partners are jointly and severally liable to pay an amount that would otherwise be payable by the partnership under the relevant provisions. (5) An offence against any of the relevant provisions that would otherwise be committed by the partnership is taken to have been committed by each partner who: (a) did the relevant act or made the relevant omission; or (b) aided, abetted, counselled or procured the relevant act or omission; or (c) was in any way knowingly concerned in, or party to, the relevant act or omission (whether directly or indirectly or whether by any act or omission of the partner). (6) For the purposes of subsection (5): (a) to establish that a partnership engaged in a particular conduct, it is sufficient to show that the conduct was engaged in by a partner: (i) in the ordinary course of the business of the partnership; or (ii) within the scope of the actual or apparent authority of the partner; and (b) to establish that a partnership had a particular state of mind when it engaged in that conduct, it is sufficient to show that the partner had the relevant state of mind. (7) For the purposes of the relevant provisions, a change in the composition of a partnership does not affect the continuity of the partnership.

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Amended by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7) | Amended by No 23 of 2024, effective sch 2 (items 3 ‑ 142, 144 ‑ 146): 1 July 2024 (s 2(1) item 3)

s 820-995 — Offences—treatment of unincorporated companies

(1) The provisions set out in the following paragraphs (the relevant provisions ) apply, in relation to records required to be kept under this Subdivision, to an unincorporated company as if it were a person, but with the modifications set out in this section: (a) sections 820 ‑ 960, 820 ‑ 962, 820 ‑ 980 and 820 ‑ 985; (b) section 262A of the Income Tax Assessment Act 1936 ; (c) Part III of the Taxation Administration Act 1953 . (2) If the relevant provisions would otherwise require or permit something to be done by the company, the thing may be done by one or more members of the company’s committee of management (the members ) on behalf of the company. (3) An obligation that would otherwise be imposed on the company by the relevant provisions: (a) is imposed on each member instead; but (b) may be discharged by any of the members. (4) The members are jointly and severally liable to pay an amount that would otherwise be payable by the company under the relevant provisions. (5) An offence against any of the relevant provisions that would otherwise be committed by the company is taken to have been committed by each member who: (a) did the relevant act or made the relevant omission; or (b) aided, abetted, counselled or procured the relevant act or omission; or (c) was in any way knowingly concerned in, or party to, the relevant act or omission (whether directly or indirectly or whether by any act or omission of the member). (6) For the purposes of subsection (5), to establish that the company had a particular state of mind when it engaged in a particular conduct, it is sufficient to show that a member had the relevant state of mind.

Amendment history: Inserted by No 162 of 2001, effective Sch 1 (items 1, 14–16) and Sch 2: 1 July 2001 (s 2(1)) Sch 1 (items 17, 19): 15 July 2001 (s 2(2)(b)) Sch 1 (item 18): 1 July 2002 (s 2(3)(b)) | Amended by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7) | Amended by No 23 of 2024, effective sch 2 (items 3 ‑ 142, 144 ‑ 146): 1 July 2024 (s 2(1) item 3)

s 830-1 — What this Division is about

This Division: (a) provides for certain entities (called foreign hybrids) that are treated as partnerships for the purposes of foreign income tax, but as companies for the purposes of tax within the meaning of this Act, to be treated as partnerships for the purposes of this Act; and (b) applies special rules to the entities in addition to those that normally apply to partnerships.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16) | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 830-5 — Foreign hybrid

The expression foreign hybrid means: (a) a * foreign hybrid limited partnership; or (b) a * foreign hybrid company.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-10 — Foreign hybrid limited partnership

(1) Subject to subsection (2), a * limited partnership is a foreign hybrid limited partnership in relation to an income year if: (a) it was formed in a foreign country; and (b) * foreign income tax is imposed under the law of the foreign country on the partners, not the limited partnership, in respect of the income or profits of the partnership for the income year; and (c) at no time during the income year is the limited partnership, for the purposes of a law of any foreign country that imposes foreign income tax on entities because they are residents of the foreign country, a resident of that country; and (d) disregarding subsection 94D(5) of the Income Tax Assessment Act 1936 , at no time during the income year is it an Australian resident; and (e) disregarding that subsection, in relation to the same income year of another taxpayer: (i) the limited partnership is a * CFC at the end of a * statutory accounting period that ends in the income year; and (ii) at the end of the statutory accounting period, the taxpayer is an * attributable taxpayer in relation to the CFC with an * attribution percentage greater than nil. (2) If a partner is not an * attributable taxpayer in relation to a * limited partnership, then, for the purposes of applying the Income Tax Assessment Act 1936 and this Act in relation to the partner’s interest in the limited partnership, the limited partnership is a foreign hybrid limited partnership in relation to an income year for the partner if, and only if, the partner: (a) has made an election under former subsection 485AA(1) of the Income Tax Assessment Act 1936 ; or (b) makes an election under this paragraph; in relation to the partner’s interest in the partnership. (3) For the purposes of subsection (2), the limited partnership is a foreign hybrid limited partnership in relation to any income year during which an election referred to in paragraph (2)(a) or (2)(b) is in force. (4) An election can only be made under paragraph (2)(b) if: (a) disregarding subsection 94D(6) of the Income Tax Assessment Act 1936 : (i) at the end of the income year in which the election is made, the partner has an interest in a FIF (within the meaning of former Part XI of that Act) that is a * corporate limited partnership; and (ii) the interest consists of a * share in the FIF; and (b) the limited partnership satisfies paragraphs (1)(a) to (d) in relation to the income year in which the election is made. (5) An election under paragraph (2)(b) must be made: (a) on or before the day on which the partner lodges the partner’s income tax return for the income year; or (b) within a further time allowed by the Commissioner. (6) The election: (a) is in force during the income year and all later income years; and (b) is irrevocable.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20) | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 114 of 2010, effective Schedule 1 (items 40–86, 93(1), 95): Royal Assent | Amended by No 134 of 2024, effective sch 1 (items 6 ‑ 29, 66): 11 Dec 2024 (s 2(1) item 1)

s 830-15 — Foreign hybrid company

(1) Subject to subsection (5), a company is a foreign hybrid company in relation to an income year if: (a) at all times during the income year when the company is in existence, the partnership treatment requirements for the income year in subsection (2) or (3) are satisfied; and (b) at no time during the income year is the company, for the purposes of a law of any foreign country that imposes * foreign income tax on entities because they are residents of the foreign country, a resident of that country; and (c) at no time during the income year is the company an Australian resident; and (d) disregarding this Division, in relation to the same income year of another taxpayer: (i) the company is a * CFC at the end of a * statutory accounting period that ends in the income year; and (ii) at the end of the statutory accounting period, the taxpayer is an * attributable taxpayer in relation to the CFC with an * attribution percentage greater than nil. Partnership treatment requirements specific to USA (2) For the purposes of paragraph (1)(a), the partnership treatment requirements are satisfied if: (a) the company was formed in the United States of America; and (b) for the purposes of the law of that country relating to * foreign income tax imposed by that country, the company is a limited liability company that: (i) is treated as a partnership; or (ii) is an eligible entity that is disregarded as an entity separate from its owner. Partnership treatment requirements relating to any foreign country (3) For the purposes of paragraph (1)(a), the partnership treatment requirements are also satisfied if: (a) the company was formed in a foreign country (which may be the United States of America); and (b) for the purposes of the law of that country relating to * foreign income tax imposed by that country, the company is treated as a partnership; and (c) regulations are in force setting out requirements to be satisfied by a company in relation to the income year for the purposes of this paragraph, and the company satisfies those requirements. (4) Regulations for the purposes of paragraph (3)(c) cannot set out requirements in relation to any income year before the one in which the regulations are made. (5) If a shareholder is not an * attributable taxpayer in relation to a company, then, for the purposes of applying the Income Tax Assessment Act 1936 and this Act in relation to the shareholder’s * share or shares in the company, the company is a foreign hybrid company in relation to an income year for the shareholder if, and only if, the shareholder: (a) has made an election under former subsection 485AA(2) of the Income Tax Assessment Act 1936 ; or (b) makes an election under this paragraph; in relation to the shareholder’s share or shares in the company. (6) For the purposes of subsection (5), the company is a foreign hybrid company in relation to any income year during which the election referred to in paragraph (5)(a) or (5)(b) is in force. (7) An election can only be made under paragraph (5)(b) if: (a) in relation to the income year in which the election is made, the company: (i) is a FIF (within the meaning of former Part XI of the Income Tax Assessment Act 1936 ); and (ii) satisfies paragraphs (1)(a) to (c); and (b) at the end of the income year in which the election is made, the shareholder’s interest in the FIF consists of one or more * shares in the FIF. (8) An election under paragraph (5)(b) must be made: (a) on or before the day on which the shareholder lodges the shareholder’s income tax return for the income year; or (b) within a further time allowed by the Commissioner. (9) The election: (a) is in force during the income year and all later income years; and (b) is irrevocable.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16) | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 114 of 2010, effective Schedule 1 (items 40–86, 93(1), 95): Royal Assent | Amended by No 141 of 2020, effective Sch 1 (item 1) and Sch 4 (items 82–101): 1 Jan 2021 (s 2(1) items 2, 7) Sch 4 (item 146): 18 Dec 2020 (s 2(1) item 16) | Amended by No 134 of 2024, effective sch 1 (items 6 ‑ 29, 66): 11 Dec 2024 (s 2(1) item 1)

s 830-17 — References to foreign income tax in section 830 ‑ 10 or 830 ‑ 15 do not include certain taxes

(1) Treat a reference in section 830 ‑ 10 or 830 ‑ 15 to foreign income tax as not including any of the following: (a) * credit absorption tax; (b) * unitary tax; (c) * foreign GloBE tax or other foreign minimum tax. (2) Foreign minimum tax mentioned in paragraph (1)(c) includes a tax specified in regulations made for the purposes of paragraph 393(2)(c) of the Income Tax Assessment Act 1936 .

Amendment history: Inserted by No 134 of 2024, effective sch 1 (items 6 ‑ 29, 66): 11 Dec 2024 (s 2(1) item 1)

s 830-20 — Treatment of company as a partnership

If a company is a * foreign hybrid company in relation to an income year, the * foreign hybrid tax provisions apply as if the company were a partnership, and for that purpose the following provisions of this Subdivision have effect.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-25 — Partners are the shareholders in the company

The partners in the partnership are the * shareholders in the company.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-30 — Individual interest of a partner in net income etc. equals percentage of notional distribution of company’s profits

The individual interest of a partner in the * net income or * partnership loss of the partnership of the income year is equal to the percentage that, if the profits of the company for the income year were distributed at the end of the income year to its * shareholders: (a) if paragraph (b) does not apply—as dividends; or (b) if the company’s * constitution or other rules provide for the distribution of profits other than as dividends—in accordance with the constitution or those rules; the partner, as a shareholder, could reasonably be expected to receive of the total distribution.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-35 — Partner’s interest in assets

(1) The interest that each partner has in the assets of the partnership, under the partnership agreement, is equal to the percentage in subsection (2). (2) The percentage is the percentage that, if the capital of the company were distributed to its * shareholders on a winding ‑ up of the company at the end of the income year, the partner, as a shareholder, could reasonably be expected to receive of the total distribution.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-40 — Control and disposal of share in partnership income

(1) This section applies for the purposes of determining under section 94 of the Income Tax Assessment Act 1936 whether the partnership is so constituted or controlled, or its operations are so conducted, that a partner does not have the real and effective control and disposal of the partner’s share, or a part of the partner’s share, in the * net income of the partnership of an income year. (2) The reference to the partner’s share, or a part of the partner’s share, in the * net income is a reference to any rights that the * shareholder has under the * constitution or other rules of the company that were taken into account under section 830 ‑ 30 in working out the individual interest of the partner in the partnership’s net income or * partnership loss of the income year.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-45 — Partner’s revenue and net capital losses from foreign hybrid not to exceed partner’s loss exposure amount

(1) This section applies to a * limited partner in a * foreign hybrid in relation to an income year if the sum of the following amounts: (a) any amount (a foreign hybrid revenue loss amount ) allowable to the partner as a deduction under subsection 92(2) of the Income Tax Assessment Act 1936 in respect of a * partnership loss of the foreign hybrid for the income year; (b) any * foreign hybrid net capital loss amount of the partner in respect of the foreign hybrid for the income year; exceeds the partner’s * loss exposure amount for the income year. Reduction in foreign hybrid revenue loss amount or foreign hybrid net capital loss amount (2) If this section applies, the amount mentioned in paragraph (1)(a) or (b), or each of the amounts mentioned in those paragraphs, is reduced so that in total they equal the partner’s * loss exposure amount. The partner must choose how much of the reduction is applied to each of the amounts. Effect of reducing foreign hybrid net capital loss amount (3) If the partner’s * foreign hybrid net capital loss amount in respect of the * foreign hybrid for the income year is reduced under subsection (2), the partner’s * net capital gain or * net capital loss for the income year is worked out by assuming that the * capital gains and * capital losses taken into account in working out the partner’s foreign hybrid net capital loss amount were instead a capital loss equal to the foreign hybrid net capital loss amount after the reduction.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-50 — Deduction etc. where partner’s foreign hybrid revenue loss amount and foreign hybrid net capital loss amount are less than partner’s loss exposure amount

