Income Tax Assessment Act 1936

s 109P — Amalgamated loans not treated as dividends in the year they are made

A private company is not taken under section 109D to pay a dividend because of an amalgamated loan it makes. Note: A shortfall in a minimum yearly repayment of an amalgamated loan may be treated as a dividend under section 109E.

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 79 of 2007, Sch 1 item 11, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5)

s 109Q — Commissioner may allow amalgamated loan not to be treated as dividend

(1) A private company is not taken under section 109E to pay a dividend at the end of one of its years of income (the current year ) because of an amalgamated loan to an entity if: (a) the amount paid to the private company by the entity in the current year in relation to the loan is less than the minimum yearly repayment of the loan for the current year worked out under subsection 109E(5); and (b) the entity satisfies the Commissioner that: (i) that amount was less than the minimum yearly repayment because of circumstances beyond the entity’s control; and (ii) the entity would suffer undue hardship if the private company were taken under section 109E to pay a dividend to the entity at the end of the current year because of the loan. (2) In deciding whether he or she is satisfied, the Commissioner must consider: (a) the entity’s capacity, at the end of the year of income in which the amalgamated loan was made, to repay the loan; and (b) any circumstances that have reduced the entity’s capacity to repay the loan; and (c) whether the entity took all reasonable steps to make payments relating to the amalgamated loan during the current year equal to the minimum yearly repayment of the loan for the current year; and (d) whether the entity has made payments relating to the loan as soon as possible after the current year equalling the difference between: (i) the minimum yearly repayment for the current year; and (ii) the amount of payments made during the current year relating to the loan.

Amendment history: Inserted by No 47 of 1998, Sch 8 item 109E | Sch 8 item 109H, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1))

s 109R — Some payments relating to loans not taken into account

(1) This section provides for some payments to a private company in relation to a loan the private company made to an entity not to be taken into account for the purpose of working out: (a) how much of the loan has been repaid for the purposes of sections 109D and 109E (which treat amounts of loans that have not been repaid as dividends); or (b) the minimum yearly repayment for the loan under subsection 109E(5). (2) A payment must not be taken into account if: (a) a reasonable person would conclude (having regard to all the circumstances) that, when the payment was made, the entity intended to obtain a loan or loans from the private company of a total amount similar to, or larger than, the payment; or (b) both of the following subparagraphs apply: (i) the entity obtained, before the payment was made, a loan or loans from the private company of a total amount similar to, or larger than, the amount of the payment; (ii) a reasonable person would conclude (having regard to all the circumstances) that the entity obtained the loan or loans in order to make the payment. (3) Subsection (2) does not apply to a payment made by setting off against an amount payable in relation to the loan: (a) a dividend payable by the private company to the entity; or (b) work and income support related withholding payments and benefits payable by the private company to the entity; or (ba) payments covered by section 12 ‑ 55 in Schedule 1 to the Taxation Administration Act 1953 ; or (c) if the entity has transferred property to the private company—an amount equalling the difference between: (i) the amount that a party at arm’s length from the entity would have paid for the transfer of the property to the party; and (ii) the amount that the private company has already paid the entity (by way of set ‑ off or otherwise) for the transfer. (4) Nor does subsection (2) apply to a payment made on behalf of the entity (the borrower ) by another entity paying to the private company an amount that: (a) is payable by the other entity to the borrower; and (b) is assessable income of the borrower for the year of income in which the payment was made or an earlier year of income. (5) Subsection (2) does not apply to a payment if: (a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan ); and (b) the entity to which the old loan was made has another loan (the primary loan) from another entity; and (c) the old loan becomes subordinated to the primary loan; and (d) the refinancing of the old loan mentioned in paragraph (a) took place in connection with that subordination; and (e) that subordination arose as a result of circumstances beyond the control of the entity to which the old loan was made; and (f) the entity to which the old loan was made and the other entity dealt with each other at arm’s length in relation to that subordination; and (g) the private company and the other entity dealt with each other at arm’s length in relation to that subordination. (6) Subsection (2) does not apply to a payment if: (a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan ); and (b) the refinancing results in another loan (the new loan ); and (c) the maximum term of the old loan under subsection 109N(3) was 7 years; and (d) the maximum term of the new loan under subsection 109N(3) is 25 years (reduced in accordance with subsection 109N(3B)). (7) Subsection (2) does not apply to a payment if: (a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan ); and (b) the refinancing results in another loan (the new loan ); and (c) the maximum term of the old loan under subsection 109N(3) was 25 years; and (d) the maximum term of the new loan under subsection 109N(3) is: (i) unless subparagraph (ii) applies—7 years; or (ii) if subsection 109N(3D) applies—7 years reduced in accordance with that subsection.

Amendment history: Inserted by No 47 of 1998, Sch 8 item 109D | Sch 8 item 109E | Sch 8 item 109H, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 179 of 1999, Sch 18 item 24 | Sch 18 item 25, effective Sch 2 (items 20–47), Sch 3 (items 3–6), Sch 5 (item 74), Sch 6 (items 1–13, 24(1)–(4)), Sch 10 (items 22–24), Sch 11 (item 44), Sch 16 (items 3–17, 37) and Sch 17 (items 1, 2): 22 Dec 1999 (s 2(1), (4), (7)(b)–(d)) Sch 5 (items 1–64), Sch 11 (items 14–43, 45–79) and Sch 12 (item 3): 1 July 2000 (s 2(9), (12)) | Amended by No 79 of 2007, Sch 1 item 12, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5) | Amended by No 75 of 2010, Sch 1 item 15 | Sch 1 item 23, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109RA — Demerger dividends not treated as dividends

This Division does not apply to a demerger dividend to which section 45B does not apply.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 10, Sch 15 (items 16–18) and Sch 16 (items 2–20, 54, 55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5)

s 109RB — Commissioner may disregard operation of Division or allow dividend to be franked

(1) The Commissioner may make a decision under subsection (2) if: (a) this Division (disregarding this section) operates with the result that: (i) a private company is taken to pay a particular dividend to a particular entity (the recipient ) under this Division; or (ii) a particular amount is included, as if it were a dividend, in the assessable income of a particular entity (also the recipient ) in relation to a private company under Subdivision EA; and (b) the result mentioned in paragraph (a) arises because of an honest mistake or inadvertent omission by any of the following entities: (i) the recipient; (ii) the private company; (iii) any other entity whose conduct contributed to that result. (2) The Commissioner may decide in writing that: (a) the result mentioned in paragraph (1)(a) should be disregarded (see subsection (4)); or (b) the dividend mentioned in subparagraph (1)(a)(i) may be franked in accordance with Part 3 ‑ 6 of the Income Tax Assessment Act 1997 (see subsection (6)). (3) In making a decision under subsection (2) (or refusing to make such a decision), the Commissioner must have regard to the following: (a) the circumstances that led to the mistake or omission mentioned in paragraph (1)(b); (b) the extent to which any of the entities mentioned in paragraph (1)(b) have taken action to try to correct the mistake or omission and if so, how quickly that action was taken; (c) whether this Division has operated previously in relation to any of the entities mentioned in paragraph (1)(b), and if so, the circumstances in which this occurred; (d) any other matters that the Commissioner considers relevant. (4) The Commissioner may make a decision under subsection (2) subject to any of the following kinds of condition: (a) a condition that the recipient or another entity must make specified payments to the private company or another entity within a specified time; (b) a condition that a specified requirement in this Division must be met within a specified time. (5) This Division is taken not to operate with the result mentioned in paragraph (1)(a) if: (a) the Commissioner makes a decision under paragraph (2)(a); and (b) if the Commissioner makes the decision subject to a condition under subsection (4)—the condition is satisfied. (6) If the Commissioner makes a decision under paragraph (2)(b), subparagraph 202 ‑ 45(g)(i) of the Income Tax Assessment Act 1997 does not make the dividend mentioned in subparagraph (1)(a)(i) unfrankable. (7) Despite subsection 33(3A) of the Acts Interpretation Act 1901 , each decision made under subsection (2) must relate only to one amount that would (disregarding this section): (a) be taken to be a dividend paid by the private company; or (b) be included, as if it were a dividend, in the assessable income of an entity.

s 109RC — Dividend may be franked if taken to be paid because of family law obligation

(1) This section applies if a dividend is taken to be paid under this Division because of a family law obligation. (2) Subparagraph 202 ‑ 45(g)(i) of the Income Tax Assessment Act 1997 does not make the amount of the dividend unfrankable. (3) The dividend can be franked in accordance with Part 3 ‑ 6 of the Income Tax Assessment Act 1997 only if: (a) the dividend is franked at the private company’s benchmark franking percentage for the franking period in which the dividend is taken to be paid; or (b) if the private company does not have a benchmark franking percentage for the period—the dividend is franked at a franking percentage of 100%. (4) For the purposes of subsection (3), if the recipient of the dividend is not a member of the private company for the purposes of Part 3 ‑ 6 of the Income Tax Assessment Act 1997 , treat that recipient as such a member.