(1) This section applies if: (a) the sum of a partner’s * foreign hybrid revenue loss amount and * foreign hybrid net capital loss amount for a * foreign hybrid for an income year does not exceed the partner’s * loss exposure amount for the foreign hybrid for the income year (the difference being the partner’s available loss exposure amount ); and (b) the partner has one or more * outstanding foreign hybrid revenue loss amounts or one or more * outstanding foreign hybrid net capital loss amounts, or both, in respect of the foreign hybrid for the income year. Where sum of outstanding foreign hybrid revenue loss amounts and outstanding foreign hybrid net capital loss amounts does not exceed available loss exposure amount (2) If the sum of the * outstanding foreign hybrid revenue loss amounts and the * outstanding foreign hybrid net capital loss amounts does not exceed the * available loss exposure amount: (a) a deduction is allowable to the partner for the income year equal to the sum of the outstanding foreign hybrid revenue loss amounts; and (b) the partner makes a * capital loss for the income year under section 104 ‑ 270 equal to the sum of the outstanding foreign hybrid net capital loss amounts. Where sum of outstanding foreign hybrid revenue loss amounts and outstanding foreign hybrid net capital loss amounts exceeds available loss exposure amount (3) If the sum of the * outstanding foreign hybrid revenue loss amounts and the * outstanding foreign hybrid net capital loss amounts exceeds the * available loss exposure amount, then either or both of the following apply: (a) a deduction is allowable to the partner for the income year equal to some or all of the outstanding foreign hybrid revenue loss amounts; (b) the partner makes a * capital loss under section 104 ‑ 270 equal to some or all of the outstanding foreign hybrid net capital loss amounts; such that the sum of the deduction and the capital loss equals the available loss exposure amount. Partner to choose how to apply subsection (3) (4) The partner must choose: (a) which of paragraphs (3)(a) and (b) is to apply or whether both are to apply; and (b) the amount of the deduction or * capital loss, or the amounts of both; and (c) the particular outstanding foreign hybrid revenue loss amounts or outstanding foreign hybrid net capital loss amounts, or both, to which they relate.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-55 — Meaning of foreign hybrid net capital loss amount

If: (a) the sum of a partner’s * capital losses from * CGT events happening during an income year in relation to a * foreign hybrid or * CGT assets of a foreign hybrid; exceeds: (b) the sum of the partner’s * capital gains from CGT events happening during the income year in relation to the foreign hybrid or CGT assets of the foreign hybrid; the partner has a foreign hybrid net capital loss amount in respect of the foreign hybrid for the income year equal to the excess.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-60 — Meaning of loss exposure amount

(1) The loss exposure amount of a partner in a * foreign hybrid for an income year is worked out as follows: Method statement Step 1. Work out the sum of the amounts or * market values of the contributions made by the partner to the * foreign hybrid that, as at the end of the income year: (a) have not been repaid or returned to the partner; and (b) have been contributed for at least 180 days, or are intended by the partner to remain contributed for at least 180 days. Step 2. Subtract the sum of the amounts of: (a) all * limited recourse debts owed by the partner at the end of the income year, to the extent that the * borrowings concerned were for the purpose of enabling the partner to make contributions to the * foreign hybrid and the debts were secured by the partner’s interest in the foreign hybrid; and (b) all the partner’s * foreign hybrid revenue loss amounts in respect of the foreign hybrid for previous income years, after any reduction under subsection 830 ‑ 45(2); and (c) all the partner’s * foreign hybrid net capital loss amounts in relation to the partnership for previous income years, after any reduction under subsection 830 ‑ 45(2); and (d) all deductions allowed to the partner under subsection 830 ‑ 50(2) or (3) in respect of the foreign hybrid for previous income years; and (e) all * capital losses that, as a result of subsection 830 ‑ 50(2) or (3), the partner made in respect of * CGT event K12 in respect of the foreign hybrid for previous income years. Contribution in case of foreign hybrid company (2) For the purposes of step 1 in the method statement in subsection (1), if: (a) the * foreign hybrid is a * foreign hybrid company; and (b) the partner * acquired its * shares in the company from another shareholder; and (c) the payment or other consideration for the acquisition of the shares did not constitute the making of a contribution by the partner to the foreign hybrid; the payment or other consideration is taken: (d) to be a contribution by the partner to the foreign hybrid; and (e) to be so contributed for as long as the partner holds the shares; and (f) to have been repaid to the partner to the extent of any payment that: (i) the foreign hybrid makes to the partner in respect of the share; and (ii) the foreign hybrid describes as a return of capital; and (iii) is attributable to the period during which the partner has held the shares.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-65 — Meaning of outstanding foreign hybrid revenue loss amount

(1) This section applies if a * foreign hybrid revenue loss amount of a partner in a * foreign hybrid in relation to an income year (the reduction year ) is reduced under subsection 830 ‑ 45(2). (2) The partner has, for each later income year, an outstanding foreign hybrid revenue loss amount equal to the amount of the reduction, less the sum of any deductions allowable to the partner under subsection 830 ‑ 50(2) or (3) in respect of the outstanding foreign hybrid revenue loss amount for income years between the reduction year and the later income year. Outstanding foreign hybrid revenue loss amount not to form part of tax loss (3) To avoid doubt, a partner’s * outstanding foreign hybrid revenue loss amount for an income year cannot form part of a * tax loss for the purposes of Division 36 or 160.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16) | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15) | Amended by No 96 of 2014, effective Sch 1 (items 14–45, 122–124), Sch 2 (items 1, 14–40, 42, 43) and Sch 3–5: 30 Sept 2014 (s 2(1) item 2) Sch 8 (items 15–22, 26) and Sch 9 (items 21, 22, 24): 31 Dec 2016 (s 2(1) items 7, 9) | Amended by No 92 of 2020, effective Sch 1 (items 18–21, 24): 15 Oct 2020 (s 2(1) item 4) Sch 1 (items 25–27): 1 July 2022 (s 2(1) item 5) Sch 2 (items 1–3, 16–35), Sch 3 (items 25–36, 40), Sch 4 (items 1–11, 14), Sch 5 (items 11–38, 56) and Sch 7 (items 5–8, 12–25): 1 Jan 2021 (s 2(1) item 7)

s 830-70 — Meaning of outstanding foreign hybrid net capital loss amount

(1) This section applies if a * foreign hybrid net capital loss amount of a partner in a * foreign hybrid in relation to an income year (the reduction year ) is reduced under subsection 830 ‑ 45(2). (2) The partner has, for each later income year, an outstanding foreign hybrid net capital loss amount equal to the amount of the reduction, less the sum of any * capital losses that, as a result of subsection 830 ‑ 50(2) or (3), the partner makes in respect of * CGT event K12 in respect of the outstanding foreign hybrid net capital loss amount for income years between the reduction year and the later income year.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-75 — Extended meaning of subject to foreign tax

Where entity becomes a partner (1) If: (a) an entity becomes a partner (the first partner ) in a * foreign hybrid in relation to an income year; and (b) a gain or profit of a capital nature accrues to another partner as a result of the disposal of the whole or part of that other partner’s interest in an asset of the foreign hybrid that happens when the first partner becomes a partner; and (c) apart from this subsection, the gain or profit is not * subject to foreign tax in a * listed country in any * tax accounting period; and (d) if the foreign hybrid had disposed of the whole or an equivalent part of the asset at the time of the disposal of the whole or the part of the interest, any gain or profit of a capital nature that accrued to the foreign hybrid in respect of the disposal would have been subject to foreign tax in a listed country in a tax accounting period; then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d). Where partner increases its interest (2) If: (a) an entity is a partner (the first partner ) that increases its interest in a * foreign hybrid in relation to an income year; and (b) a gain or profit of a capital nature accrues to another partner as a result of the disposal of the whole or part of that other partner’s interest in an asset of the foreign hybrid that happens when the first partner increases its interest in the foreign hybrid; and (c) apart from this subsection, the gain or profit is not * subject to foreign tax in a * listed country in any * tax accounting period; and (d) if the foreign hybrid had disposed of the whole or an equivalent part of the asset at the time of the disposal of the whole or the part of the interest, any gain or profit of a capital nature that accrued to the foreign hybrid in respect of the disposal would have been subject to foreign tax in a listed country in a tax accounting period; then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d). Where entity ceases to be a partner (3) If: (a) an entity ceases to be a partner in a * foreign hybrid in relation to an income year; and (b) a gain or profit of a capital nature accrues to the entity as a result of the disposal of its interest in an asset of the foreign hybrid that happens when the entity ceases to be a partner; and (c) apart from this subsection, the gain or profit is not * subject to foreign tax in a * listed country in any * tax accounting period; and (d) any gain or profit of a capital nature that accrues to the entity as a result of the disposal of its interest in the foreign hybrid that happens when the entity ceases to be a partner is subject to foreign tax in a listed country in a tax accounting period; then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d). Where partner disposes of part of its interest (4) If: (a) an entity is a partner that disposes of part of its interest in a * foreign hybrid in relation to an income year; and (b) a gain or profit of a capital nature accrues to the entity as a result of the disposal of part of its interest in an asset of the foreign hybrid that happens when the entity disposes of the part of its interest in the foreign hybrid; and (c) apart from this subsection, the gain or profit is not * subject to foreign tax in a * listed country in any * tax accounting period; and (d) any gain or profit of a capital nature that accrues to the entity as a result of the disposal of the part of its interest in the foreign hybrid is subject to foreign tax in a listed country in a tax accounting period; then, for the purposes of Part X of the Income Tax Assessment Act 1936 , the gain or profit mentioned in paragraph (b) is taken to be subject to foreign tax in the listed country, and in the tax accounting period, mentioned in paragraph (d).

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16) | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011

s 830-80 — Setting the tax cost of partners’ interests in the assets of an entity that becomes a foreign hybrid

(1) This section applies if: (a) an entity is a * foreign hybrid in relation to an income year (the hybrid year ); and (b) the entity was in existence at the end of the preceding income year (which may be the income year before this Division first applies to the entity); and (c) the entity was not a foreign hybrid in relation to that preceding income year. (2) For the purposes of applying an * asset ‑ based income tax regime for the hybrid year and each later income year in relation to which the entity continues to be a foreign hybrid, the * tax cost is set at the start of the hybrid year, for each asset of the * foreign hybrid in which each partner has an interest at that time.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-85 — Setting the tax cost of assets of an entity when it ceases to be a foreign hybrid

(1) This section applies if: (a) an entity is a * foreign hybrid in relation to an income year; and (b) the entity is in existence at the start of the next income year; and (c) the entity is not a foreign hybrid in relation to that income year (the post ‑ hybrid year ). (2) For the purposes of applying an * asset ‑ based income tax regime for the post ‑ hybrid year and each later income year in relation to which the entity continues not to be a foreign hybrid, the * tax cost is set at the start of the post ‑ hybrid year, for each asset of the entity at that time.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-90 — What the expression tax cost is set means

The following table explains what the expression tax cost is set at the start of the hybrid year or the post ‑ hybrid year means, in relation to an asset in which a partner has an interest or in relation to an asset of the entity, for the purposes of each * asset ‑ based income tax regime: Tax cost is set Item If the following asset ‑ based income tax regime is to apply: The expression means that: 1 Subdivisions 40 ‑ A to 40 ‑ D, sections 40 ‑ 425 to 40 ‑ 445 and Subdivision 328 ‑ D the * adjustable value of the interest or the asset at the start of the hybrid year or the post ‑ hybrid year is varied so that it equals the partner’s * tax cost setting amount for the interest, or the entity’s tax cost setting amount for the asset, at that time in relation to the * asset ‑ based income tax regime 2 Division 70 the value of the interest or the asset at the start of the hybrid year or the post ‑ hybrid year under Division 70 is varied so that it equals the partner’s * tax cost setting amount for the interest, or the entity’s tax cost setting amount for the asset, at that time in relation to the * asset ‑ based income tax regime 3 Part 3 ‑ 1 or 3 ‑ 3 the * cost base or * reduced cost base of the interest or the asset at the start of the hybrid year or the post ‑ hybrid year is varied so that it equals the partner’s * tax cost setting amount for the interest, or the entity’s tax cost setting amount for the asset, at that time in relation to the * asset ‑ based income tax regime 4 Division 16E of Part III of the Income Tax Assessment Act 1936 the Division applies as if the interest or the asset were * acquired by the partner or the entity at the start of the hybrid year or the post ‑ hybrid year for a payment equal to the partner’s * tax cost setting amount for the interest, or the entity’s tax cost setting amount for the asset, at that time in relation to the * asset ‑ based income tax regime 5 Any other provision of this Act or the Income Tax Assessment Act 1936 the cost of the interest or asset at the start of the hybrid year or the post ‑ hybrid year is varied so that it equals the partner’s * tax cost setting amount for the interest, or the entity’s tax cost setting amount for the asset, at that time in relation to the * asset ‑ based income tax regime

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-95 — What the expression tax cost setting amount means

(1) A partner’s tax cost setting amount for an interest of the partner in an asset at the start of the hybrid year, in relation to an * asset ‑ based income tax regime, is worked out as follows: Method statement Step 1. Work out what would have been the entity’s * tax cost of the asset for the purposes of applying the * asset ‑ based income tax regime as at the start of the hybrid year if it were not a * foreign hybrid in relation to the hybrid year. Step 2. Multiply the result of step 1 by: (a) if the entity is a * foreign hybrid company in relation to the hybrid year—the percentage applicable to the partner under subsection 830 ‑ 35(2); or (b) if the entity is a * foreign hybrid limited partnership in relation to the hybrid year—the individual interest of the partner in the asset, expressed as a percentage of the interests of all of the partners in the asset. Step 3. If the partner paid a premium in respect of the * acquisition of its interest in the asset (see subsection (2)), add the amount of the premium to the result of step 2. If the partner received a discount in respect of the acquisition (see subsection (2)), subtract the amount of the discount from the result of step 2, but not to the extent that this would result in a negative amount. The result of step 3 is the partner’s tax cost setting amount in respect of the asset. (2) Work out whether the partner paid a premium or received a discount for its interest in the asset using the following method statement: Method Statement Step 1. Add up all the amounts paid by the partner before the start of the hybrid year for its * shares in the entity (if the entity was a company), or for its interests in the assets of the entity and in the entity (if the entity was a * limited partnership), that it held at the start of the hybrid year, and subtract all amounts received by the partner in respect of those shares or interests by way of reduction in capital of the entity. Step 2. Work out the amount that, if the capital of the entity had been distributed to its * shareholders on a winding ‑ up or to its partners on a dissolution, at the end of the income year before the hybrid year, the partner could reasonably be expected to have received of the total distribution. Step 3. If the result of step 1 exceeds the result of step 2, the partner paid a premium for its interest in the asset. If the result of step 2 exceeds the result of step 1, the partner received a discount for its interest in the asset. Step 4. Work out the amount of the premium or discount using the formula: (3) The entity’s tax cost setting amount for an asset at the start of the post ‑ hybrid year in relation to an * asset ‑ based income tax regime is equal to the sum of what the partners’ * tax costs for their interests in the asset would be at that time for the purpose of applying the asset ‑ based income tax regime if the entity had continued to be a * foreign hybrid in relation to that income year.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-100 — What the expression tax cost means

The tax cost of a partner’s interest in an asset or of an asset of the entity for the purposes of applying an * asset ‑ based income tax regime at the start of the post ‑ hybrid year or the hybrid year is worked out using the following table: Tax cost of an asset Item If the asset ‑ based income tax regime is: the tax cost of the interest or the asset is: 1 Subdivisions 40 ‑ A to 40 ‑ D, sections 40 ‑ 425 to 40 ‑ 445 and Subdivision 328 ‑ D the * adjustable value of the interest or the asset at the start of the post ‑ hybrid year or the hybrid year 2 Division 70 the value of the interest or the asset at the start of the post ‑ hybrid year or the hybrid year under Division 70 3 Part 3 ‑ 1 or 3 ‑ 3 the * cost base or * reduced cost base of the interest or the asset at the start of the post ‑ hybrid year or the hybrid year 4 Division 16E of Part III of the Income Tax Assessment Act 1936 the amount that the partner or entity would need to receive if it were to dispose of the interest or asset at the start of the post ‑ hybrid year or the hybrid year without an amount being assessable income of, or deductible to, the partner or entity under section 159GS of the Income Tax Assessment Act 1936 5 Any other provision of this Act or the Income Tax Assessment Act 1936 the cost of the interest or the asset at the start of the post ‑ hybrid year or the hybrid year

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-105 — What the expression asset ‑ based income tax regime means

The provisions listed in the first column in relation to each item in the table in section 830 ‑ 100 are an asset ‑ based income tax regime .

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-110 — No disposal of assets etc. on entity becoming or ceasing to be a foreign hybrid

To avoid doubt, the fact that an entity becomes or ceases to be a * foreign hybrid in relation to an income year does not cause: (a) a * CGT event to happen to any * CGT asset consisting of: (i) any * share or interest in the entity; or (ii) any interest in an asset of the entity; or (b) a disposal or any other event to happen to any other asset consisting of such a share or interest.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-115 — Tax losses cannot be transferred to a foreign hybrid

(1) If an entity is a * foreign hybrid in relation to an income year, it cannot deduct in that income year a * tax loss for a * loss year in relation to which it was not a foreign hybrid. Former foreign hybrid can deduct tax losses for income years before it became a foreign hybrid (2) This section does not prevent an entity that: (a) is not a * foreign hybrid in relation to an income year (the post ‑ hybrid year ); and (b) was a foreign hybrid in relation to a previous income year; and (c) was not a foreign hybrid in relation to an income year (the pre ‑ hybrid year ) before the previous year; from deducting, in the post ‑ hybrid year, a * tax loss for the pre ‑ hybrid year.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-120 — End of CFC’s last statutory accounting period

If: (a) a taxpayer is a partner in an entity that becomes a * foreign hybrid in relation to an income year; and (b) the entity was a * CFC at the end of the taxpayer’s preceding income year; and (c) the last * statutory accounting period of the CFC did not end at the end of the taxpayer’s preceding income year; and (d) if it had so ended, the taxpayer would have been an * attributable taxpayer in relation to the CFC; for the purposes of working out the * attributable income of the CFC for the taxpayer in respect of the last statutory accounting period of the CFC, that statutory accounting period ends at the end of the taxpayer’s preceding income year.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 830-125 — How long interest in asset, or asset, held

Partner’s interest in asset when entity becomes a foreign hybrid (1) If an entity becomes a * foreign hybrid company in relation to an income year, the interest that a partner has in an asset as mentioned in section 830 ‑ 35 is taken to have been held by the partner (except for the purposes of having the * tax cost of the interest set) from the later of the following times: (a) when the entity * acquired the asset; (b) when the partner acquired its * shares in the entity. Entity’s asset when it ceases to be a foreign hybrid company (2) If: (a) an entity is not a * foreign hybrid company in relation to an income year (the post ‑ hybrid year ); and (b) the entity was a * foreign hybrid company in relation to the preceding income year; and (c) during: (i) that preceding income year; or (ii) any earlier income year in relation to which the entity was also a foreign hybrid; but not at the start of the first income year in relation to which the entity was a foreign hybrid company, the partners in the foreign hybrid company * acquired an interest in an asset that is an asset of the entity at the start of the post ‑ hybrid year; the asset is taken to have been held by the entity (except for the purposes of having the * tax cost of the asset set) from the time the partners acquired their interests in the asset.

Amendment history: Inserted by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16)

s 832-1 — What this Division is about

A “hybrid mismatch” arises if double non ‑ taxation results from the exploitation of differences in the tax treatment of an entity or financial instrument under the laws of 2 or more countries. There is double non ‑ taxation if a deductible payment is not included in a tax base (this is called a deduction/non ‑ inclusion mismatch), or if a payment gives rise to 2 deductions (this is called a deduction/deduction mismatch). Disallowing a deduction, or including an amount in assessable income, “neutralises” this tax advantage.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-5 — What this Subdivision is about

This Subdivision sets out some general rules that apply to the provisions of this Division. Table of sections Operative provisions 832 ‑ 10 Entitlement to receive payment 832 ‑ 15 Entitlement to receive non ‑ cash benefits 832 ‑ 20 Losses that arise from payments or parts of payments 832 ‑ 25 Recipients and payers of a payment 832 ‑ 30 How this Division applies to entities 832 ‑ 35 Single entity rule otherwise not disregarded 832 ‑ 40 Schemes outside Australia 832 ‑ 45 Relationship between this Division and other charging provisions in this Act 832 ‑ 50 Relationship between this Division and Division 820 832 ‑ 55 Division does not affect foreign residence rules 832 ‑ 60 Valuation of trading stock affected by hybrid mismatch rules

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-10 — Entitlement to receive payment

This Division applies as if an entity (the payer ) had made a payment to another entity (the recipient ) if the recipient is entitled to receive the payment from the payer, even if the payment is not required to be made until a later time.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-15 — Entitlement to receive non ‑ cash benefits

This Division applies as if an entity (the payer ) had made a payment to another entity (the recipient ) if the recipient received a * non ‑ cash benefit from the payer.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-20 — Losses that arise from payments or parts of payments

(1) This section applies if: (a) a loss gives rise to: (i) a deduction for an entity (the payer ) for an income year; or (ii) a * foreign income tax deduction for an entity (also the payer ) for a * foreign tax period; and (b) in working out the amount of the loss: (i) all or a part of a payment made, or to be made, to one or more other entities is taken into account; or (ii) 2 or more payments made, or to be made, to one or more other entities are taken into account. Note: This section also applies to losses from Division 230 financial arrangements: see section 832 ‑ 780. Payments made to only one entity (2) If, in working out the amount of the loss, a payment or payments made to only one entity (the recipient ) are taken into account, this Division applies as if: (a) at the end of the income year or * foreign tax period identified in paragraph (1)(a), the payer made a payment to the recipient; and (b) the amount of the payment was equal to the amount of the deduction or * foreign income tax deduction; and (c) the payment gave rise to the deduction or foreign income tax deduction. Payments made to 2 or more entities (3) If, in working out the amount of the loss, a payment or payments made to 2 or more entities (each of which is a recipient ) are taken into account, this Division applies as if: (a) at the end of the income year or * foreign tax period identified in paragraph (1)(a), the payer made a payment to each recipient; and (b) the amount of each payment was equal to so much of the amount of the deduction or * foreign income tax deduction as is reasonable having regard to the amounts of the payments actually made to the recipients; and (c) the payment gave rise to a deduction or foreign income tax deduction equal to the amount of the payment. Working out whether the payment has been subject to tax (4) In working out for the purposes of this Division the extent to which a payment that is taken by this section to have been made is * subject to Australian income tax or * subject to foreign income tax, regard is to be had to the actual payments made to the recipient.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-25 — Recipients and payers of a payment

(1) To the extent this Division applies to a payment only because of section 832 ‑ 10 or 832 ‑ 15 (a payment provision ), it applies as if: (a) the entity that made the payment were the entity identified in the payment provision as the payer; and (b) the recipient of the payment were the entity identified in the payment provision as the recipient. (2) If a payment would, apart from this subsection, be made to 2 or more recipients, then this Division applies as if each part of the payment made to each such recipient were a separate payment.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-30 — How this Division applies to entities

Identifying payments between entities etc. (1) A number of provisions in this Division refer to an entity making a payment to another entity. In determining for the purposes of this Division whether an entity makes or receives a payment, the following are to be disregarded: (a) subsection 701 ‑ 1(1) (the single entity rule); (b) Part IIIB of the Income Tax Assessment Act 1936 ; (c) any law of a foreign country that, for the purposes of a foreign tax, treats a different entity as having made the payment, or disregards the payment. Note 1: The purpose of this subsection is to establish a uniform basis for recognising “payments” between entities across all jurisdictions. (Note that in some countries, a “payment” recognised by this subsection will not have a tax consequence because the payment is disregarded for tax purposes). Note 2: As a consequence of paragraph (1)(a), a subsidiary member of a consolidated group or MEC group may be a hybrid payer under section 832 ‑ 320 or a deducting hybrid under section 832 ‑ 550 (it cannot be a reverse hybrid because of subparagraph 832 ‑ 410(2)(b)(ii)). (2) In addition, in the case of a trust or partnership, the trust or partnership, instead of a trustee or partner, is taken, for the purposes of this Division, to do the following things: (a) make or receive a payment; (b) hold, acquire or dispose of an asset, interest or other property; (c) enter into or carry out a * scheme or a part of a scheme. Identifying income or profits of entities (3) A number of provisions in this Division refer to the income or profits of an entity. For the purposes of this Division, things recognised in accordance with subsection (1) or (2) as being done by an entity are to be taken into account in identifying the income or profits of the entity. Assessable income and deductions (4) A reference in this Division to an amount being included in the assessable income of an entity, or being allowable, or not allowable, as a deduction to an entity, is taken to be a reference to an amount that is so included, or allowable or not allowable, as the case requires, in determining: (a) in the case of an entity that is a trust—the entity’s * net income; or (b) in the case of a partnership—the partnership’s net income or * partnership loss. This section does not affect the interpretation of other provisions (5) Nothing in this section affects whether * tax or * foreign income tax is imposed on an entity. (6) Nothing in this section limits, by implication, any other provision of this Act.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Repealed and substituted by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-35 — Single entity rule otherwise not disregarded

Subject to section 832 ‑ 30, subsection 701 ‑ 1(1) (the single entity rule) is not disregarded in applying this Division.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-40 — Schemes outside Australia

This Division applies in relation to a payment whether or not the * scheme under which the payment is made has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-45 — Relationship between this Division and other charging provisions in this Act

(1) This section applies if an amount is included in the assessable income of an entity under a provision of this Division in relation to a payment. (2) An amount in relation to the payment that is to be included in the assessable income of the entity under a provision (other than a provision of this Division) is to be reduced to the extent (if any) necessary to ensure that the total amount included in the entity’s assessable income in relation to the payment does not exceed the amount of the payment. Relationship with section 230 ‑ 20 (3) This section applies despite section 230 ‑ 20 (about taxation of financial arrangements).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-50 — Relationship between this Division and Division 820

(1) In determining for the purposes of this Division whether a payment gives rise to a deduction, and the amount of the deduction, disregard the effect of Division 820 (about thin capitalisation). (2) Nothing in this Division limits Division 820 (about thin capitalisation) in its application to reduce, or further reduce, * debt deductions of an entity.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-55 — Division does not affect foreign residence rules

Nothing in this Division affects the operation of the provisions of Division 6 that provide for the significance of foreign residence for the assessability of ordinary and statutory income. Note: Amounts included in assessable income under this Division may be ordinary or statutory income for the purposes of Division 6.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-60 — Valuation of trading stock affected by hybrid mismatch rules

If: (a) an amount of a deduction for an outgoing is disallowed under this Division; and (b) the outgoing was incurred in connection with acquiring an item of * trading stock; and (c) the item is on hand at the end of an income year; the amount disallowed is to be disregarded in working out the * cost, market selling value or replacement value of the item at the end of the income year under section 70 ‑ 45.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-100 — What this Subdivision is about