s 109RD — Commissioner may extend period for repayments of amalgamated loan

(1) The Commissioner may make a decision under subsection (2) if: (a) section 109E operates with the result that a private company is taken to pay a particular dividend to a particular entity (the recipient ); and (b) the shortfall mentioned in paragraph 109E(1)(c) arises because the recipient is unable to pay the private company the minimum yearly repayment mentioned in that paragraph because of circumstances beyond the recipient’s control. (2) The Commissioner may decide in writing that the result mentioned in paragraph (1)(a) should be disregarded (see subsection (4)) if the recipient pays the private company the amount of the shortfall within a specified time. (3) In making a decision under subsection (2) (or refusing to make such a decision), the Commissioner must have regard to the following: (a) the nature of the circumstances mentioned in paragraph (1)(b); (b) any other matters that the Commissioner considers relevant. (4) This Division is taken not to operate with the result mentioned in paragraph (1)(a) if: (a) the Commissioner makes a decision under subsection (2); and (b) the recipient pays the private company the amount of the shortfall within the specified time. (5) Despite subsection 33(3A) of the Acts Interpretation Act 1901 , each decision made under subsection (2) must relate only to one amount that would be taken to be a dividend paid by the private company (disregarding this section).

s 109S — Simplified outline of this Subdivision

The following is a simplified outline of this Subdivision: This Subdivision allows a private company to be taken under Subdivision B to pay a dividend to an entity (the target entity ) if an entity interposed between the private company and the target entity makes a payment or loan to the target entity under an arrangement involving the private company. This result is achieved by treating the private company as making a payment or loan of an amount determined by the Commissioner to the target entity (according to whether the interposed entity made a payment or loan to the target entity). (See sections 109V (for payments) and 109W (for loans).) The arrangement must involve the private company and one or more interposed entities in making payments or loans or giving loan guarantees for the purpose of the target entity receiving a payment or loan from an interposed entity. (See sections 109T, 109U and 109UA.) If the target entity repays a fraction of the loan made by the interposed entity, the target entity is treated as repaying the same fraction of the loan taken to have been made by the private company. (See subsection 109W(3).) Some provisions that prevent payments or loans from giving rise to dividends do not apply to payments or loans this Subdivision treats a private company as making. (See section 109X.)

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 95 of 2004, effective s 4, Sch 1, 8 and 9: 29 June 2004 (s 2(1) items 1, 2, 7) Sch 7 (items 11–13): 1 July 2004 (s 2(1) item 6)

s 109T — Payments and loans by a private company to an entity through one or more interposed entities

(1) This Division operates as if a private company makes a payment or loan to an entity (the target entity ) as described in section 109V or 109W if: (a) the private company makes a payment or loan to another entity (the first interposed entity ) that is interposed between the private company and the target entity; and (b) a reasonable person would conclude (having regard to all the circumstances) that the private company made the payment or loan solely or mainly as part of an arrangement involving a payment or loan to the target entity; and (c) either: (i) the first interposed entity makes a payment or loan to the target entity; or (ii) another entity interposed between the private company and the target entity makes a payment or loan to the target entity. This section operates regardless of certain factors (2) For the purposes of this section, it does not matter: (a) whether the interposed entity made the payment or loan to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the private company; or (b) whether or not the interposed entity paid or lent the target entity the same amount as the private company paid or lent the first interposed entity. This section does not operate if the payment or loan to the first interposed entity is treated as a dividend (3) This Division does not operate as described in subsection (1) (and sections 109V and 109W) if the private company is taken under Subdivision B (as it applies apart from this Subdivision) to pay a dividend as a result of the payment or loan to the first interposed entity.

s 109U — Payments and loans through interposed entities relying on guarantees

(1) This Division operates as if a private company makes a payment to an entity (the target entity ) as described in section 109V if: (a) during a year of income the private company guarantees a loan made by another entity (the first interposed entity ); and (b) a reasonable person would conclude (having regard to all the circumstances) that the private company gave the guarantee solely or mainly as part of an arrangement involving a payment or loan to the target entity; and (c) either: (i) the first interposed entity that is a private company makes a loan to the target entity; or (ii) another entity that is a private company interposed between the private company and the target entity makes a payment or loan to the target entity; and (d) the amount of the payment or the loan is greater than the amount worked out using the formula: (2) The amount of the payment from the private company to the target entity (as worked out under section 109V) is to be reduced by the amount worked out using the formula: (3) In the formulas in paragraph (1)(d) and subsection (2): distributable surplus means the distributable surplus (worked out under subsection 109Y(2)) for the interposed entity that made the payment or loan to the target entity for the year of income. subsection 109Y(3) amount means the total of any amounts calculated under subsection 109Y(3) in relation to that interposed entity for the year of income (apart from as a result of the operation of this section). This section operates regardless of certain factors (4) For the purposes of this section, it does not matter: (a) whether the interposed entity made the payment or loan to the target entity before, after or at the same time as the first interposed entity received the guarantee from the private company; or (b) whether or not the interposed entity paid or lent the target entity the same amount as the private company guaranteed.

s 109UA — Certain liabilities under guarantees treated as payments

(1) Section 109T operates as if one entity (the first entity ) makes a payment to a second entity if the first entity guarantees a loan the second entity makes to a third entity (the target entity ) and, as a result of the guarantee, the first entity has a liability (other than a contingent liability) to make a payment to the second entity. Example: A private company guarantees a loan that a bank makes to a shareholder in the private company and the shareholder defaults on the loan. As a result, the company has a presently existing liability to make a payment to the bank. Section 109T operates as if the private company had made a payment to the bank, so the company is treated by section 109V as making a payment to the shareholder (because the bank is interposed between company and shareholder). (2) The amount of the payment (as worked out under section 109V) is to be reduced by any amount treated as a dividend as a result of the operation of section 109U in relation to the payment or loan made by the interposed entity to the target entity. (3) A private company is not taken under this Division to pay a dividend because of the operation of subsection (1) in relation to a guarantee if the Commissioner is satisfied that: (a) the target entity would suffer undue hardship if the private company were taken to pay a dividend to the entity because of the liability; and (b) when the target entity entered into the loan, the entity had the capacity to pay the loan. (4) This section does not the limit the operation of section 109T. (5) Subsection (1) does not apply if: (a) as a result of the first entity’s liability mentioned in that subsection, the target entity has a liability (other than a contingent liability) to make a payment to the first entity; and (b) because of section 109N, the liability to make a payment to the first entity is not treated under this Division as giving rise to a dividend paid to the first entity.

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 79 of 2007, Sch 1 item 14, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5)

s 109V — Amount of private company’s payment to target entity through one or more interposed entities

Private company taken to pay if target entity is paid (1) If the target entity is paid an amount by the interposed entity, this Division operates as if the private company had paid the amount (if any) determined by the Commissioner to the target entity when the interposed entity paid the target entity. Determining the amount of the private company’s payment (2) In determining the amount of the payment the private company is taken to have made, the Commissioner must take account of: (a) the amount the interposed entity paid the target entity; and (b) how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by the private company or any of the interposed entities for anything (assuming that the consideration payable equals that for similar transactions at arm’s length).

s 109W — Private company’s loan to target entity through one or more interposed entities

Private company taken to lend if target entity receives loan (1) If the target entity is lent an amount by the interposed entity, this Division operates as if the private company had made a loan (the notional loan ) of the amount (if any) determined by the Commissioner to the target entity when the interposed entity made the loan to the target entity. Note: Subsection 109D(4) specifies the time at which a loan is made. How big is the notional loan? (2) In determining the amount of the notional loan, the Commissioner must take account of: (a) the amount the interposed entity lent the target entity; and (b) how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by the private company or any of the interposed entities for anything (assuming that the consideration payable equals that for similar transactions at arm’s length). Notional repayments of notional loan (3) When working out whether the private company is taken under section 109D to pay a dividend as a result of the notional loan, and the amount of any such dividend, assume that the target entity repays an amount of the notional loan equal to the amount worked out using the formula: where: amount actually lent to target entity is the amount the interposed entity lent to the target entity. repayment made by target entity to lender is the amount of any repayment made by the target entity of the loan the interposed entity made to the target entity.

s 109X — Operation of Subdivision D in relation to payment or loan

Payment or loan not affected by being made through interposed entity (1) Despite sections 109K and 109L, a private company may be taken under section 109C or 109D to pay a dividend as a result of this Subdivision treating the private company as making a payment or loan to an entity (the target entity ), even if: (a) the private company is treated that way because it makes a payment or loan to an entity that is a company interposed between the private company and the target entity; or (b) some or all of the amount paid or lent by a private company to an entity interposed between the private company and the target entity is included in the interposed entity’s assessable income for a year of income. (2) Subsections (3) and (4) apply if a notional loan arises under section 109W because an entity interposed between the private company and the target entity makes a loan (the actual loan ) to the target entity. (3) For the purposes of section 109N, treat the agreement under which the actual loan was made as the agreement under which the notional loan was made. (4) For the purposes of section 109E: (a) treat the notional loan as an amalgamated loan from the private company to the target entity; and (b) treat the amount of the notional loan worked out under subsection 109W(1) as the amount of the amalgamated loan; and (c) treat the agreement under which the actual loan was made as the agreement under which the amalgamated loan was made; and (d) treat repayments by the target entity of the amount of the notional loan worked out under subsection 109W(3) as payments by the target entity to the private company in relation to the amalgamated loan.

Amendment history: Inserted by No 47 of 1998, Sch 8 item 109S, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 79 of 2007, Sch 1 item 15, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5)

s 109XA — Payments, loans and debt forgiveness by a trustee in favour of a shareholder etc. of a private company with an unpaid present entitlement

Payments (1) Section 109XB applies if: (a) a trustee makes a payment (including a payment through an interposed entity as described in section 109XF) to a shareholder or an associate of a shareholder of a private company (except a shareholder or associate that is a company) (the actual transaction ); and (b) the payment is a discharge of or a reduction in a present entitlement of the shareholder or associate that is wholly or partly attributable to an amount that is an unrealised gain; and (c) either: (i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place; or (ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates. Note: For entitlements through interposed trusts, see section 109XI. Loan repayments (1A) Disregard paragraph (1)(b) if: (a) subsection (1) has previously applied because the trustee made a payment (the original transaction ) to the shareholder, or to an associate of the shareholder, during a previous year of income; and (b) the shareholder, or an associate of the shareholder, makes a loan or loans to the trustee on or after 1 July 2009; and (c) either: (i) a reasonable person would conclude (having regard to all the circumstances) that at the time the original transaction took place the shareholder, or an associate of the shareholder, intended to make the loan or loans to the trustee; or (ii) the shareholder, or an associate of the shareholder, made the loan or loans to the trustee before the time the original transaction took place and a reasonable person would conclude (having regard to all the circumstances) that the trustee obtained the loan or loans in order to make the payment; and (d) the actual transaction is applied to repay all or a part of the loan or loans. (1B) For the purposes of applying section 109XB in a case covered by subsections (1) and (1A) of this section, disregard section 109J (Payments discharging pecuniary obligations not treated as dividends). Loans (2) Section 109XB applies if: (a) a trustee makes a loan (including a loan through an interposed entity as described in section 109XG) to a shareholder or an associate of a shareholder of a private company (except a shareholder or associate that is a company) (the actual transaction ); and (b) either: (i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place; or (ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates. Note: For entitlements through interposed trusts, see section 109XI. Forgiven debts (3) Section 109XB applies if: (a) all or part of a debt owed to a trustee by a shareholder or an associate of a shareholder of a private company is forgiven (except where the shareholder or associate is a company) (the actual transaction ); and (b) either: (i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place; or (ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee’s return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates. Note: For entitlements through interposed trusts, see section 109XI. Amount involved in the actual transaction (4) The amount involved in the actual transaction is the lesser of: (a) the amount actually involved in the actual transaction; and (b) the amount worked out using the formula: where: previous transactions means the sum of: (a) the amounts that, because of previous applications of section 109UB (as in force before the commencement of this section) have been taken to be loans; and (b) the amounts that, because of previous applications of this Subdivision, have been included in an entity’s assessable income; in relation to the unpaid present entitlement. unpaid present entitlement means: (a) in a case mentioned in subparagraph (1)(c)(i), (2)(b)(i) or (3)(b)(i)—the amount of the present entitlement that remained unpaid on the earlier of the dates mentioned in that subparagraph; and (b) in a case mentioned in subparagraph (1)(c)(ii), (2)(b)(ii) or (3)(b)(ii)—the amount of the present entitlement that remained unpaid on the earlier of the dates mentioned in that subparagraph. The amount of the actual transaction where the entitlement is only partly attributable to an unrealised gain (5) For the purposes of subsection (4), where the actual transaction was a payment and that payment was only partly attributable to an amount that is an unrealised gain, the amount of the actual transaction is taken to be the amount of the payment that was attributable to the amount that is the unrealised gain. Creation of a present entitlement is not a payment (6) The creation of a present entitlement to the capital or income of a trust estate is not, of itself, a payment for the purposes of this Subdivision. Meaning of unrealised gain (7) In this section: unrealised gain , in relation to a trust estate and an actual payment, means any unrealised gain, whether of a capital or income nature, but does not include an unrealised gain to the extent that it has been or would be included in the assessable income of the trust, apart from this Division, for: (a) a year of income before the year in which the actual payment was made; or (b) the year of income in which the actual payment was made; or (c) the year of income following the year in which the actual payment was made.

Amendment history: Inserted by No 95 of 2004, effective s 4, Sch 1, 8 and 9: 29 June 2004 (s 2(1) items 1, 2, 7) Sch 7 (items 11–13): 1 July 2004 (s 2(1) item 6) | Amended by No 95 of 2004, effective s 4, Sch 1, 8 and 9: 29 June 2004 (s 2(1) items 1, 2, 7) Sch 7 (items 11–13): 1 July 2004 (s 2(1) item 6) | Amended by No 75 of 2010, Sch 1 item 16 | Sch 1 item 17 | Sch 1 item 18 | Sch 1 item 19 | Sch 1 item 20 | Sch 1 item 21 | Sch 1 item 24 | Sch 1 item 25 | Sch 1 item 31, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109XB — Amounts included in assessable income

(1) An amount is included, as if it were a dividend paid by the company at the end of the year of income of the company in which the actual transaction took place, in the assessable income of the shareholder or associate referred to in subsection 109XA(1), (2) or (3) if: (a) had the actual transaction been done by a private company (the notional company ); and (b) had the shareholder or associate been a shareholder of the notional company at the time the actual transaction took place; an amount (the Division 7A amount ) would have been included in the shareholder’s or associate’s assessable income because of a provision of this Division outside this Subdivision. (2) Subject to section 109Y, the amount that is included under subsection (1) is the Division 7A amount. Note: There are some modifications of this Division for the purposes of working out the Division 7A amount: see section 109XC.

Amendment history: Inserted by No 95 of 2004, effective s 4, Sch 1, 8 and 9: 29 June 2004 (s 2(1) items 1, 2, 7) Sch 7 (items 11–13): 1 July 2004 (s 2(1) item 6) | Amended by No 75 of 2010, Sch 1 item 18 | Sch 1 item 22 | Sch 1 item 24 | Sch 1 item 25 | Sch 1 item 28 | Sch 1 item 31, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109XC — Modifications

Modifications for this Subdivision only (1) The modifications in this section have effect for the purposes of the operation of this Subdivision. General modifications (2) This Division (but not this Subdivision) applies to an actual transaction done by a trustee of a trust estate with these modifications: (a) a reference (except in section 109Y) to an amount paid to a private company has effect as a reference to an amount paid to the trustee; and (b) a reference to a year of income of a private company has effect as a reference to the corresponding year of income of the trust estate; and (c) a reference to the ordinary course of a private company’s business has effect as a reference to the ordinary course of the trust estate’s business. Modified operation of section 109J (4) Section 109J does not apply to a payment to the extent that it is a discharge of or a reduction in a present entitlement. Modified operation of section 109R (6) For the purposes of applying section 109R to an actual transaction: (a) a reference in that section to obtaining a loan from a private company has effect as a reference to obtaining a loan from the trustee; and (b) a reference in that section to property transferred to a private company has effect as a reference to property transferred to the trustee; and (c) a reference in that section to an amount paid by a private company for a transfer of property has effect as a reference to an amount paid by the trustee for a transfer of property. Modified operation of section 109Y (7) Section 109Y applies to the Division 7A amount in this way: (a) assume that the private company referred to in subsection 109XA(1), (2) or (3) had been taken to have paid a dividend to the shareholder or associate referred to in that subsection equal to the Division 7A amount; and (b) assume that the dividend was taken to have been paid at the end of the year of income of the company in which the actual transaction took place; and (c) a reference in that section to a private company’s distributable surplus has effect as a reference to the distributable surplus of the private company referred to in paragraph (a). Certain provisions do not apply (8) Subsection 109D(1A), sections 109K, 109NA and 109NB and paragraph 109R(3)(a) do not apply to an actual transaction.

Amendment history: Inserted by No 95 of 2004, effective s 4, Sch 1, 8 and 9: 29 June 2004 (s 2(1) items 1, 2, 7) Sch 7 (items 11–13): 1 July 2004 (s 2(1) item 6) | Amended by No 41 of 2005, Sch 9 item 1, effective s 4, Sch 3 (items 1–16, 22), Sch 6 (items 1, 6–11), Sch 8, Sch 9 (items 3–13), Sch 10 (items 19–35, 270) and Sch 11 (items 1–3, 5): 1 Apr 2005 (s 2(1) items 1, 2, 4, 5, 23, 24) Sch 9 (items 1, 2): 29 June 2004 (s 2(1) item 3) | Amended by No 75 of 2010, Sch 1 item 23, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109XD — Forgiveness of loan debt does not give rise to assessable income if loan gives rise to assessable income

An amount is not included in the assessable income for a year of income of the shareholder or associate referred to in subsection 109XA(3) because of the forgiveness of an amount of a debt resulting from a loan if, because of the loan, an amount was included in the assessable income of the shareholder or associate under section 109XB (or former section 109UB) in that or an earlier year of income.