This Subdivision sets out rules about identifying deduction/non ‑ inclusion mismatches and deduction/deduction mismatches. Table of sections Operative provisions 832 ‑ 105 When a payment gives rise to a deduction/non ‑ inclusion mismatch 832 ‑ 110 When a payment gives rise to a deduction/deduction mismatch 832 ‑ 115 Disregard effect of Division in determining deductions 832 ‑ 120 Meaning of foreign income tax deduction 832 ‑ 125 Meaning of subject to Australian income tax 832 ‑ 130 Meaning of subject to foreign income tax 832 ‑ 135 Safe harbour for translation rates

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-105 — When a payment gives rise to a deduction/non ‑ inclusion mismatch

Australian deduction (1) If: (a) a deduction (other than a deduction that is solely attributable to a * currency exchange rate effect) is allowable to an entity in an income year in respect of a payment (including a part or share of the payment); and (b) the amount of the deduction exceeds the sum of the amounts of the payment that are: (i) * subject to foreign income tax in a foreign country in a * foreign tax period that starts no later than 12 months after the end of the income year; or (ii) * subject to Australian income tax for the income year; then the deduction is the deduction component of a deduction/non ‑ inclusion mismatch to which the payment gives rise. Note: A deduction/non ‑ inclusion mismatch might give rise to a hybrid financial instrument mismatch (see Subdivision 832 ‑ C), a hybrid payer mismatch (see Subdivision 832 ‑ D), a reverse hybrid mismatch (see Subdivision 832 ‑ E), or a branch hybrid mismatch (see Subdivision 832 ‑ F). Foreign income tax deduction (2) If: (a) an entity is entitled to a * foreign income tax deduction in a foreign country in a * foreign tax period in respect of a payment (including a part or share of the payment); and (b) the amount of the foreign income tax deduction exceeds the sum of the amounts of the payment that are: (i) * subject to foreign income tax in a foreign country in a foreign tax period that starts no later than 12 months after the end of the foreign tax period in which the foreign income tax deduction arose; or (ii) * subject to Australian income tax for an income year that starts no later than 12 months after the end of the foreign tax period in which the foreign income tax deduction arose; and (c) the foreign income tax deduction is not solely attributable to: (i) any currency exchange rate fluctuations; or (ii) a difference between an expressly or implicitly agreed currency exchange rate for a future date or time and the applicable currency exchange rate at that date or time; then the foreign income tax deduction is the deduction component of a deduction/non ‑ inclusion mismatch to which the payment gives rise. Amount of the deduction/non ‑ inclusion mismatch (3) The amount of the * deduction/non ‑ inclusion mismatch is the amount of the excess worked out under paragraph (1)(b) or (2)(b), as applicable.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-110 — When a payment gives rise to a deduction/deduction mismatch

(1) A payment gives rise to a deduction/deduction mismatch if the payment, or a part or share of the payment: (a) gives rise to a * foreign income tax deduction in a foreign country in a * foreign tax period; and (b) also gives rise to: (i) a deduction in an income year; or (ii) a foreign income tax deduction in a foreign country (other than the country mentioned in paragraph (a)). Note: A deduction/deduction mismatch might give rise to a deducting hybrid mismatch (see Subdivision 832 ‑ G). (2) Each of the following is a deduction component of the * deduction/deduction mismatch: (a) the * foreign income tax deduction mentioned in paragraph (1)(a); (b) the deduction mentioned in subparagraph (1)(b)(i), or the foreign income tax deduction mentioned in subparagraph (1)(b)(ii), as the case requires. Amount of the deduction/deduction mismatch (3) The amount of the * deduction/deduction mismatch is the lesser of: (a) the amount of the * foreign income tax deduction mentioned in paragraph (1)(a); and (b) the sum of the amounts of the deduction, or foreign income tax deduction, mentioned in subparagraph (1)(b)(i) or (ii). Extended operation in relation to non ‑ payment deductions (4) This section applies in relation to the following amounts in the same way as it applies in relation to a payment: (a) an amount representing the decline in value of an asset; (b) an amount representing a share in the net loss of a partnership or other transparent entity. (5) If: (a) an amount representing a share in the net loss of a partnership gives rise to a deduction; and (b) in a foreign country: (i) the same share in the income or profits of the partnership forms part of the tax base of an entity under a law of the foreign country dealing with * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)); but (ii) that share is brought to account in that tax base on an item ‑ by ‑ item basis, instead of on a net basis; the amount is taken for the purposes of subsection (1) to also give rise to a * foreign income tax deduction in the foreign country, for an amount representing the share in the net loss of the partnership, and equal to the amount of the deduction mentioned in paragraph (a). (6) For the purposes of subsection (4), a reference in this Division to the * scheme under which a payment is made is taken to be a reference to: (a) if paragraph (4)(a) applies—the scheme under which the asset is held; or (b) if paragraph (4)(b) applies—the scheme under which the net loss arose.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-115 — Disregard effect of Division in determining deductions

In determining for the purposes of this Division whether a payment gives rise to a deduction, disregard the effect of this Division.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-120 — Meaning of foreign income tax deduction

(1) An amount of a loss or outgoing is a foreign income tax deduction in a foreign country in a * foreign tax period to which an entity is entitled, if the entity is entitled to deduct the amount in working out its tax base for the foreign tax period under a law of the foreign country dealing with * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)). (2) To avoid doubt, an amount of a loss or outgoing may be a foreign income tax deduction in a foreign country in a * foreign tax period even if the relevant entity’s tax base is nil, or a negative amount. Effect of foreign hybrid mismatch rules (3) In determining for the purposes of this section whether an entity is entitled to deduct an amount as mentioned in subsection (1), disregard the effect of the following: (a) any provisions of * foreign hybrid mismatch rules of a foreign country; (b) any provisions of another law of a foreign country relating to * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)) that has substantially the same effect as foreign hybrid mismatch rules.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-125 — Meaning of subject to Australian income tax

(1) An amount of income or profits is subject to Australian income tax in an income year if it is an amount that is included in an entity’s assessable income for the income year. (2) However, if: (a) the entity is a trust or partnership; and (b) the trust or partnership has * net income for the income year; then the amount is only subject to Australian income tax to the extent it reasonably represents amounts: (c) included in the assessable income of another entity for the income year (other than an entity that is a partnership or a trust); or (d) for a trust—on which the trustee is liable to be assessed and to pay * tax. Effect of CFC regimes (3) An amount of income or profits of an entity is subject to Australian income tax if the amount is included under section 456 or 457 of the Income Tax Assessment Act 1936 in the assessable income of another entity. (4) In determining for the purposes of this Division whether an amount of income or profits is * subject to Australian income tax, disregard the effect of this Division, unless the contrary intention appears.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-130 — Meaning of subject to foreign income tax

(1) An amount of income or profits is subject to foreign income tax in a foreign country in a * foreign tax period if * foreign income tax (except a tax covered by subsection (7)) is payable under a law of the foreign country in respect of the amount because the amount is included in the tax base of that law for the foreign tax period. Note: Subdivision 832 ‑ C (Hybrid financial instrument mismatch) has effect as if certain amounts that are subject to a concessional rate of foreign income tax were not subject to foreign income tax: see section 832 ‑ 235. (2) To avoid doubt, an amount of income or profits may be subject to foreign income tax in a foreign country in a * foreign tax period even if the relevant entity’s tax base is nil, or a negative amount. Effect of credits etc. for underlying taxes (3) Despite subsection (1), if: (a) an amount (the pre ‑ credit amount ) of income or profits would, apart from this subsection, be * subject to foreign income tax in a foreign country; and (b) an entity is entitled under the law of the foreign country to a credit, rebate or other tax concession in respect of the amount for foreign tax (other than a withholding ‑ type tax) payable under a tax law of a different country (including Australia); then only so much of the pre ‑ credit amount as reasonably represents an amount not effectively sheltered from * foreign income tax (except a tax covered by subsection (7)) by the credit, rebate or tax concession is subject to foreign income tax . Note: This subsection is disregarded in working out whether an amount of income or profits is dual inclusion income: see subsection 832 ‑ 680(3). Effect of “dividend received deductions” in foreign countries (4) Despite subsection (1), if: (a) an amount (the pre ‑ deduction amount ) of income or profits would, apart from this subsection, be * subject to foreign income tax in a foreign country; and (b) the amount consists of a dividend received by an entity from a company; and (c) the entity is entitled to a * foreign income tax deduction in respect of all or part of the amount of the dividend; then only so much of the pre ‑ deduction amount as reasonably represents an amount not effectively sheltered from * foreign income tax (except a tax covered by subsection (7)) by the foreign income tax deduction is subject to foreign income tax . Effect of CFC regimes (5) An amount of income or profits of an entity is subject to foreign income tax if the amount is included in working out the tax base of another entity under a provision of a law of a foreign country that corresponds to section 456 or 457 of the Income Tax Assessment Act 1936 (including a tax base that is nil, or a negative amount) . Effect of foreign hybrid mismatch rules (6) In determining for the purposes of this section whether a payment is included in a tax base of a law of a foreign country as mentioned in subsection (1), disregard the effect of the following: (a) any provisions of * foreign hybrid mismatch rules of a foreign country; (b) any provisions of another law of a foreign country relating to * foreign income tax (except a tax covered by subsection (7)) that has substantially the same effect as foreign hybrid mismatch rules. Certain foreign taxes disregarded in this Division (7) This subsection covers each of the following: (a) * credit absorption tax; (b) * unitary tax; (c) withholding ‑ type tax; (d) municipal tax; (e) in the case of a federal foreign country—a State tax; (f) * foreign GloBE tax or other foreign minimum tax. Note: The definitions of credit absorption tax and unitary tax are in section 770 ‑ 15. (8) Foreign minimum tax mentioned in paragraph (7)(f) includes a tax specified in regulations made for the purposes of paragraph 393(2)(c) of the Income Tax Assessment Act 1936 .

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4) | Amended by No 134 of 2024, effective sch 1 (items 6 ‑ 29, 66): 11 Dec 2024 (s 2(1) item 1)

s 832-135 — Safe harbour for translation rates

If: (a) a payment has any of the following effects: (i) it gives rise to a deduction; (ii) it gives rise to a * foreign income tax deduction; (iii) it is * subject to Australian income tax; (iv) it is * subject to foreign income tax; and (b) for the purposes of this Division, the amount of one or more such effects is to be translated under Subdivision 960 ‑ C into an entity’s * applicable functional currency, or into Australian currency; then it is reasonable for the purposes of item 11A of the table in subsection 960 ‑ 50(6) (as modified by the regulations) to apply an exchange rate to each translation so as best to achieve a consistent measure of the extent to which the payment had each such effect. Note: Item 11A is added to the table in subsection 960 ‑ 50(6) by the regulations.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-175 — What this Subdivision is about

This Subdivision neutralises a hybrid financial instrument mismatch if it involves a deduction, or non ‑ inclusion, in Australia. A deduction/non ‑ inclusion mismatch is a hybrid financial instrument mismatch if it is attributable to hybridity in the treatment of a financial instrument or an arrangement to transfer a financial instrument, and either the relevant parties are related or the mismatch arose under a structured arrangement. There is also an integrity rule that covers payments that are made in lieu of hybrid payments. This Subdivision has an extended application in relation to payments that are subject to concessional tax rates in a foreign country. A hybrid financial instrument mismatch that is not neutralised by this Subdivision (or by foreign hybrid mismatch rules) is an offshore hybrid mismatch, which might give rise to an imported hybrid mismatch under Subdivision 832 ‑ H. Table of sections Operative provisions 832 ‑ 180 Deduction not allowable—Australian primary response 832 ‑ 185 Inclusion in assessable income—Australian secondary response 832 ‑ 190 Exception where entity not a party to the structured arrangement 832 ‑ 195 When a hybrid financial instrument mismatch is an offshore hybrid mismatch 832 ‑ 200 When a payment gives rise to a hybrid financial instrument mismatch 832 ‑ 205 Meaning of Division 832 control group 832 ‑ 210 Meaning of structured arrangement 832 ‑ 215 Hybrid mismatch 832 ‑ 220 Hybrid requirement—payments under financial instruments 832 ‑ 225 Hybrid requirement—payments under transfers of certain financial instruments 832 ‑ 230 Hybrid mismatch—integrity rule for substitute payments 832 ‑ 235 Extended operation of this Subdivision in relation to concessional foreign taxes 832 ‑ 240 Adjustment if hybrid financial instrument payment is income in a later year

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-180 — Deduction not allowable—Australian primary response

(1) This section applies to an entity if: (a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and (b) the deduction is the * deduction component of a * hybrid financial instrument mismatch to which the payment gives rise. (2) So much of the deduction as does not exceed the amount of the * hybrid financial instrument mismatch is not allowable as a deduction.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-185 — Inclusion in assessable income—Australian secondary response

(1) This section applies to an entity if: (a) the entity is the recipient of a payment that gives rise to a * hybrid financial instrument mismatch; and (b) the * deduction component of the mismatch is a * foreign income tax deduction; and (c) the secondary response is required (see subsection (2)). (2) For the purposes of paragraph (1)(c), the secondary response is required unless, in the country in which the * foreign income tax deduction arose, the mismatch is covered by * foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision. Inclusion of amount in assessable income (3) An amount equal to the amount of the * hybrid financial instrument mismatch is included in the entity’s assessable income for the income year mentioned in subsection (4). The assessable income is taken to have been derived from the same source as the payment. (4) The income year is: (a) if the * foreign tax period in which the * foreign income tax deduction arises falls wholly within an income year of the entity—that income year; or (b) if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity—the earlier of those income years.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-190 — Exception where entity not a party to the structured arrangement