Amendment history: Inserted by No 75 of 2010, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109XE — Simplified outline of this Subdivision

The following is a simplified outline of this Subdivision: Payments and loans This Subdivision allows an amount to be included in an entity’s (the target entity’s ) assessable income under Subdivision EA if an entity interposed between a trustee and the target entity makes a payment or loan to the target entity under an arrangement involving the trustee. This result is achieved by treating the trustee as making a payment or loan of an amount determined by the Commissioner to the target entity. The arrangement must involve the trustee and one or more interposed entities in making payments or loans for the purpose of the target entity receiving a payment or loan from an interposed entity. If the target entity repays a fraction of the loan made by the interposed entity, the target entity is treated as repaying the same fraction of the loan taken to have been made by the trustee. Some provisions that prevent payments or loans from giving rise to assessable income do not apply to payments or loans this Subdivision treats a trustee as making. Present entitlements This Subdivision similarly allows an amount to be included in an entity’s assessable income under Subdivision EA if a private company is or becomes presently entitled to an amount from the net income of a trust estate interposed between the private company and another trust estate (the target trust ) under an arrangement involving the target trust.

s 109XF — Payments through interposed entities

(1) For the purposes of paragraphs 109XA(1)(a) and (1A)(a), a trustee is taken to have made a payment to a shareholder, or to an associate of a shareholder, (the target entity ) of a private company if: (a) the trustee makes a payment or loan to another entity (the first interposed entity ) that is interposed between: (i) the trustee; and (ii) the target entity; and (b) a reasonable person would conclude (having regard to all the circumstances) that the trustee made the payment or loan solely or mainly as part of an arrangement involving a payment to the target entity; and (c) either: (i) the first interposed entity makes a payment to the target entity; or (ii) another entity interposed between the trustee and the target entity makes a payment to the target entity. (2) For the purposes of this section, it does not matter: (a) whether the interposed entity made the payment to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the trustee; or (b) whether or not the interposed entity paid the target entity the same amount as the trustee paid or lent the first interposed entity. (3) Treat the reference in paragraph 109XA(1)(b) to a payment as being a reference to the payment to the target entity mentioned in paragraph (1)(c) of this section.

s 109XG — Loans through interposed entities

Loans by a trustee through interposed entities (1) For the purposes of paragraph 109XA(2)(a), a trustee is taken to have made a loan (the notional loan ) to a shareholder, or to an associate of a shareholder, (the target entity ) of a private company if: (a) the trustee makes a payment or loan to another entity (the first interposed entity ) that is interposed between: (i) the trustee; and (ii) the target entity; and (b) a reasonable person would conclude (having regard to all the circumstances) that the trustee made the payment or loan solely or mainly as part of an arrangement involving a loan to the target entity; and (c) either: (i) the first interposed entity makes a loan to the target entity; or (ii) another entity interposed between the trustee and the target entity makes a loan to the target entity. (2) For the purposes of this section, it does not matter: (a) whether the interposed entity made the loan to the target entity before, after or at the same time as the first interposed entity received the payment or loan from the trustee; or (b) whether or not the interposed entity lent the target entity the same amount as the trustee paid or lent the first interposed entity. Notional loans (3) When working out whether an amount is included in the assessable income of the target entity under section 109XB as a result of the notional loan under subsection (1) of this section, and the amount included in assessable income, assume that the target entity repays an amount of the notional loan equal to the amount worked out using the formula: where: amount actually lent to target entity is the amount the interposed entity lent to the target entity. repayment made by target entity to lender is the amount of any repayment made by the target entity of the loan the interposed entity made to the target entity. (4) For the purposes of section 109E (Amalgamated loan from a previous year treated as dividend if minimum repayment not made): (a) treat the notional loan as an amalgamated loan from the private company to the target entity; and (b) treat the amount of the notional loan worked out under section 109XH as the amount of the amalgamated loan; and (c) treat the agreement under which the actual loan was made as the agreement under which the amalgamated loan was made; and (d) treat repayments by the target entity of the amount of the notional loan worked out under subsection (3) of this section as payments by the target entity to the private company in relation to the amalgamated loan. (5) For the purposes of section 109N (about certain loans not being treated as dividends), treat the agreement under which the actual loan was made as the agreement under which the notional loan was made.

s 109XH — Amount and timing of payment or loan through interposed entities

Amount of payment or loan (1) The amount the trustee is taken under section 109XF or 109XG to have paid or lent the target entity is the amount (if any) determined by the Commissioner. (2) In determining the amount of the payment or loan, the Commissioner must take account of: (a) the amount the interposed entity paid or lent the target entity; and (b) how much (if any) of that amount the Commissioner believes represented consideration payable to the target entity by: (i) the trustee; or (ii) any of the interposed entities; for anything (assuming that the consideration payable equals that for similar transactions at arm’s length). (3) The total of the amounts determined under subsection (1) for payments and loans in relation to which section 109XB applies because of the same present entitlement mentioned in paragraph 109XA(1)(c), (2)(b) or (3)(b) must not exceed the unpaid present entitlement mentioned in subsection 109XA(4). Timing of payment or loan (4) The trustee is taken under section 109XF or 109XG to have made the payment or loan at the time the interposed entity made the payment or loan mentioned in paragraph 109XF(1)(c) or 109XG(1)(c) to the target entity.

s 109XI — Entitlements to trust income through interposed trusts

Entitlements through interposed trusts (1) For the purposes of paragraphs 109XA(1)(c), (2)(b) and (3)(b), a private company is taken to be or to become entitled to an amount from the net income of a trust estate (the target trust ) if: (a) the company is or becomes presently entitled to an amount from the net income of another trust estate (the first interposed trust ) that is interposed between the target trust and the company; and (b) a reasonable person would conclude (having regard to all the circumstances) that the company is or becomes so entitled solely or mainly as part of an arrangement involving an entitlement to an amount from the target trust; and (c) either: (i) the first interposed trust is or becomes presently entitled to an amount from the net income of the target trust; or (ii) another trust interposed between the target trust and the company is or becomes presently entitled to an amount from the net income of the target trust. This section operates regardless of certain factors (2) For the purposes of this section, it does not matter: (a) whether the company became or becomes entitled to the amount from the net income of the first interposed trust before, after or at the same time as the interposed trust became or becomes presently entitled to an amount from the net income of the target trust; or (b) whether or not the company became presently entitled to the same amount as the amount to which the interposed trust become entitled. This section does not operate to the extent Subdivision EA would otherwise apply (3) Subsection (1) does not apply to the extent that an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under Subdivision EA (as it applies apart from this section) as a result of the present entitlement of any interposed trust. Amount of entitlement (4) The amount the private company is taken to be or to become entitled to from the net income of the target trust is the amount (if any) determined by the Commissioner. (5) The total amount determined under subsection (4) for present entitlements to which that subsection applies because of the same present entitlement to an amount from the net income of the target trust mentioned in paragraph (1)(c) must not exceed that amount. (6) In determining the amount of the entitlement, the Commissioner must take account of: (a) the amount the private company is or becomes entitled to from the net income of the first interposed trust; and (b) how much (if any) of that amount the Commissioner believes represented consideration payable to the private company by: (i) the target trust; or (ii) any of the interposed trusts; for anything (assuming that the consideration payable equals that for similar transactions at arm’s length). Timing of entitlement (7) The company is taken to be or to become entitled to the amount from the net income of the target trust at the time the company is or becomes entitled to the amount from the net income of the first interposed trust mentioned in paragraph (1)(a).

s 109Y — Proportional reduction of dividends so they do not exceed distributable surplus

Reduction of amounts of dividends (1) If, apart from this section, the sum of all the dividends a private company is taken under this Division to pay at the end of the year of income would be more than the company’s distributable surplus for that year, the amount of each of those dividends is the amount worked out under subsection (3). Distributable surplus (2) A private company’s distributable surplus for its year of income is the amount worked out using the formula: where: Division 7A amounts is the total of any amounts the company is taken under section 109C or 109F to have paid as dividends in the year of income apart from this section. net assets means the amount (if any), at the end of the company’s year of income, by which the company’s assets (according to the company’s accounting records) exceed the sum of: (a) the present legal obligations of the company to persons other than the company; and (b) the following provisions (according to the company’s accounting records): (i) provisions for depreciation; (ii) provisions for annual leave and long service leave; (iii) provisions for amortisation of intellectual property and trade marks; (iv) other provisions prescribed under regulations made for the purposes of this subparagraph. If the Commissioner considers that the company’s accounting records significantly undervalue or overvalue its assets or undervalue or overvalue its provisions, the Commissioner may substitute a value that the Commissioner considers is appropriate. non ‑ commercial loans means the total of: (a) any amounts that: (i) the company is taken under former section 108, or section 109D or 109E, to have paid as dividends in earlier years of income; and (ii) are shown as assets in the company’s accounting records at the end of year of income; and (b) any amounts that are included in the assessable income of shareholders, or associates of shareholders, of the company under section 109XB as if the amounts were dividends paid by the company in earlier years of income. Note: The total amount worked out under paragraph (b) might be reduced under subsection (2A). paid ‑ up share value is the paid ‑ up share capital of the company at the end of its year of income. repayments of non ‑ commercial loans means the total of: (a) any repayments to the company of loans or amounts that have been taken by former section 108, or section 109D or 109E, to be dividends; and (b) amounts set off against loans that have been taken by former section 108, or section 109D or 109E, to be dividends, other than such amounts that are set off as a result of: (i) a dividend (being a later dividend for the purposes of section 109ZC or a subsequent dividend for the purposes of former subsection 108(2)) being paid by the company to the extent of the unfranked part of the dividend; or (ii) a loan, or a part of a loan, being forgiven. (2A) Reduce the total of the amounts worked out under paragraph (b) of the definition of non ‑ commercial loans in subsection (2) by the total of the unfranked parts of any dividends: (a) that are distributed by the company; and (b) to which section 109ZCA applies. (3) The amount of a dividend that a private company is taken under this Division to pay is worked out using the formula: where: provisional dividend is the amount of the dividend that the private company would be taken to pay apart from this section. total of provisional dividends is the sum of all the dividends the private company is taken under this Division to pay at the end of the year of income apart from this section. Requirement for private company to provide statement (4) If this section sets the amount of a dividend taken under this Division to be paid by a private company to an entity at the end of a year of income, the private company must give the entity a written statement as soon as possible after the end of the year of income. What the statement must contain (5) The statement must set out: (a) the private company’s distributable surplus for the year of income; and (b) the total amount the company would be taken under this Division to pay as dividends in the year of income apart from this section.

Amendment history: Inserted by No 47 of 1998, Sch 8 item 109B | Sch 8 item 109C | Sch 8 item 109D | Sch 8 item 109E | Sch 8 item 109F | Sch 8 item 109U | Sch 8 item 109Z, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 63 of 1998, Sch 7 item 24, effective Sch 1–4 and Sch 5 (items 1–22, 25–53, 58–67): 1 July 1998 (s 2(1) and gaz 1998, No S325) Sch 5 (items 23, 24, 54–57): 1 July 1998 (s 2(2)) | Amended by No 23 of 2005, Sch 3 item 36, effective s 4 and Sch 3 (items 14–74, 111(3)–(5), 112–114): 21 Mar 2005 (s 2(1) items 1, 6) | Amended by No 79 of 2007, Sch 1 item 16 | Sch 1 item 17 | Sch 1 item 18 | Sch 1 item 34 | Sch 1 item 35 | Sch 1 item 36, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5) | Amended by No 97 of 2008, Sch 3 item 20, effective Sch 1 (items 1, 2, 12) and Sch 3 (items 5–43): 3 Oct 2008 (s 2(1) items 2, 3) | Amended by No 75 of 2010, Sch 1 item 26 | Sch 1 item 27 | Sch 1 item 28 | Sch 1 item 29 | Sch 1 item 30, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7) | Amended by No 31 of 2014, Sch 4 item 98, effective Sch 4 (items 97, 98): 24 June 2014 (s 2(1) item 9)

s 109Z — Characteristics of dividends taken to be paid under this Division

If a private company is taken under this Division to have paid a dividend to an entity, the dividend is taken for the purposes of this Act to be paid: (a) to the entity as a shareholder in the private company; and (b) out of the private company’s profits.

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1))

s 109ZA — No dividend taken to be paid for withholding tax purposes

If a private company is taken under this Division to have paid a dividend to an entity, disregard the dividend for the purposes of: (a) Division 11A of Part III (which deals with withholding tax on dividends paid to non ‑ residents and some other people); and (c) Subdivision 12 ‑ F in Schedule 1 to the Taxation Administration Act 1953 (which deals with PAYG withholding).

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 179 of 1999, Sch 18 item 26, effective Sch 2 (items 20–47), Sch 3 (items 3–6), Sch 5 (item 74), Sch 6 (items 1–13, 24(1)–(4)), Sch 10 (items 22–24), Sch 11 (item 44), Sch 16 (items 3–17, 37) and Sch 17 (items 1, 2): 22 Dec 1999 (s 2(1), (4), (7)(b)–(d)) Sch 5 (items 1–64), Sch 11 (items 14–43, 45–79) and Sch 12 (item 3): 1 July 2000 (s 2(9), (12)) | Amended by No 101 of 2006, Sch 1 item 112, effective Sch 1 (items 1, 5–199), Sch 2 (items 118–565, 1017, 1023–1037) and Sch 6 (items 1–4, 6–15): 14 Sept 2006 (s 2(1) items 2, 4) Sch 3 (items 1–10) and Sch 4 (items 1–11): 1 Jan 2008 (s 2(1) item 3)

s 109ZB — Amount treated as dividend is not a fringe benefit

(1) This Division applies to a loan of an amount to an entity by a private company, even if the loan is made: (a) to the entity in its capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986 ) or an associate of such an employee; or (b) in respect of the employment of an employee (as defined in that Act). Note: This helps ensure that a loan is not a fringe benefit for the purposes of that Act. (2) This Division applies to a private company’s forgiveness of a debt owed by an entity to the private company, even if: (a) the entity owed the debt in its capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986 ) or an associate of such an employee; or (b) the forgiveness occurs in respect of the employment of an employee (as defined in that Act). Note: This helps ensure that the forgiveness of a debt is not a fringe benefit for the purposes of that Act. (3) However, this Division does not apply to a payment made to a shareholder, or an associate of a shareholder, in their capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986 ) or an associate of such an employee.

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1))

s 109ZC — Treatment of dividend that is reduced on account of an amount taken under this Division to be a dividend

(1) This section sets out special rules for dealing with a dividend (the later dividend ) distributed by a private company if some or all of the later dividend is set off against some or all of an amount taken under this Division to be a dividend previously paid by the company. Example: Some or all of a dividend distributed by a private company to a shareholder might be set off to reduce a loan the company had previously made to the shareholder that was treated as a dividend under Subdivision B. (1A) This section also sets out special rules for dealing with a dividend (also the later dividend ) distributed by a private company if: (a) the private company distributes the later dividend to a shareholder in the company; and (b) the shareholder applies the amount of the dividend to repay all or part of a loan: (i) that was obtained from the private company by an associate of the shareholder; and (ii) in relation to which a dividend was previously taken under this Division to have been paid by the private company. (2) The amount of the later dividend set off or applied is taken not to be a dividend for the purposes of this Act, except Part 3 ‑ 6 of the Income Tax Assessment Act 1997 (which deals with franking of distributions). However, if the amount set off or applied exceeds the amount of the later dividend that is not either the franked part of that dividend, or the part of that dividend that has been franked with an exempting credit, the excess is still a dividend. Note: This prevents double taxation by ensuring that the entity’s assessable income does not include the amount of the later dividend that is not paid to the entity (except to the extent that that amount is franked). (3) An amount that is taken not to be a dividend under subsection (2) is not assessable income and is not exempt income.

Amendment history: Inserted by No 47 of 1998, Sch 8 item 109Y, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 93 of 1999, Sch 5 item 7 | Sch 5 item 8, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2)) | Amended by No 66 of 2003, Sch 3 item 34, effective s 4, Sch 1 and Sch 3 (items 1–46, 47, 48, 140(1), (5), (7)): 30 June 2003 (s 2(1) items 1, 2, 4–6, 14) Sch 3 (item 46A): 29 June 2002 (s 2(1) item 5A) | Amended by No 23 of 2005, Sch 3 item 37 | Sch 3 item 38 | Sch 3 item 112, effective s 4 and Sch 3 (items 14–74, 111(3)–(5), 112–114): 21 Mar 2005 (s 2(1) items 1, 6) | Amended by No 79 of 2007, Sch 1 item 19 | Sch 1 item 20, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5)

s 109ZCA — Treatment of dividend that is reduced on account of an amount included in assessable income under Subdivision EA

(1) This section sets out special rules for dealing with a dividend (the later dividend ) distributed by a private company if: (a) an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under section 109XB because of a loan made to the shareholder or associate by a trustee in relation to a present entitlement of the company to an amount from the net income of the trust estate; and (b) subsection 109XA(2) applied to the loan; and (c) some or all of the later dividend is applied to repay all or a part of the loan. (2) The amount of the later dividend applied is taken not to be a dividend for the purposes of this Act, except Part 3 ‑ 6 of the Income Tax Assessment Act 1997 (which deals with franking of distributions). (3) However, if the amount set off or applied exceeds the amount of the later dividend that is neither: (a) the franked part of that dividend; nor (b) the part of that dividend that has been franked with an exempting credit; the excess is still a dividend. Note: This prevents double taxation by ensuring that the entity’s assessable income does not include the amount of the later dividend that is not paid to the entity (except to the extent that that amount is franked). (4) An amount that is taken not to be a dividend under subsection (2) is not assessable income and is not exempt income.

Amendment history: Inserted by No 75 of 2010, Sch 1 item 30, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109ZD — Defined terms

In this Division: amalgamated loan has the meaning given by subsection 109E(3). arrangement has the meaning given by section 995 ‑ 1 of the Income Tax Assessment Act 1997 . associate has the meaning given by section 318. benchmark franking percentage has the same meaning as in the Income Tax Assessment Act 1997 . benchmark interest rate for a year of income has the meaning given by subsection 109N(2). deficit has the same meaning as in the Income Tax Assessment Act 1997 . distributable surplus of a company for a year of income has the meaning given by subsection 109Y(2). entity has the meaning given by section 960 ‑ 100 of the Income Tax Assessment Act 1997 . family law obligation means an order, agreement or award mentioned in paragraph 126 ‑ 5(1)(a), (b), (d), (e) or (f) of the Income Tax Assessment Act 1997 . forgive a debt has the meaning given by section 109F. franking account has the same meaning as in the Income Tax Assessment Act 1997 . franking percentage has the same meaning as in the Income Tax Assessment Act 1997 . franking period has the same meaning as in the Income Tax Assessment Act 1997 . guarantee , in relation to a loan, includes providing security for the loan. loan has the meaning given by subsection 109D(3). lodgment day for a private company’s year of income has the meaning given by subsection 109D(6). payment has the meaning given by subsection 109C(3) and section 109CA. unfrankable has the same meaning as in the Income Tax Assessment Act 1997 .