Sections 832 ‑ 180 and 832 ‑ 185 do not apply to an entity in respect of a payment if: (a) the payment is made under a * structured arrangement to which the entity is not a * party; and (b) subsection 832 ‑ 200(3) does not apply.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-195 — When a hybrid financial instrument mismatch is an offshore hybrid mismatch

(1) A * hybrid financial instrument mismatch is an offshore hybrid mismatch if: (a) the * deduction component of the mismatch is a * foreign income tax deduction; and (b) no amount becomes * subject to Australian income tax as a result of the application of section 832 ‑ 185 in relation to the mismatch; and (c) the mismatch is not covered by * foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision. Note: An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832 ‑ H. (2) The amount of the * offshore hybrid mismatch is the amount of the * hybrid financial instrument mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-200 — When a payment gives rise to a hybrid financial instrument mismatch

(1) A payment gives rise to a hybrid financial instrument mismatch if: (a) the payment gives rise to a * hybrid mismatch under section 832 ‑ 215 or 832 ‑ 230; and (b) subsection (3) or (6) applies. Note: As a result of ordering rules in later Subdivisions, a payment that gives rise to a hybrid financial instrument mismatch does not also give rise to a hybrid mismatch under a later Subdivision of this Division. (2) The deduction component of the * hybrid financial instrument mismatch is the * deduction component of the * deduction/non ‑ inclusion mismatch. (3) This subsection applies if the following entities are related for the purposes of subsection (4): (a) the entity that made the payment; (b) each entity that is a * liable entity in respect of the income or profits of the recipient of the payment. Note: For the definition of liable entity , see section 832 ‑ 325. Related persons (4) Two entities are related for the purposes of this subsection if any of the following apply: (a) the entities are in the same * Division 832 control group; (b) one of the entities holds a * total participation interest of 25% or more in the other entity; (c) a third entity holds a total participation interest of 25% or more in each of the entities. (5) For the purposes of subsection (4), treat the * direct participation interest of an entity (the holding entity ) in another entity (the test entity ) as being the sum of the direct participation interests held by the holding entity and its * associates in the test entity. Structured arrangement (6) This subsection applies if the payment is made under a * structured arrangement.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-205 — Meaning of Division 832 control group

(1) Two or more entities are in the same Division 832 control group if any of the following apply: (a) each of the entities is a member of a group of entities that are consolidated for accounting purposes as a single group; (b) one of the entities holds a * total participation interest of 50% or more in each of the other entities; (c) a third entity holds a total participation interest of 50% or more in each of the entities. (1A) If a trust is in a Division 832 control group as a result of the operation of subsection (1), then the trustee of the trust is in the same Division 832 control group . (2) For the purposes of subsection (1), in determining a * direct participation interest of one entity in another entity, disregard paragraph 350(1)(b) of the Income Tax Assessment Act 1936 (rights of shareholders to vote or participate in certain decision ‑ making).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-210 — Meaning of structured arrangement

(1) A payment that gives rise to a * hybrid mismatch is made under a structured arrangement if: (a) the hybrid mismatch is priced into the terms of a * scheme under which the payment is made; or (b) it is reasonable to conclude that the hybrid mismatch is a design feature of a scheme under which the payment is made. (2) The question whether a * hybrid mismatch is a design feature of a * scheme must be determined by reference to the facts and circumstances that exist in connection with the scheme, including the terms of the scheme. (3) An entity that entered into or carried out the * scheme or any part of the scheme is a party to the * structured arrangement unless: (a) the entity could not reasonably have been expected to be aware that the scheme gave rise to a * hybrid mismatch; and (b) no other entity in the same * Division 832 control group as the entity could reasonably have been expected to be aware that the scheme gave rise to a hybrid mismatch; and (c) the financial position of each entity in the Division 832 control group would reasonably be expected to have been the same if the scheme had not given rise to the hybrid mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-215 — Hybrid mismatch

(1) A payment gives rise to a hybrid mismatch if: (a) the payment is made under any of the following: (i) a * debt interest; (ii) an * equity interest; (iii) a * derivative financial arrangement; (iv) an * arrangement covered by subsection (2); and (b) the payment might reasonably be expected to give rise to a * deduction/non ‑ inclusion mismatch; and (c) the mismatch that might reasonably be expected to arise, or a part of that mismatch, meets a hybrid requirement in section 832 ‑ 220 or 832 ‑ 225. Transfers of financial instruments (2) An * arrangement is covered by this subsection if: (a) the arrangement is any of the following: (i) a reciprocal purchase agreement (otherwise known as a repurchase agreement); (ii) a securities lending arrangement; (iii) a similar arrangement; and (b) an entity acquires any of the following under the arrangement: (i) a * debt interest; (ii) an * equity interest; (iii) a * derivative financial arrangement. Amount of the hybrid mismatch (3) The amount of the * hybrid mismatch is: (a) the amount of the * deduction/non ‑ inclusion mismatch, unless paragraph (b) applies; or (b) if only a part of the deduction/non ‑ inclusion mismatch meets a hybrid requirement mentioned in paragraph (1)(c)—the amount of that part of the deduction/non ‑ inclusion mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-220 — Hybrid requirement—payments under financial instruments

(1) A * deduction/non ‑ inclusion mismatch, or a part of such a mismatch, meets the hybrid requirement in this section if: (a) the payment that gives rise to the mismatch is made under any of the following: (i) a * debt interest; (ii) an * equity interest; (iii) a * derivative financial arrangement; and (b) the mismatch, or the part of the mismatch, is attributable to differences in the treatment of the debt interest, equity interest or derivative financial arrangement, arising from the terms of the interest or arrangement; and (c) the exception in subsection (2) does not apply. Example: Redeemable preferences shares that are treated under this Act as a debt interest, and in a foreign country as an equity interest. Exception for deferrals not exceeding 3 years (2) This exception applies if: (a) the difference in treatment mentioned in paragraph (1)(b) primarily relates to a deferral in the recognition of income or profits under the * debt interest, the * equity interest or the * derivative financial arrangement; and (b) the term of the interest or arrangement is 3 years or less.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-225 — Hybrid requirement—payments under transfers of certain financial instruments

(1) A * deduction/non ‑ inclusion mismatch, or a part of such a mismatch, meets the hybrid requirement in this section if: (a) the payment that gives rise to the mismatch is made under an * arrangement covered by subsection 832 ‑ 215(2); and (b) the mismatch, or the part of the mismatch, is attributable to differences in the treatment of the arrangement; and (c) the exception in subsection (2) of this section does not apply. Exception for deferrals not exceeding 3 years (2) This exception applies if: (a) the difference in treatment mentioned in paragraph (1)(b) primarily relates to a deferral in the recognition of income or profits under the * arrangement; and (b) the term of the arrangement is 3 years or less.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-230 — Hybrid mismatch—integrity rule for substitute payments

(1) A payment also gives rise to a hybrid mismatch if: (a) the payment gives rise to a * deduction/non ‑ inclusion mismatch; and (b) the payment is made under an * arrangement under which any of the following is transferred: (i) a * debt interest; (ii) an * equity interest; (iii) a * derivative financial arrangement; and (c) the payment, or a part of the payment, (the substitute payment ) could reasonably be regarded as having been converted into a form that is in substitution for a * return (however described) on the interest or arrangement; and (d) the return is covered by subsection (2). (2) This subsection covers a * return (however described) on a * debt interest, an * equity interest, or a * derivative financial arrangement, that is transferred if any of the following apply: (a) the return is made to the payer of the substitute payment, and is not * subject to foreign income tax or * subject to Australian income tax; (b) the return is not made to the payer of the substitute payment, but if it had been it would not have been subject to foreign income tax or subject to Australian income tax; (c) if the return were instead made to the payee of the substitute payment: (i) it would be subject to foreign income tax or subject to Australian income tax; or (ii) it would give rise to a * hybrid mismatch under section 832 ‑ 215. Amount of the hybrid mismatch (3) The amount of the * hybrid mismatch is the amount of the * deduction/non ‑ inclusion mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-235 — Extended operation of this Subdivision in relation to concessional foreign taxes

(1) This section applies in working out, for the purposes of this Subdivision, whether an amount is * subject to foreign income tax. (2) An amount of income or profits of an entity is treated as if it were not * subject to foreign income tax if: (a) apart from this section, the amount would be * subject to foreign income tax; and (b) the rate of * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)) (the lower rate ) on the amount under the law of the relevant foreign country is lower than the rate (the ordinary rate ) that would ordinarily be imposed on interest income derived by an entity of that kind in the foreign country. Amount of a deduction/non ‑ inclusion mismatch (3) However, for the purposes of working out the amount of a * deduction/non ‑ inclusion mismatch that is affected by this section, the amount of a payment that is treated by this section as not being * subject to foreign income tax is to be discounted by multiplying it by the following fraction: where: lower rate means the lower rate mentioned in paragraph (2)(b). ordinary rate means the ordinary rate mentioned in paragraph (2)(b).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-240 — Adjustment if hybrid financial instrument payment is income in a later year

(1) There is an adjustment under this section for an entity in an income year (the adjustment year ) if: (a) an amount was not allowable as a deduction for the entity in an earlier income year under section 832 ‑ 180 in respect of a payment that gave rise to a * hybrid financial instrument mismatch; and (b) an amount (the taxed amount ) of the payment is: (i) * subject to foreign income tax in a foreign country in a * foreign tax period that ends within 12 months after the end of the adjustment year; or (ii) * subject to Australian income tax in the adjustment year. (2) The taxed amount is an amount the entity can deduct in the adjustment year. (2A) Subsection (2) does not apply if, on the assumption that subsections 832 ‑ 180(2) and 832 ‑ 725(6) were disregarded, no amount would have been allowable as a deduction in respect of the payment because of subsection 832 ‑ 725(3). (3) The total amounts deducted under this section in respect of a payment must not exceed the amount that was not allowable as a deduction in respect of the payment as mentioned in paragraph (1)(a). No adjustment for concessional taxes (4) This section does not apply if the * hybrid mismatch would not have arisen apart from section 832 ‑ 235.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-280 — What this Subdivision is about

This Subdivision neutralises a hybrid payer mismatch if it involves a deduction, or non ‑ inclusion, in Australia. A deduction/non ‑ inclusion mismatch is a hybrid payer mismatch if it is made by a hybrid payer, and the mismatch would not have arisen, or would have been less, if the payment had instead been made by an ungrouped entity. It is also a requirement that the relevant parties are in the same control group or the mismatch arose under a structured arrangement. An entity is a hybrid payer if a payment it makes is disregarded for the purposes of the tax law of one country (resulting in non ‑ inclusion), but is deductible for the purposes of the tax law of another country. The neutralising amount for the hybrid payer mismatch is reduced by dual inclusion income. A hybrid payer mismatch that is not neutralised by this Subdivision (or by foreign hybrid mismatch rules) is an offshore hybrid mismatch, which might give rise to an imported hybrid mismatch under Subdivision 832 ‑ H. Table of sections Operative provisions 832 ‑ 285 Deduction not allowable—Australian primary response 832 ‑ 290 Inclusion in assessable income—Australian secondary response 832 ‑ 295 Exception where entity not a party to the structured arrangement 832 ‑ 300 When a hybrid payer mismatch is an offshore hybrid mismatch 832 ‑ 305 When a payment gives rise to a hybrid payer mismatch 832 ‑ 310 Hybrid mismatch 832 ‑ 315 Hybrid requirement—assume payment was made to same recipient but by an ungrouped payer 832 ‑ 320 Hybrid payer 832 ‑ 325 Meaning of liable entity 832 ‑ 330 Neutralising amount 832 ‑ 335 Adjustment if hybrid payer has dual inclusion income in a later year

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-285 — Deduction not allowable—Australian primary response

(1) This section applies to an entity if: (a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and (b) the deduction is the * deduction component of a * hybrid payer mismatch to which the payment gives rise. (2) So much of the deduction as does not exceed the * neutralising amount for the * hybrid payer mismatch is not allowable as a deduction. Note: The neutralising amount is worked out under section 832 ‑ 330.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-290 — Inclusion in assessable income—Australian secondary response

(1) This section applies to an entity if: (a) the entity is the recipient of a payment that gives rise to a * hybrid payer mismatch; and (b) the * deduction component of the mismatch is a * foreign income tax deduction; and (c) the secondary response is required (see subsection (2)). When secondary response is required (2) For the purposes of paragraph (1)(c), the secondary response is required unless, in the country in which the * foreign income tax deduction arose, the mismatch is covered by * foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision. Inclusion of amount in assessable income (3) An amount equal to the * neutralising amount for the * hybrid payer mismatch is included in the entity’s assessable income for the income year mentioned in subsection (4). The assessable income is taken to have been derived from the same source as the payment. (4) The income year (the inclusion year ) is: (a) if the * foreign tax period in which the * foreign income tax deduction arises falls wholly within an income year of the entity—that income year; or (b) if the foreign tax period in which the foreign income tax deduction arises straddles 2 income years of the entity—the earlier of those income years.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-295 — Exception where entity not a party to the structured arrangement

Sections 832 ‑ 285 and 832 ‑ 290 do not apply to an entity in respect of a payment if: (a) the payment is made under a * structured arrangement to which the entity is not a * party; and (b) subsection 832 ‑ 305(3) does not apply.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-300 — When a hybrid payer mismatch is an offshore hybrid mismatch

(1) A * hybrid payer mismatch is an offshore hybrid mismatch if: (a) the * deduction component of the mismatch is a * foreign income tax deduction; and (b) no amount becomes * subject to Australian income tax as a result of the application of section 832 ‑ 290 in relation to the mismatch; and (c) the mismatch is not covered by * foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision. Note: An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832 ‑ H. (2) The amount of the * offshore hybrid mismatch is the * neutralising amount for the * hybrid payer mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-305 — When a payment gives rise to a hybrid payer mismatch

(1) A payment gives rise to a hybrid payer mismatch if: (a) the payment gives rise to a * hybrid mismatch under section 832 ‑ 310; and (b) subsection (3) or (4) applies. (2) The deduction component of the * hybrid payer mismatch is the * deduction component of the * deduction/non ‑ inclusion mismatch mentioned in section 832 ‑ 310. Control group (3) This subsection applies if the following entities are in the same * Division 832 control group: (a) the * hybrid payer; (b) each entity that is a * liable entity in respect of the income or profits of the hybrid payer. Note: For the meaning of Division 832 control group , see section 832 ‑ 205. Structured arrangement (4) This subsection applies if the payment is made under a * structured arrangement. Note: For the meaning of structured arrangement , see section 832 ‑ 210.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-310 — Hybrid mismatch

(1) A payment gives rise to a hybrid mismatch if: (a) the payment gives rise to a * deduction/non ‑ inclusion mismatch; and (b) the payment meets the hybrid requirement in section 832 ‑ 315. Amount of the hybrid mismatch (2) The amount of the * hybrid mismatch is the lesser of: (a) the amount of the * deduction/non ‑ inclusion mismatch; and (b) if there is an excess under either subparagraph 832 ‑ 315(2)(b)(i) or 832 ‑ 315(3)(b)(i)—the amount of the excess. Ordering rule (3) However, a payment does not give rise to a hybrid mismatch under this section if it gives rise to a * hybrid financial instrument mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-315 — Hybrid requirement—assume payment was made to same recipient but by an ungrouped payer

(1) The payment meets the hybrid requirement in this section if: (a) the payment is made by a * hybrid payer; and (b) subsection (2) or (3) applies. Payment would have been taxed in Australia (2) This subsection applies if: (a) the non ‑ including country identified in subsection 832 ‑ 320(3) is Australia; and (b) either: (i) the amount of the * deduction/non ‑ inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was * subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or (ii) on the assumption in subsection (4), the payment would have given rise to a * hybrid financial instrument mismatch. Payment would have been taxed in a foreign country (3) This subsection applies if: (a) the non ‑ including country identified in subsection 832 ‑ 320(3) is a foreign country; and (b) either: (i) the amount of the * deduction/non ‑ inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was * subject to foreign income tax for a * foreign tax period was instead worked out on the assumption in subsection (4); or (ii) on the assumption in subsection (4), the payment would have given rise to a * hybrid financial instrument mismatch. Assumption—payer was an ungrouped entity (4) For the purposes of subsections (2) and (3), assume that the payment had instead been made: (a) to the same recipient; but (b) by an entity that was a * liable entity in the non ‑ including country identified in subsection 832 ‑ 320(3) only in respect of its own income or profits. Note: For the meaning of liable entity , see section 832 ‑ 325.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-320 — Hybrid payer

(1) An entity (the test entity ) is a hybrid payer in relation to a payment it makes if: (a) subsection (2) applies to the entity in relation to a country and the payment; and (b) subsection (3) applies to the entity in relation to a different country and the payment. Note: The entity, the payments it makes, and its income or profits are generally identified disregarding tax provisions: see section 832 ‑ 30. Deducting country—entity is not grouped with recipient (2) This subsection applies to a test entity in relation to a country (the deducting country ) and a payment the test entity makes if: (a) the test entity, or another entity, is a * liable entity in the deducting country in respect of income or profits of the test entity (or a part of those income or profits); and (b) that liable entity is not also a liable entity in the deducting country in respect of income or profits of the recipient of the payment. Non ‑ including country—entity is grouped with recipient (3) This subsection applies to a test entity in relation to a country (a non ‑ including country ) and a payment the test entity makes if: (a) the test entity, or another entity, is a * liable entity in the non ‑ including country in respect of income or profits of the test entity (or a part of the income or profits); and (b) that liable entity is also a liable entity in the non ‑ including country in respect of income or profits of the recipient of the payment.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-325 — Meaning of liable entity

Entity is a taxpayer in respect of its own income or profits (1) An entity is a liable entity , in a country, in respect of its income or profits if: (a) for Australia: (i) * tax is imposed on the entity in respect of all or part of its income or profits for an income year; or (ii) the entity is a * public trading trust (including a trust that makes a choice under section 703 ‑ 50 (Choice to consolidate a consolidatable group)); or (iii) the entity is an entity to which Division 295 (about superannuation entities) applies; and (b) for a foreign country— * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)) is imposed under the law of the foreign country: (i) on the entity in respect of all or part of its income or profits for a * foreign tax period; or (ii) on the income or profits of the entity in a way that corresponds to the way that foreign income tax is imposed under the law of that country on the income or profits of a company (regardless whether the foreign income tax is actually imposed on that entity, or another entity). Note 1: The entity, and its income or profits, are generally identified disregarding tax provisions: see section 832 ‑ 30. Note 2: An example is an entity that is a company (and is not a subsidiary member of a consolidated group or MEC group). In Australia, a company is the liable entity in respect of its income or profits. Entity is a taxpayer in respect of another entity’s income or profits (2) An entity is a liable entity , in a country, in respect of the income or profits of another entity (the test entity ) if: (a) for Australia— * tax is imposed on the entity in respect of all or part of the income or profits of the test entity for an income year; and (b) for a foreign country— * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)) is imposed under the law of the foreign country on the entity in respect of all or part of the income or profits of the test entity for a * foreign tax period. Note 1: The test entity, and its income or profits, are generally identified disregarding tax provisions: see section 832 ‑ 30. Note 2: An example is a test entity that is a partnership. In Australia, each partner in the partnership is a liable entity in respect of the income or profits of the partnership. (2A) However, an entity is not a liable entity in a country in respect of the income or profits of a test entity under subsection (2) if the test entity is the liable entity in that country in respect of the income or profits as a result of the operation of subparagraph (1)(a)(ii), (a)(iii) or (b)(ii). (3) To avoid doubt, the following outcomes may arise under subsection (2) in a country: (a) there may be one or more * liable entities in respect of the income or profits of a test entity; (b) there may be one or more interposed entities between the test entity and an entity that is a liable entity in respect of the income or profits of the test entity. Entity not required to be actually liable to pay tax or foreign income tax (4) To avoid doubt, an entity may be a * liable entity in respect of its own, or another entity’s, income or profits in a country even if any of the following situations exist: (a) there are no actual income or profits; (b) there are income or profits, but no part of the income or profits is: (i) for Australia— * subject to Australian income tax; or (ii) for a foreign country— * subject to foreign income tax in that foreign country; (c) the entity is not actually liable to pay an amount of * tax or * foreign income tax. Note: In determining whether an entity is a liable entity in such a situation, assume that income or profits within the tax base of the country exist. Effect of CFC regimes (5) An entity is not a liable entity in respect of income or profits of another entity (the test entity ) merely because all or part of the income or profits of the test entity are: (a) included under section 456 or 457 of the Income Tax Assessment Act 1936 in the assessable income of the other entity; or (b) included under a corresponding provision of a law of a foreign country in working out the tax base of the other entity (including a tax base of nil, or a negative amount).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-330 — Neutralising amount

(1) The neutralising amount for a * hybrid payer mismatch is the amount of the * hybrid mismatch from subsection 832 ‑ 310(2), reduced (but not below nil) by the amount of any * dual inclusion income that is available to be applied in working out the neutralising amount. Australian deduction—inclusions must be in Australia and in the non ‑ including country (2) An amount of * dual inclusion income is available to be applied to reduce the * neutralising amount for a * hybrid payer mismatch to which section 832 ‑ 285 applies if: (a) the * hybrid payer is eligible to apply the amount (see subsection 832 ‑ 680(7)); and (b) the amount is * subject to Australian income tax for the purposes of subsection 832 ‑ 680(1) in the income year mentioned in subsection 832 ‑ 285(1); and (c) the amount is * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the non ‑ including country identified in subsection 832 ‑ 320(3). Note: Section 832 ‑ 680 modifies the meanings of subject to Australian income tax and subject to foreign income tax for the purpose of working out dual inclusion income. Australian non ‑ inclusion—inclusions must be in Australia and in the deducting country (3) An amount of * dual inclusion income is available to be applied to reduce the * neutralising amount for a * hybrid payer mismatch to which section 832 ‑ 290 applies if: (a) the * hybrid payer is eligible to apply the amount (see subsection 832 ‑ 680(7)); and (b) the amount is * subject to Australian income tax for the purposes of subsection 832 ‑ 680(1) in the inclusion year mentioned in subsection 832 ‑ 290(4); and (c) the amount is * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the deducting country mentioned in subsection 832 ‑ 320(2). Offshore hybrid mismatch—inclusions must be in the deducting country and the non ‑ including country (4) An amount of * dual inclusion income is available to be applied to reduce the * neutralising amount for a * hybrid payer mismatch that is an * offshore hybrid mismatch if: (a) the * hybrid payer is eligible to apply the amount (see subsection 832 ‑ 680(7)); and (b) in the same * foreign tax period as the period in which the * foreign income tax deduction arose, the amount is * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the deducting country mentioned in subsection 832 ‑ 320(2); and (c) the amount is * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the non ‑ including country identified in subsection 832 ‑ 320(3).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-335 — Adjustment if hybrid payer has dual inclusion income in a later year

(1) There is an adjustment under this section for an entity in an income year (the adjustment year ) if: (a) in an earlier income year, all or part of a deduction of the entity in respect of a payment that gave rise to a * hybrid payer mismatch was not allowable under section 832 ‑ 285; and (b) an amount of * dual inclusion income is: (i) available to be applied by the * hybrid payer in the adjustment year; and (ii) * subject to Australian income tax for the purposes of subsection 832 ‑ 680(1) in the adjustment year; and (iii) * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the non ‑ including country identified in subsection 832 ‑ 320(3). (2) So much of the amount of * dual inclusion income that satisfies paragraph (1)(b) as does not exceed the amount that was not allowable as a deduction is an amount the entity can deduct in the adjustment year. (3) For the purposes of a later application of this section, treat the amount that was not allowable as a deduction under section 832 ‑ 285 as being reduced by the amount deducted under subsection (2) of this section.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-375 — What this Subdivision is about

This Subdivision neutralises a reverse hybrid mismatch if it involves a deduction in Australia. A deduction/non ‑ inclusion mismatch is a reverse hybrid mismatch if it is made directly or indirectly to a reverse hybrid, and the mismatch would not have arisen, or would have been less, if the payment had instead been made directly to an investor in the reverse hybrid. An entity is a reverse hybrid if it is transparent for the purposes of the tax law of the country in which it is formed, but non ‑ transparent for the purposes of the tax law of the country in which investors in it are subject to tax (resulting in non ‑ inclusion). A reverse hybrid mismatch that is not neutralised by this Subdivision (or by foreign hybrid mismatch rules) is an offshore hybrid mismatch, which might give rise to an imported hybrid mismatch under Subdivision 832 ‑ H. Table of sections Operative provisions 832 ‑ 380 Deduction not allowable—Australian primary response 832 ‑ 385 Exception where entity not a party to the structured arrangement 832 ‑ 390 When a reverse hybrid mismatch is an offshore hybrid mismatch 832 ‑ 395 When a payment gives rise to a reverse hybrid mismatch 832 ‑ 400 Hybrid mismatch 832 ‑ 405 Hybrid requirement—assume payment was made to an investor 832 ‑ 410 Reverse hybrid

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-380 — Deduction not allowable—Australian primary response

(1) This section applies to an entity if: (a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and (b) the deduction is the * deduction component of a * reverse hybrid mismatch to which the payment gives rise. (2) So much of the deduction as does not exceed the amount of the * reverse hybrid mismatch is not allowable as a deduction.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-385 — Exception where entity not a party to the structured arrangement

Section 832 ‑ 380 does not apply to an entity in respect of a payment if: (a) the payment is made under a * structured arrangement to which the entity is not a * party; and (b) subsection 832 ‑ 395(3) does not apply.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-390 — When a reverse hybrid mismatch is an offshore hybrid mismatch

(1) A * reverse hybrid mismatch is an offshore hybrid mismatch if: (a) the * deduction component of the mismatch is a * foreign income tax deduction; and (b) the country in which the foreign income tax deduction arose does not have * foreign hybrid mismatch rules that correspond to this Subdivision. Note: An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832 ‑ H. (2) The amount of the * offshore hybrid mismatch is the amount of the * reverse hybrid mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-395 — When a payment gives rise to a reverse hybrid mismatch