Amendment history: Inserted by No 47 of 1998, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1)) | Amended by No 179 of 1999, Sch 18 item 27, effective Sch 2 (items 20–47), Sch 3 (items 3–6), Sch 5 (item 74), Sch 6 (items 1–13, 24(1)–(4)), Sch 10 (items 22–24), Sch 11 (item 44), Sch 16 (items 3–17, 37) and Sch 17 (items 1, 2): 22 Dec 1999 (s 2(1), (4), (7)(b)–(d)) Sch 5 (items 1–64), Sch 11 (items 14–43, 45–79) and Sch 12 (item 3): 1 July 2000 (s 2(9), (12)) | Amended by No 41 of 2005, Sch 9 item 12, effective s 4, Sch 3 (items 1–16, 22), Sch 6 (items 1, 6–11), Sch 8, Sch 9 (items 3–13), Sch 10 (items 19–35, 270) and Sch 11 (items 1–3, 5): 1 Apr 2005 (s 2(1) items 1, 2, 4, 5, 23, 24) Sch 9 (items 1, 2): 29 June 2004 (s 2(1) item 3) | Amended by No 101 of 2006, Sch 1 item 113 | Sch 1 item 114, effective Sch 1 (items 1, 5–199), Sch 2 (items 118–565, 1017, 1023–1037) and Sch 6 (items 1–4, 6–15): 14 Sept 2006 (s 2(1) items 2, 4) Sch 3 (items 1–10) and Sch 4 (items 1–11): 1 Jan 2008 (s 2(1) item 3) | Amended by No 79 of 2007, Sch 1 item 21 | Sch 1 item 22 | Sch 1 item 23 | Sch 1 item 24 | Sch 1 item 25 | Sch 1 item 26 | Sch 1 item 27, effective Sch 1 (items 1–27, 33–38, 43(1), (4), (5)), Sch 6 (items 1, 2, 8), Sch 7 (items 1–16), Sch 9 (items 1–13, 30–33) and Sch 10 (items 3–9, 32): 21 June 2007 (s 2(1) items 2, 4, 6) Sch 8 (items 1, 4–11, 26(1), (2) and (4)): 1 July 2007 (s 2(1) item 5) | Amended by No 144 of 2008, Sch 14 item 29, effective Sch 14 (items 7–58): 10 Dec 2008 (s 2(1) item 36) | Amended by No 75 of 2010, Sch 1 item 32, effective Sch 1 (items 1–33, 35) and Sch 6 (items 2–6): 29 June 2010 (s 2(1) item 2) Sch 2 (items 1, 2, 25): 1 July 2010 (s 2(1) item 3) Sch 5 (items 2–6): 28 June 2010 (s 2(1) item 7)

s 109ZE — Interpretation rules about entities

The rules in section 960 ‑ 100 of the Income Tax Assessment Act 1997 about entities apply to this Division.

Amendment history: Inserted by No 47 of 1998, Sch 8 item 109G | Sch 8 item 109K, effective Sch 3 (items 17–20), Sch 4 (items 1, 6–65, 69), Sch 6, 7, Sch 8 (items 1–10) and Sch 9 (items 7–14, 15(3), 16): 23 June 1998 (s 2(1))

s 117 — Co ‑ operative companies

(1) In this Division, co ‑ operative company means a company, not being a friendly society dispensary, the rules of which limit the number of shares which may be held by, or by and on behalf of, any one shareholder, and prohibit the quotation of the shares for sale or purchase at any stock exchange or in any other public manner whatever, and includes a company, not being a friendly society dispensary, which has no share capital, and which in either case is established for the purpose of carrying on any business having as its primary object or objects one or more of the following: (a) the acquisition of commodities or animals for disposal or distribution among its shareholders; (b) the acquisition of commodities or animals from its shareholders for disposal or distribution; (c) the storage, marketing, packing or processing of commodities of its shareholders; (d) the rendering of services to its shareholders; (e) the obtaining of funds from its shareholders for the purpose of making loans to its shareholders to enable them to acquire land or buildings to be used for the purpose of residence or of residence and business. (2) A company is not a co ‑ operative company within the meaning of this Division in relation to a year of income if the company is, for the purposes of section 23G, an approved credit union in relation to that year of income. (3) Subsection (2) does not apply to a credit union in relation to a year of income if: (a) the credit union is a recognised medium credit union in relation to the year of income; or (b) the credit union is a recognised large credit union in relation to the year of income.

Amendment history: Amended by No 126 of 1974, item 20, effective s 3–46: 6 Dec 1974 (s 2) | Amended by No 154 of 1981, item 12, effective s 4–31 and 39–41: 26 Oct 1981 (s 2) | Amended by No 57 of 1993, item 32, effective s 13–34: 27 Oct 1993 (s 2)

s 118 — Company not co ‑ operative if less than 90% of business with members

If, in the ordinary course of business of a company in the year of income, the value of commodities and animals disposed of to, or acquired from, its shareholders by the company, or the amount of its receipts from the storage, marketing, packing and processing of commodities of its shareholders, or from the rendering of services to them, or the amount lent by it to them, is less respectively than 90% of the total value of commodities and animals disposed of or acquired by the company, or of its receipts from the storage, marketing, packing and processing of commodities, or from the rendering of services, or of the total amount lent by it, that company shall in respect of that year be deemed not to be a co ‑ operative company.

Amendment history: Amended by No 108 of 1981, effective s 4–25: 24 June 1981 (s 2)

s 119 — Sums received to be taxed

(1) The assessable income of a co ‑ operative company shall include all sums received by it, whether from shareholders or from other persons, for the storage, marketing, packing or processing of commodities, or for the rendering of services, or in payment for commodities or animals or land sold, whether on account of the company or on account of its shareholders. (2) For the purposes of subsection (1), if a credit union (within the meaning of section 23G) receives a payment of, or in the nature of, interest, the payment is taken to be for the rendering of services. (3) Subsection (2) does not limit the generality of subsection (1).

Amendment history: Amended by No 57 of 1993, item 33, effective s 13–34: 27 Oct 1993 (s 2)

s 120 — Deductions allowable to co ‑ operative company

(1) So much of the assessable income of a co ‑ operative company as: (a) is distributed among its shareholders as rebates or bonuses based on business done by shareholders with the company; (b) is distributed among its shareholders as interest or dividends on shares; or (c) in the case of a company having as its primary object that specified in paragraph 117(1)(b)—is applied by the company for or towards the repayment of any moneys loaned to the company by a government of the Commonwealth or a State to enable the company to acquire assets which are required for the purpose of carrying on the business of the company or to pay that government for assets so required which the company has taken over from that government; shall be an allowable deduction: Provided that the deduction under paragraph (c) shall not be allowed unless shares representing not less than 90% of the value of the company are held by persons who supply the company with the commodities or animals which the company requires for the purposes of its business. (2) No such rebate or bonus based on purchases made by a shareholder from the company shall be included in his or her assessable income except where the amount of such purchases is allowable as a deduction in ascertaining his or her taxable income of any year. (3) It is hereby declared to be the intention of the Parliament that paragraph (1)(c) applies to loans taken out for the purpose of acquiring assets from: (a) government sources; or (b) non ‑ government sources. (4) No deduction is allowable under subsection (1) to the extent that the assessable income of a co ‑ operative company is distributed as the franked part of a franked distribution. (5) For the purposes of this section, in determining whether the assessable income of a co ‑ operative company is distributed as the franked part of a franked distribution, if: (a) an amount is distributed by the co ‑ operative company as a franked distribution; and (b) the franking percentage (within the meaning of the Income Tax Assessment Act 1997 ) for the distribution is less than 100%; and (c) a part of the distribution is attributable to sources other than the assessable income of the co ‑ operative company; it is to be assumed that the franked part of the distribution is attributable, to the greatest extent possible, to those other sources. (6) If a co ‑ operative company distributes assessable income among its shareholders within the period of 3 months (or such longer period as the Commissioner decides) starting at the end of a year of income, the co ‑ operative company may elect that the distribution is to be taken, for the purposes of this section only, to have been made on the last day of the year of income. (7) In this section: franked distribution has the same meaning as in the Income Tax Assessment Act 1997 .

Amendment history: Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 108 of 1981, item 27, effective s 4–25: 24 June 1981 (s 2) | Amended by No 78 of 1996, Sch 4 item 14, effective Sch 1, 2 and Sch 4 (items 1–57): 19 Dec 1996 (s 2(1), (2)) Sch 4 (items 56, 57): 5 pm (A.C.T.) 23 July 1996 (s 2(4)) | Amended by No 63 of 1998, Sch 7 item 25, effective Sch 1–4 and Sch 5 (items 1–22, 25–53, 58–67): 1 July 1998 (s 2(1) and gaz 1998, No S325) Sch 5 (items 23, 24, 54–57): 1 July 1998 (s 2(2)) | Amended by No 176 of 1999, Sch 8 item 25, effective Sch 8 (items 16–25): 1 July 2000 (s 2(17)) | Amended by No 101 of 2003, Sch 3 item 1 | Sch 3 item 218, effective s 4, Sch 1 (items 1, 21), Sch 3 (items 1, 6), Sch 4, Sch 6 (items 7–15): 14 Oct 2003 (s 2(1) items 1, 3, 5, 6, 14–16) s 5: 11 Oct 2002 (s 2(1) item 2) Sch 6 (item 5): 1 July 1998 (s 2(1) item 12) Sch 6 (item 6): 30 June 1992 (s 2(1) item 13) | Amended by No 41 of 2011, Sch 5 item 280, effective Sch 5 (items 15–17): 28 June 2011 (s 2(1) item 11) Sch 5 (items 57–73, 79, 176–367, 376–382, 412, 413): 27 June 2011 (s 2(1) items 17, 23)

s 121 — Mutual insurance associations

(1) An association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind is taken, for the purposes of this Act, to be a company carrying on the business of insurance. (2) The assessable income of such a company includes all premiums derived by it, whether from its members or not.