(1) A payment gives rise to a reverse hybrid mismatch if: (a) the payment gives rise to a * hybrid mismatch under section 832 ‑ 400; and (b) subsection (3) or (4) applies. (2) The deduction component of the * reverse hybrid mismatch is the * deduction component of the * deduction/non ‑ inclusion mismatch mentioned in section 832 ‑ 400. Control group (3) This subsection applies if the following entities are in the same * Division 832 control group: (a) the entity that made the payment; (b) the * reverse hybrid; (c) each entity that is an investor identified in paragraph 832 ‑ 410(2)(c) in relation to the reverse hybrid. Note: For the meaning of Division 832 control group , see section 832 ‑ 205. Structured arrangement (4) This subsection applies if the payment is made under a * structured arrangement. Note: For the meaning of structured arrangement , see section 832 ‑ 210.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-400 — Hybrid mismatch

(1) A payment gives rise to a hybrid mismatch if: (a) the payment gives rise to a * deduction/non ‑ inclusion mismatch; and (b) the payment meets the hybrid requirement in section 832 ‑ 405. Amount of the hybrid mismatch (2) The amount of the * hybrid mismatch is the lesser of: (a) the amount of the * deduction/non ‑ inclusion mismatch; and (b) if there is an excess under either subparagraph 832 ‑ 405(2)(b)(i) or (3)(b)(i)—the amount of the excess. Ordering rule (3) A payment does not give rise to a hybrid mismatch under this section if it gives rise to a * hybrid financial instrument mismatch or a * hybrid payer mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-405 — Hybrid requirement—assume payment was made to an investor

(1) The payment meets the hybrid requirement in this section if: (a) the payment is made directly, or indirectly through one or more interposed entities, to a * reverse hybrid; and (b) subsection (2) or (3) applies. Payment would have been taxed in Australia (2) This subsection applies if: (a) the investor country identified in subsection 832 ‑ 410(3) is Australia; and (b) either: (i) the amount of the * deduction/non ‑ inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was * subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or (ii) on the assumption in subsection (4), the payment would have given rise to a * hybrid financial instrument mismatch, a * hybrid payer mismatch or a * reverse hybrid mismatch. Payment would have been taxed in a foreign country (3) This subsection applies if: (a) the investor country identified in subsection 832 ‑ 410(3) is a foreign country; and (b) either: (i) the amount of the * deduction/non ‑ inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was * subject to foreign income tax for a * foreign tax period was instead worked out on the assumption in subsection (4); or (ii) on the assumption in subsection (4), the payment would have given rise to a * hybrid financial instrument mismatch, a * hybrid payer mismatch or a * reverse hybrid mismatch. Assumption—payment was made to the investing taxpayer (4) For the purposes of subsections (2) and (3), assume that the payment had instead been made: (a) by the same entity; but (b) directly to the investing taxpayer identified in paragraph 832 ‑ 410(3)(a) or (b).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-410 — Reverse hybrid

(1) An entity (the test entity ) is a reverse hybrid in relation to a payment made to it if: (a) subsection (2) applies to the entity in relation to a country and the payment; and (b) subsection (3) applies to the entity in relation to a different country and the payment. Note: The entity, the payments it makes, and its income or profits are generally identified disregarding tax provisions: see section 832 ‑ 30. Formation country—entity is transparent and payment is not within the tax base (2) This subsection applies to a test entity in relation to a country (the formation country ) and a payment made to the entity if: (a) the test entity is formed in the formation country; and (b) for the formation country, the test entity is: (i) not a * liable entity; and (ii) for Australia—not a * member of a * consolidated group or * MEC group; and (c) for the formation country, another entity (an investor ) is a liable entity in respect of income or profits of the test entity. Note: For the meaning of liable entity , see section 832 ‑ 325. Investor country—entity is not transparent (3) This subsection applies to a test entity in relation to a country (the investor country ) and a payment made to the entity if, in the investor country: (a) an investor identified in paragraph (2)(c) is a * liable entity (an investing taxpayer ) in respect of its own income or profits, but not in respect of the test entity’s income or profits; or (b) an entity that is a liable entity (also an investing taxpayer ) in respect of the investor’s income or profits is not also a liable entity in respect of the test entity’s income or profits.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-450 — What this Subdivision is about

This Subdivision neutralises a branch hybrid mismatch if it involves a deduction in Australia (and the non ‑ inclusion was not also in Australia). A deduction/non ‑ inclusion mismatch is a branch hybrid mismatch if it is made directly or indirectly to a branch hybrid, and the mismatch would not have arisen, or would have been less, if the residence country had not recognised the permanent establishment. An entity is a branch hybrid in relation to a payment made to it if, for the purposes of the tax law of the country in which it is a resident, the payment is treated as being allocated to a permanent establishment in another country, but in the other country, the payment is treated as not being allocated to a permanent establishment in that country. A branch hybrid mismatch that is not neutralised by this Subdivision (or by foreign hybrid mismatch rules) is an offshore hybrid mismatch, which might give rise to an imported hybrid mismatch under Subdivision 832 ‑ H. Table of sections Operative provisions 832 ‑ 455 Deduction not allowable 832 ‑ 460 Exception where entity not a party to the structured arrangement 832 ‑ 465 When a branch hybrid mismatch is an offshore hybrid mismatch 832 ‑ 470 Branch hybrid mismatch 832 ‑ 475 Hybrid mismatch 832 ‑ 480 Hybrid requirement—payment made directly or indirectly to a branch hybrid 832 ‑ 485 Branch hybrid

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-455 — Deduction not allowable

(1) This section applies to an entity if: (a) apart from this section, the entity would be entitled to a deduction in an income year in respect of a payment; and (b) the deduction is the * deduction component of a * branch hybrid mismatch to which the payment gives rise. (2) So much of the deduction as does not exceed the amount of the * branch hybrid mismatch is not allowable as a deduction. (3) However, this section does not apply in relation to the * branch hybrid mismatch if subsection 23AH(2) of the Income Tax Assessment Act 1936 does not apply in relation to the payment because of subsection (4A) of that section.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-460 — Exception where entity not a party to the structured arrangement

Section 832 ‑ 455 does not apply to an entity in respect of a payment if: (a) the payment is made under a * structured arrangement to which the entity is not a * party; and (b) subsection 832 ‑ 470(3) does not apply.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-465 — When a branch hybrid mismatch is an offshore hybrid mismatch

(1) A * branch hybrid mismatch is an offshore hybrid mismatch if: (a) the * deduction component of the mismatch is a * foreign income tax deduction; and (b) the country in which the foreign income tax deduction arose does not have * foreign hybrid mismatch rules that correspond to this Subdivision; and (c) subsection 23AH(4A) of the Income Tax Assessment Act 1936 does not apply in relation to the branch hybrid mismatch. Note: An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832 ‑ H. (2) The amount of the * offshore hybrid mismatch is the amount of the * branch hybrid mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-470 — Branch hybrid mismatch

(1) A payment gives rise to a branch hybrid mismatch if: (a) the payment gives rise to a * hybrid mismatch under section 832 ‑ 475; and (b) subsection (3) or (4) applies. (2) The deduction component of the * branch hybrid mismatch is the * deduction component of the * deduction/non ‑ inclusion mismatch mentioned in section 832 ‑ 475. Control group (3) This subsection applies if the following entities are in the same * Division 832 control group: (a) the entity that made the payment; (b) the * branch hybrid. Note: For the meaning of Division 832 control group , see section 832 ‑ 205. Structured arrangement (4) This subsection applies if the payment is made under a * structured arrangement. Note: For the meaning of structured arrangement , see section 832 ‑ 210.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-475 — Hybrid mismatch

(1) A payment gives rise to a hybrid mismatch if: (a) the payment gives rise to a * deduction/non ‑ inclusion mismatch; and (b) the mismatch, or a part of the mismatch, meets the hybrid requirement in section 832 ‑ 480. Amount of the hybrid mismatch (2) The amount of the * hybrid mismatch is the lesser of: (a) the amount of the * deduction/non ‑ inclusion mismatch; and (b) if there is an excess under either subparagraph 832 ‑ 480(2)(b)(i) or (3)(b)(i)—the amount of the excess. Ordering rule (3) A payment does not give rise to a hybrid mismatch under this section if it gives rise to a * hybrid financial instrument mismatch, a * hybrid payer mismatch or a * reverse hybrid mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-480 — Hybrid requirement—payment made directly or indirectly to a branch hybrid

(1) The payment meets the hybrid requirement in this section if: (a) the payment is made directly, or indirectly through one or more interposed entities, to a * branch hybrid; and (b) subsection (2) or (3) applies. Payment would have been taxed in Australia (2) This subsection applies if: (a) the residence country identified in subsection 832 ‑ 485(2) is Australia; and (b) either: (i) the amount of the * deduction/non ‑ inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was * subject to Australian income tax for an income year was instead worked out on the assumption in subsection (4); or (ii) on the assumption in subsection (4), the payment would have given rise to a * hybrid financial instrument mismatch or a * hybrid payer mismatch. Payment would have been taxed in a foreign country (3) This subsection applies if: (a) the residence country identified in subsection 832 ‑ 485(2) is a foreign country; and (b) either: (i) the amount of the * deduction/non ‑ inclusion mismatch exceeds the amount that would be the amount of that mismatch if the amount of the payment that was * subject to foreign income tax for a * foreign tax period was instead worked out on the assumption in subsection (4); or (ii) on the assumption in subsection (4), the payment would have given rise to a * hybrid financial instrument mismatch or a * hybrid payer mismatch. Assumption—residence country treated payment as non ‑ branch income (4) For the purposes of subsections (2) and (3), assume that the payment was instead treated as income derived by the * liable entity but not in carrying on a business at or through a * PE in another country for the purposes of: (a) if the residence country is Australia—this Act; or (b) if the residence country is a foreign country—the law of the residence country relating to * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-485 — Branch hybrid

(1) An entity is a branch hybrid , in relation to a payment made to the entity, if: (a) subsection (2) applies to the entity in relation to a country and a payment; and (b) subsection (4) applies to the entity in relation to the payment. Residence country applies branch profits exemption (2) This subsection applies to an entity in relation to a country (the residence country ) and a payment made to the entity if, for that country: (a) the entity satisfies the residency test in subsection 832 ‑ 555(9) and is a * liable entity in respect of its own income or profits; and (b) the payment is treated as income derived by the liable entity in carrying on a business at or through a * PE in another country; and (c) as a result of an exemption or other tax concession to which that liable entity is entitled in respect of income derived in carrying on a business at or through the PE, the payment is not: (i) if the residence country is Australia— * subject to Australian income tax; or (ii) if the residence country is a foreign country— * subject to foreign income tax in that foreign country. Note: For the meaning of liable entity , see section 832 ‑ 325. (3) In determining whether subparagraph (2)(c)(i) is satisfied, disregard the effect of subsection 23AH(4A) of the Income Tax Assessment Act 1936 . Branch country fails to tax payment (4) This subsection applies to an entity in relation to the other country mentioned in paragraph (2)(b) (the branch country ) and a payment made to the entity if: (a) the payment is treated as not having been derived in carrying on a business at or through a * PE of the entity, or as otherwise not having a sufficient connection to a taxable presence in the branch country, for the purposes of: (i) if the branch country is Australia—this Act; or (ii) if the branch country is a foreign country—the law of the branch country relating to * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)); and (b) as a result, the payment is not: (i) if the branch country is Australia— * subject to Australian income tax; or (ii) if the branch country is a foreign country— * subject to foreign income tax in that foreign country. Modified meaning of permanent establishment (5) Subsection (6) applies if: (a) the residence country has entered into, with the branch country: (i) if either the residence country or the branch country is Australia—an * international tax agreement; or (ii) if subparagraph (i) does not apply—a treaty or other agreement relating to the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital; and (b) the agreement or treaty (as the case requires) contains: (i) if either the residence country or the branch country is Australia—a * permanent establishment article; or (ii) if subparagraph (i) does not apply—a provision corresponding to a permanent establishment article. (6) A reference in this section to a * PE in a country is taken to be a reference to a permanent establishment within the meaning of the relevant agreement or treaty in the country.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-525 — What this Subdivision is about

This Subdivision neutralises a deducting hybrid mismatch if it involves a deduction in Australia. A deduction/deduction mismatch is generally a deducting hybrid mismatch. An entity is a deducting hybrid if a payment it makes is deductible for the purposes of the tax law of 2 countries. However, unless the deducting hybrid is a dual resident, there are rules identifying which country is the primary response country. If Australia is not the primary response country, this Subdivision will not neutralise the deducting hybrid mismatch unless: (a) the primary response country does not have hybrid mismatch rules; and (b) the relevant parties are in the same control group, or the mismatch arose under a structured arrangement. The neutralising amount for the deducting hybrid mismatch is reduced by dual inclusion income. A deducting hybrid mismatch that is not neutralised by this Subdivision (or by foreign hybrid mismatch rules) is an offshore hybrid mismatch, which might give rise to an imported hybrid mismatch under Subdivision 832 ‑ H. Table of sections Operative provisions 832 ‑ 530 Deduction not allowable 832 ‑ 535 Additional requirements for secondary response 832 ‑ 540 When a deducting hybrid mismatch is an offshore hybrid mismatch 832 ‑ 545 When an amount gives rise to a deducting hybrid mismatch 832 ‑ 550 Deducting hybrid 832 ‑ 555 Identifying a secondary response country 832 ‑ 560 Neutralising amount 832 ‑ 565 Adjustment if deducting hybrid has dual inclusion income in a later year

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-530 — Deduction not allowable

(1) This section applies to an entity if: (a) apart from this section, the entity would be entitled to a deduction in an income year; and (b) the deduction is a * deduction component of a * deducting hybrid mismatch. (2) So much of the deduction as does not exceed the * neutralising amount for the * deducting hybrid mismatch is not allowable as a deduction. Note: The neutralising amount is worked out under section 832 ‑ 560.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-535 — Additional requirements for secondary response

(1) However, if there is a secondary response country in relation to the * deducting hybrid mismatch (see section 832 ‑ 555), and that country is Australia, section 832 ‑ 530 does not apply in relation to the * deducting hybrid mismatch unless: (a) the secondary response is required (see subsection (2)); and (b) subsection (3) or (4) applies. When secondary response is required (2) For the purposes of paragraph (1)(a), the secondary response is required unless: (a) a * liable entity in respect of the income or profits of the * deducting hybrid satisfies the residency test in subsection 832 ‑ 555(9) in the primary response country; and (b) in the primary response country, the mismatch is covered by * foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision. Control group (3) This subsection applies if the following entities are in the same * Division 832 control group: (a) the * deducting hybrid; (b) if one or more entities other than the deducting hybrid is a * liable entity in respect of the income or profits of the deducting hybrid in a deducting country—each such liable entity. Note: For the meaning of Division 832 control group , see section 832 ‑ 205. Structured arrangement (4) This subsection applies if the payment is made under a * structured arrangement. Note 1: For the meaning of structured arrangement , see section 832 ‑ 210. Note 2: If the deduction is a non ‑ payment deduction, see also subsection 832 ‑ 110(5).

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-540 — When a deducting hybrid mismatch is an offshore hybrid mismatch

(1) A * deducting hybrid mismatch is an offshore hybrid mismatch if: (a) the only * deduction components of the mismatch are * foreign income tax deductions; and (b) the mismatch is not covered by * foreign hybrid mismatch rules that correspond to this Subdivision, or by a law that has substantially the same effect as foreign hybrid mismatch rules that correspond to this Subdivision, in any country in which a foreign income tax deduction arose. Note: An offshore hybrid mismatch might give rise to an imported hybrid mismatch: see Subdivision 832 ‑ H. (2) The amount of the * offshore hybrid mismatch is the * neutralising amount for the * deducting hybrid mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-545 — When an amount gives rise to a deducting hybrid mismatch

(1) A payment or other amount gives rise to a deducting hybrid mismatch if there is a * deducting hybrid in relation to the payment or other amount. (2) Each * deduction component of the * deduction/deduction mismatch mentioned in paragraph 832 ‑ 550(a) is a deduction component of the * deducting hybrid mismatch. (3) A * deducting hybrid mismatch is also a hybrid mismatch . Ordering rule (4) However, a payment does not give rise to a deducting hybrid mismatch if it gives rise to a * hybrid financial instrument mismatch, a * hybrid payer mismatch, a * reverse hybrid mismatch or a * branch hybrid mismatch.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-550 — Deducting hybrid

An entity is a deducting hybrid in relation to a payment or other amount if: (a) the payment or other amount gives rise to a * deduction/deduction mismatch; and (b) the entity is: (i) for a payment—the entity that makes the payment; or (ii) for an amount that represents the decline in value of a depreciating asset (see paragraph 832 ‑ 110(4)(a))—the entity that holds the asset; or (iii) for an amount that represents a share in the net loss of a partnership or other transparent entity (see paragraph 832 ‑ 110(4)(b))—an entity that has an interest in the partnership or other transparent entity; and (c) the entity: (i) is a * liable entity in one deducting country (but not both); or (ii) satisfies the residency test in subsection 832 ‑ 555(9) in both deducting countries, and is also a liable entity in both deducting countries; or (iii) is a * member of a * consolidated group or a * MEC group.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-555 — Identifying a secondary response country

(1) This section applies if an amount gives rise to a * deducting hybrid mismatch, other than a deducting hybrid mismatch covered by subsection (2). Dual residents—no secondary response (2) This subsection covers a * deducting hybrid mismatch if: (a) the only * liable entity in respect of income or profits of the * deducting hybrid is the deducting hybrid; and (b) the liable entity satisfies the residency test in subsection (9) in both deducting countries. Note 1: For the meaning of liable entity , see section 832 ‑ 325. Note 2: If the deducting hybrid is a dual resident, the mismatch may be neutralised by any country. Country is a primary response country unless this section provides otherwise (3) A country in which the amount gives rise to a deduction or * foreign income tax deduction (a deducting country ) is a primary response country in relation to the * deducting hybrid mismatch unless the country is identified as the secondary response country under subsection (4), (5), (6), (7) or (8). Both countries recognise the same liable entity—residence country is secondary response (4) If: (a) the * deducting hybrid is itself the * liable entity in each deducting country; and (b) in one deducting country, the deducting hybrid does not satisfy the residency test in subsection (9); and (c) in the other deducting country, the deducting hybrid does satisfy the residency test; then the country mentioned in paragraph (b) is the secondary response country. (5) If: (a) in both deducting countries, the same entity is the * liable entity in respect of the income or profits of the * deducting hybrid; and (b) in one deducting country, the liable entity does not satisfy the residency test in subsection (9); and (c) in the other deducting country, the liable entity does satisfy the residency test; then the country mentioned in paragraph (b) is the secondary response country. Countries recognise different liable entities—non ‑ parent country is secondary response (6) If: (a) the * liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and (b) in one deducting country, the * deducting hybrid is the liable entity; then the country mentioned in paragraph (b) is the secondary response country. (7) If: (a) the * liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and (b) the * deducting hybrid is not the liable entity in either country; and (c) in one deducting country, the entity that is a liable entity is also a liable entity in respect of the income or profits of the entity that is the liable entity in the other deducting country; then the country mentioned second in paragraph (c) is the secondary response country. (8) If: (a) the * liable entity for one deducting country is a different entity to the entity that is the liable entity for the other deducting country; and (b) subsections (6) and (7) do not apply; and (c) in one deducting country, the deducting hybrid and the liable entity both satisfy the residency test in subsection (9); then the country mentioned in paragraph (c) is the secondary response country. Residency test (9) An entity satisfies the residency test in this subsection in relation to a country, if: (a) if the country is Australia—the entity is an * Australian entity; or (b) if the country is a foreign country: (i) the entity is a resident of the foreign country for the purposes of the law of the foreign country relating to * foreign income tax (except a tax covered by subsection 832 ‑ 130(7)); or (ii) the tax base of the entity, as it relates to foreign income tax (except a tax covered by subsection 832 ‑ 130(7)), includes income from worldwide sources.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-560 — Neutralising amount

(1) The neutralising amount for a * deducting hybrid mismatch is worked out by: (a) starting with the lesser of the amounts of each deduction or * foreign income tax deduction to which the amount gives rise; and (b) reducing (but not below nil) the result from paragraph (a) by the amount of any * dual inclusion income that is available to be applied in working out the neutralising amount. Australian deduction—inclusions must be in Australia and in the other deducting country (2) An amount of * dual inclusion income is available to be applied to reduce the * neutralising amount for a * deducting hybrid mismatch to which section 832 ‑ 530 applies if: (a) the * deducting hybrid is eligible to apply the amount (see subsection 832 ‑ 680(7)); and (b) the amount is * subject to Australian income tax for the purposes of subsection 832 ‑ 680(1) in the income year mentioned in subsection 832 ‑ 530(1); and (c) the amount is * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the foreign country in which the * foreign income tax deduction arose. Note: Section 832 ‑ 680 modifies the meanings of subject to Australian income tax and subject to foreign income tax for the purpose of working out dual inclusion income. Offshore hybrid mismatch—inclusions must be in the deducting countries (3) An amount of * dual inclusion income is available to be applied to reduce the * neutralising amount for a * deducting hybrid mismatch that is an * offshore hybrid mismatch if: (a) the * deducting hybrid is eligible to apply the amount (see subsection 832 ‑ 680(7)); and (b) the amount is * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the foreign country in which one of the * foreign income tax deductions arose, and in the same * foreign tax period; and (c) the amount is also subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the foreign country in which another of the foreign income tax deductions arose.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-565 — Adjustment if deducting hybrid has dual inclusion income in a later year

(1) There is an adjustment under this section for an entity in an income year (the adjustment year ) if: (a) in an earlier income year, all or part of a deduction of the entity in respect of an amount that gave rise to a * deducting hybrid mismatch was not allowable under section 832 ‑ 530; and (b) an amount of * dual inclusion income is: (i) available to be applied by the * deducting hybrid in the adjustment year; and (ii) * subject to Australian income tax for the purposes of subsection 832 ‑ 680(1) in the adjustment year; and (iii) * subject to foreign income tax for the purposes of subsection 832 ‑ 680(1) in the foreign country in which the * foreign income tax deduction arose. (2) So much of the amount of * dual inclusion income that satisfies paragraph (1)(b) as does not exceed the amount that was not allowable as a deduction is an amount the entity can deduct in the adjustment year. (2A) Subsection (2) does not apply if: (a) the amount that was not allowable as a deduction under section 832 ‑ 530 relates to a payment; and (b) on the assumption that subsection 832 ‑ 530(2) were disregarded, no amount would have been allowable as a deduction in respect of the payment because of subsection 832 ‑ 725(3). (3) For the purposes of a later application of this section, treat the amount that was not allowable as a deduction under section 832 ‑ 530 as being reduced by the amount deducted under subsection (2) of this section.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1) | Amended by No 79 of 2020, effective Sch 1, 3 and 5: 1 Oct 2020 (s 2(1) items 2, 4)

s 832-605 — What this Subdivision is about

This Subdivision neutralises an imported hybrid mismatch. This mismatch is an integrity rule that applies when one or more entities are interposed between a hybrid mismatch and a country that has hybrid mismatch rules. Identifying an imported hybrid mismatch involves testing whether a hybrid mismatch involving 2 foreign countries has been “imported” into Australia by a deduction. If so, there are priority rules that allocate the neutralisation of the mismatch between countries that have hybrid mismatch rules. Table of sections Operative provisions 832 ‑ 610 Deduction not allowable 832 ‑ 615 When a payment gives rise to an imported hybrid mismatch 832 ‑ 620 Hybrid mismatch 832 ‑ 625 Meaning of importing payment 832 ‑ 630 Working out the amount of the imported hybrid mismatch 832 ‑ 635 Carry forward of residual offshore hybrid mismatches

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-610 — Deduction not allowable

(1) This section applies in relation to an * imported hybrid mismatch if, apart from this section, an entity would be entitled to a deduction in an income year in respect of a payment that gives rise to the imported hybrid mismatch. (2) So much of the deduction as does not exceed the amount of the * imported hybrid mismatch is not allowable as a deduction. Note: The amount of the imported hybrid mismatch is worked out under section 832 ‑ 630.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-615 — When a payment gives rise to an imported hybrid mismatch

(1) A payment gives rise to an imported hybrid mismatch if: (a) the payment gives rise to a * hybrid mismatch under section 832 ‑ 620; and (b) an item in the table in subsection (2) applies to the importing payment. Note: The amount of the imported hybrid mismatch is worked out under section 832 ‑ 630. Priority rules for importing payments (2) If more than one item in the following table covers an * importing payment in relation to an * offshore hybrid mismatch, apply the first item that covers it. However, an item does not apply to an importing payment if: (a) an item higher in the table applies to one or more other importing payments in relation to the offshore hybrid mismatch; and (b) the offshore hybrid mismatch is, or will be, fully neutralised by the application of this Subdivision, and equivalent provisions of applicable * foreign hybrid mismatch rules, to those other importing payments. Priority table for importing payments Item Topic An * importing payment is covered if: 1 Structured arrangement (a) the * importing payment is made under a * structured arrangement; and (b) the payer of the importing payment, the offshore deducting entity mentioned in paragraph 832 ‑ 625(1)(c), and each interposed entity (if applicable) are all * parties to the structured arrangement 2 Direct payment (a) the * importing payment is made directly to the offshore deducting entity mentioned in paragraph 832 ‑ 625(1)(c); and (b) the payer of the importing payment and the offshore deducting entity are in the same * Division 832 control group 3 Indirect payment (a) the * importing payment is made indirectly through one or more interposed entities to the offshore deducting entity mentioned in paragraph 832 ‑ 625(1)(c); and (b) the payer of the importing payment, the offshore deducting entity, and each interposed entity are in the same * Division 832 control group Note 1: For the meaning of structured arrangement , see section 832 ‑ 210. Note 2: For the meaning of Division 832 control group , see section 832 ‑ 205.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)

s 832-620 — Hybrid mismatch

(1) A payment gives rise to a hybrid mismatch if the payment is an * importing payment in relation to an * offshore hybrid mismatch. Note: For the meaning of offshore hybrid mismatch see sections 832 ‑ 195, 832 ‑ 300, 832 ‑ 390, 832 ‑ 465, and 832 ‑ 540. Ordering rule (2) A payment does not give rise to a hybrid mismatch under this section if it gives rise to a * hybrid financial instrument mismatch, a * hybrid payer mismatch, a * reverse hybrid mismatch, a * branch hybrid mismatch or a * deducting hybrid mismatch. Note: However, for an imported hybrid mismatch to arise, a different payment must have given rise to an offshore hybrid mismatch that is of one of these kinds.

Amendment history: Inserted by No 84 of 2018, effective Sch 1 (items 1, 8–13, 15), Sch 2 (items 1–3, 6–10), Sch 3, Sch 4 (items 2–4) and Sch 5: 1 Oct 2018 (s 2(1) item 1)