Amendment history: Repealed and substituted by No 89 of 2000, Sch 2 item 24, effective s 4, Sch 1 (item 66), Sch 2 (items 1–24, 35, 36, 48, 53–62), Sch 3 (items 1–29, 98–100), Sch 5 (items 32–34(1)) and Sch 8 (items 1–8, 11): 30 June 2000 (s 2(1)) Sch 1 (item 67): 1 pm (A.C.T.) 11 Nov 1999 (s 2(2)) Sch 2 (items 25, 26) and Sch 3 (items 30–97): 1 July 2000 (s 2(3), (8), (9))

s 121AA — What this Division is about

Basically, if an insurance company demutualises and its policyholders or members dispose of their listed shares in the company, for tax purposes the acquisition cost of the shares is based on the lesser of: (a) the embedded value or net tangible asset value of the company; and (b) the value of the company based on the total first trading day price of all shares in the company. Other tax consequences result from disposals of other interests and from other events in connection with the demutualisation.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4))

s 121AB — Insurance company definitions

(1) A mutual insurance company is an insurance company: (a) whose profits are divisible only among its policyholders; or (b) that satisfies all of the following conditions: (i) it is limited by guarantee; (ii) it did not divide its profits among its members during the 10 years ending on 9 May 1995; (iii) on a winding ‑ up, its profits are not divisible among its members; or (c) that satisfies all of the following conditions: (i) at 7.30 pm, by legal time in the Australian Capital Territory, on 9 May 1995, it was a friendly society (within the meaning of this Act as in force at that time); (ii) it was an insurance company on 1 July 1999; (iii) it does not have capital divided into shares held by its members; or (d) if the insurance company is a mutual entity (within the meaning of the Corporations Act 2001 )—that would be covered by paragraph (a), (b) or (c) if the following were disregarded: (i) any MCIs (within the meaning of that Act) issued by the entity; (ii) any dividends or profits paid or payable in respect of such MCIs; (iii) any members of the entity who are members by virtue of holding such MCIs. (2) An insurance company is a life insurance company or a general insurance company. (3) A life insurance company is a company registered under section 21 of the Life Insurance Act 1995 . (4) A general insurance company is a company whose sole or principal business is insurance business within the meaning of subsection 3(1) of the Insurance Act 1973 , but does not include a life insurance company.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 20 of 2004, effective s 4, Sch 4 (item 1) and Sch 8 (items 9–11, 14): (s 2(1) items 1, 2, 4) Sch 6: 1 July 2000 (s 2(1) item 3) | Amended by No 75 of 2009, Sch 1 item 206, effective Sch 1 (items 206, 207): 27 Feb 2010 (s 2(1) item 2) | Amended by No 37 of 2019, Sch 2 item 13, effective Sch 2 (items 13–16): 6 Apr 2019 (s 2(1) item 1)

s 121AC — Mutual affiliate company

(1) A mutual affiliate company is a company that satisfies the following conditions: (a) it is limited by guarantee; (b) it is not an insurance company; (c) at least 75% of the policyholders of a mutual insurance company are members of it; (d) it did not divide its profits among its members during the 10 years ending on 9 May 1995; (e) on a winding ‑ up, its profits are not divisible among its members in their capacity as such. (2) If the company is a mutual entity (within the meaning of the Corporations Act 2001 ) then, for the purposes of subsection (1), disregard the following: (a) any MCIs (within the meaning of that Act) issued by the company; (b) any dividends or profits paid or payable in respect of such MCIs; (c) any members of the company who are members by virtue of holding such MCIs.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 37 of 2019, Sch 2 item 14 | Sch 2 item 15, effective Sch 2 (items 13–16): 6 Apr 2019 (s 2(1) item 1)

s 121AD — Demutualisation and demutualisation resolution day

(1) A mutual insurance company demutualises if it ceases to be a mutual insurance company: (a) in any case—other than by ceasing to be an insurance company; or (b) if it is a life insurance company—because the whole of its life insurance business is transferred to another company under a scheme confirmed by the Federal Court of Australia. (2) A mutual affiliate company demutualises if it ceases to be a mutual affiliate company other than by ceasing to be a company. (3) The demutualisation resolution day , in relation to the demutualisation of a company, is: (a) if paragraph (b) does not apply—the day on which the resolution to proceed with the demutualisation is passed; or (b) if paragraph (1)(b) applies to the demutualisation—the day on which the transfer of the whole of the company’s life insurance business takes place.

s 121AE — Demutualisation methods, the policyholder/member group and the listing period

Demutualisation methods 1 to 6 (1) There are 6 methods by which the demutualisation of a mutual insurance company, where a mutual affiliate company is not also demutualised, may be implemented that are relevant for the purposes of this Division. They are described in sections 121AF to 121AK as demutualisation methods 1 to 6. Demutualisation method 7 (2) There is one method by which the demutualisation of both a mutual insurance company and a mutual affiliate company may be implemented that is relevant for the purposes of this Division. It is described in section 121AL as demutualisation method 7. Demutualisation methods (3) Each of the methods described in sections 121AF to 121AL is a demutualisation method . Policyholder/member group (4) The policyholder/member group , in relation to the demutualisation of a mutual insurance company under any of demutualisation methods 1 to 6, consists of the following persons: (a) in the case of a mutual insurance company covered by paragraph 121AB(1)(a)—policyholders (other than trustees covered by paragraph (d) or (e)) in the company immediately before the demutualisation; (b) in the case of any other mutual insurance company—members (other than trustees covered by paragraph (d) or (e)) of the company immediately before the demutualisation; (c) in any case—any of the following who, in connection with the demutualisation, are entitled to the same rights to shares or the proceeds of the sale of shares as the policyholders (in a paragraph (a) case) or the members (in a paragraph (b) case): (i) employees of the company or a wholly ‑ owned subsidiary of the company; (ii) persons who ceased to be such policyholders or members before the demutualisation; (iii) charities; (iv) persons who are entitled to the rights because of the death of the policyholders or members; (d) in any case—each person who satisfies the following requirements: (i) the person is a member of a regulated superannuation fund (as defined by section 19 of the Superannuation Industry (Supervision) Act 1993 ), other than a standard employer ‑ sponsored member (as defined by subsection 16(5) of that Act); (ii) the trustee of the fund holds a policy or policies in the mutual insurance company; (iii) the trustee of the fund is a company that is a wholly ‑ owned subsidiary of the mutual insurance company; (iv) the person’s benefits in the fund consist solely of the proceeds of the policy or policies; (v) in connection with the demutualisation, the person, rather than the trustee, has the right to shares or the proceeds of the sale of shares in respect of the policy or policies held by the trustee; (e) in any case—each person who satisfies the following requirements: (i) the person is the member of a single ‑ member superannuation fund; (ii) the trustee of the fund holds a policy or policies in the mutual insurance company; (iii) in connection with the demutualisation, the person, rather than the trustee, has the right to shares or the proceeds of the sale of shares in respect of the policy or policies held by the trustee. (5) The policyholder/member group , in relation to the demutualisation of a mutual insurance company and a mutual affiliate company under demutualisation method 7, consists of the following persons: (a) if the mutual insurance company is covered by paragraph 121AB(1)(a)—policyholders (other than trustees covered by paragraph (e) or (f)) in the mutual insurance company immediately before the demutualisation; (b) in the case of any other mutual insurance company—members (other than trustees covered by paragraph (e) or (f)) of the company immediately before the demutualisation; (c) members (other than trustees covered by paragraph (e) or (f)) of the mutual affiliate company immediately before the demutualisation; (d) any of the following who, in connection with the demutualisation, are entitled to the same rights to shares or the proceeds of the sale of shares as the members: (i) employees of the mutual insurance company, the mutual affiliate company or a wholly ‑ owned subsidiary of either company; (ii) persons who ceased to be such members before the demutualisation; (iii) charities; (iv) persons who are entitled to the rights because of the death of members; (e) in any case—each person who satisfies the following requirements: (i) the person is a member of a regulated superannuation fund (as defined by section 19 of the Superannuation Industry (Supervision) Act 1993 ), other than a standard employer ‑ sponsored member (as defined by subsection 16(5) of that Act); (ii) the trustee of the fund holds a policy or policies in the mutual insurance company; (iii) the trustee of the fund is a company that is a wholly ‑ owned subsidiary of the mutual insurance company; (iv) the person’s benefits in the fund consist of the proceeds of the policy or policies; (v) in connection with the demutualisation, the person, rather than the trustee, has the right to shares or the proceeds of the sale of shares in respect of the policy or policies held by the trustee; (f) in any case—each person who satisfies the following requirements: (i) the person is the member of a single ‑ member superannuation fund; (ii) the trustee of the fund holds a policy or policies in the mutual insurance company; (iii) in connection with the demutualisation, the person, rather than the trustee, has the right to shares or the proceeds of the sale of shares in respect of the policy or policies held by the trustee. (6) The listing period is the period ending 2 years after the demutualisation resolution day, or at such later time as the Commissioner, before the end of the 2 years, allows.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4))

s 121AEA — Replacement of policyholders by persons exercising certain rights

If, as a result of the exercise of any power under the articles of association of an insurance company, persons are entitled to exercise rights in place of policyholders, then, to the extent that the Commissioner considers it appropriate, the persons are treated for the purposes of this Division as replacing the policyholders.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4))

s 121AF — Demutualisation method 1

(1) Under demutualisation method 1 , in connection with the implementation of the demutualisation: (a) all membership rights in the mutual insurance company are extinguished; and (b) shares (the ordinary shares ) of only one class in the mutual insurance company are issued to each person in the policyholder/member group; and (c) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows, where this demutualisation method is used, the issue of the shares to the policyholder/member group.

s 121AG — Demutualisation method 2

(1) Under demutualisation method 2 , in connection with the implementation of the demutualisation: (a) all membership rights in the mutual insurance company are extinguished; and (b) not more than 10 shares (the special shares ) in the mutual insurance company are issued to a trustee to hold for the benefit of the policyholder/member group, where: (i) the issue takes place before the issue of the ordinary shares mentioned in paragraph (c); and (ii) on the issue of all the ordinary shares, the rights attaching to the special shares become the same as those attaching to the ordinary shares; and (c) a greater number of shares (the ordinary shares ) of only one class in the mutual insurance company are either: (i) issued, at the election of each person in the policyholder/member group, to the person or to a trustee to sell on behalf of the person; or (ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and (d) the trustee sells the ordinary shares and distributes the proceeds to the person, or distributes the ordinary shares to the person; and (e) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(ii).

s 121AH — Demutualisation method 3

(1) Under demutualisation method 3 , in connection with the implementation of the demutualisation: (a) all membership rights in the mutual insurance company are extinguished; and (b) shares in the mutual insurance company are issued to another company (the holding company ); and (c) shares (the ordinary shares ) of only one class in: (i) the holding company; or (ii) another company (the ultimate holding company ) of which the holding company is a wholly ‑ owned subsidiary, either directly or through one or more other wholly ‑ owned subsidiaries (each of which is an interposed holding company ); are issued to each person in the policyholder/member group; and (d) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows the main events, where this demutualisation method is used.

s 121AI — Demutualisation method 4

(1) Under demutualisation method 4 , in connection with the implementation of the demutualisation: (a) all membership rights in the mutual insurance company are extinguished; and (b) shares in the mutual insurance company are issued to another company (the holding company ); and (c) not more than 10 shares (the special shares ) in: (i) the holding company; or (ii) another company (the ultimate holding company ) of which the holding company is a wholly ‑ owned subsidiary, either directly or through one or more other wholly ‑ owned subsidiaries (each of which is an interposed holding company ); are issued to a trustee to hold for the benefit of the policyholder/member group; and (d) the issue of the special shares takes place before the issue of the ordinary shares mentioned in paragraph (e), and on the issue of all the ordinary shares, the rights attaching to the special shares become the same as those attaching to the ordinary shares; and (e) a greater number of shares (the ordinary shares ) of only one class in the holding company or ultimate holding company are either: (i) issued, at the election of each person in the policyholder/member group, to the person or to a trustee to sell on behalf of the person; or (ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and (f) the trustee sells the ordinary shares and distributes the proceeds of sale to the person, or distributes the ordinary shares to the person; and (g) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows the main events, where this demutualisation method is used involving 2 trustees and an election covered by subparagraph (1)(e)(ii).

s 121AJ — Demutualisation method 5

(1) Under demutualisation method 5 , in connection with the implementation of the demutualisation: (a) all membership rights in the mutual insurance company are extinguished; and (b) shares in the mutual insurance company are issued to another company (the holding company ); and (c) shares (the ordinary shares ) of only one class in: (i) the holding company; or (ii) another company (the ultimate holding company ) of which the holding company is a wholly ‑ owned subsidiary, either directly or through one or more other wholly ‑ owned subsidiaries (each of which is an interposed holding company ); are either: (iii) issued, at the election of each person in the policyholder/ member group, to the person or to a trustee to sell on behalf of the person; or (iv) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and (d) the trustee sells the ordinary shares and distributes the proceeds of sale to the person, or distributes the ordinary shares to the person; and (e) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(iv).

s 121AK — Demutualisation method 6

(1) Under demutualisation method 6 , in connection with the implementation of the demutualisation of a life insurance company: (a) all membership rights in the company are extinguished; and (b) the whole of the life insurance business of the company is, under a scheme confirmed by the Federal Court of Australia, transferred to another company formed for the purpose; and (c) shares (the ordinary shares ) of only one class in the other company are: (i) issued, at the election of each person in the policyholder/member group, to the person or to a trustee to sell on behalf of the person; or (ii) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and (d) the trustee sells the ordinary shares and distributes the proceeds of sale to the person or distributes the ordinary shares to the person; and (e) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows the main events, where this demutualisation method is used.

s 121AL — Demutualisation method 7

(1) Under demutualisation method 7 , in connection with the implementation of the demutualisation of both a mutual insurance company and a mutual affiliate company: (a) all membership rights in both companies are extinguished; and (b) shares in the mutual insurance company and the mutual affiliate company are issued to another company (the holding company ); and (c) shares (the ordinary shares ) of only one class in: (i) the holding company; or (ii) another company (the ultimate holding company ) of which the holding company is a wholly ‑ owned subsidiary, either directly or through one or more other wholly ‑ owned subsidiaries (each of which is an interposed holding company ); are either: (iii) issued, at the election of each person in the policyholder/member group to the person or to a trustee to sell on behalf of the person; or (iv) issued to a trustee, at the election of each person in the policyholder/member group, to distribute to the person or to sell on behalf of the person; and (d) the trustee sells the ordinary shares and distributes the proceeds of the sale to the person, or distributes the ordinary shares to the person; and (e) the ordinary shares are listed within the listing period. Note: Other things may also happen in connection with the implementation of the demutualisation. (2) The following diagram shows the main events, where this demutualisation method is used involving an election covered by subparagraph (1)(c)(iv).

s 121AM — Embedded value of a mutual life insurance company

(1) The embedded value of a mutual life insurance company that demutualises using a demutualisation method is, in accordance with this section, the sum of its existing business value and its adjusted net worth on the applicable accounting day (see subsection (3)). Eligible actuary and Australian actuarial practice (2) The sum is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice. Applicable accounting day (3) The applicable accounting day is: (a) if an accounting period of the company ends on the demutualisation resolution day—that day; or (b) in any other case—the last day of the most recent accounting period of the company ending before the demutualisation resolution day. Adjustment for changes after applicable accounting day (4) In a case covered by paragraph (3)(b), if any significant change in the amount of the existing business value or adjusted net worth occurs between the applicable accounting day and the demutualisation resolution day, the amount is to be adjusted to take account of the change. Continued business assumption (5) In working out the existing business value or the adjusted net worth, it is to be assumed: (a) that after the applicable accounting day the company will continue to conduct its life insurance business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and (b) that the demutualisation will not occur. Discount rate assumption (6) In working out the existing business value or adjusted net worth, the annual discount rate to be used in respect of each future accounting period is worked out using the formula: where: 10 year Treasury bond rate means the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 10 year term. Capital reserve adequacy shortfall percentage means: (a) if, for any future accounting period, the capital reserves of the company are projected to fall below the capital reserve adequacy level (see subsection 121AO(2)) by 1% or more at both the beginning and end of the accounting period—the percentage worked out by averaging the percentages worked out under each of the following subparagraphs: (i) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the beginning of the period; (ii) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the end of the period; or (b) in any other case—nil. Annual inflation rate assumption (7) In working out the existing business value, the annual inflation rate to be applied is worked out using the formula: Expenditure assumption (8) In working out the existing business value, it is to be assumed that expenditure that the company will incur, in conducting its life insurance business, on recurring items after the demutualisation resolution day will be of the same kinds and amounts (increased to take account of any inflation, using the annual inflation rate in subsection (7)) as the company incurred in the accounting period, or part of an accounting period, ending on the demutualisation resolution day. Investment return assumption (9) In working out the existing business value or the adjusted net worth, it is to be assumed that the annual rate of return on each investment of the company is: (a) if the investment is a security with a term less than 2 years or is cash—the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 26 week term; or (b) if the investment is any other kind of security—the Treasury bond rate for the applicable accounting day in respect of bonds with a 10 year term; or (c) in any other case—the rate mentioned in paragraph (b), plus 3%. Future distributable profits assumption (10) In working out the existing business value or the adjusted net worth, the future distributable profits are to be determined on the assumption that the company: (a) will not distribute its profits so as to cause its capital reserves to fall below the capital reserve adequacy level (see subsection 121AO(2)) applicable to the company; and (b) will distribute all of its profits except to the extent necessary for its capital reserves not to fall below the capital reserve adequacy level.

s 121AN — Net tangible asset value of a general insurance company or mutual affiliate company

(1) The net tangible asset value of a general insurance company, or a mutual affiliate company, that demutualises using a demutualisation method is, in accordance with this section: (a) the amount of its assets on the applicable accounting day (see subsection (4)); reduced by: (b) the amount of its liabilities (including future liabilities) arising from its business conducted before that day. Australian accounting practice (2) The amount of the company’s assets and liabilities (other than future liabilities) is to be worked out according to Australian accounting practice. Eligible actuary and Australian actuarial practice (3) The amount of the company’s future liabilities is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice. Applicable accounting day (4) The applicable accounting day is: (a) if an accounting period of the company ends on the demutualisation resolution day—that day; or (b) in any other case—the last day of the most recent accounting period of the company ending before the demutualisation resolution day. Adjustment for changes after applicable accounting day (5) In a case covered by paragraph (4)(b), if any significant change in the amount of the company’s assets or liabilities occurs between the applicable accounting day and the demutualisation resolution day, that amount is to be adjusted to take account of the change. Continued business assumption (6) In working out the net tangible asset value, it is to be assumed: (a) that after the applicable accounting day the company will continue to conduct its business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and (b) that the demutualisation will not occur.

s 121AO — Treasury bond rate, capital reserve adequacy level, eligible actuary and security

Treasury bond rate (1) The Treasury bond rate for the applicable accounting day in respect of bonds with a particular term is: (a) if any Treasury bonds with that term were issued on the applicable accounting day—the annual yield on those bonds; or (b) in any other case—the annual yield on Treasury bonds with that term, as published by the Reserve Bank of Australia and applicable to the accounting day. Capital reserve adequacy level (2) The capital reserve adequacy level for a life insurance company that demutualises is: (a) if, after 1 July 1995 and before the applicable accounting day mentioned in subsection 121AM(3) or 121AN(4), a prudential standard made under section 230B of the Life Insurance Act 1995 in relation to capital adequacy applied to the company—the level of capital reserves required by that standard; or (b) in any other case—the level of capital reserves required to provide adequate capital for the conduct of the life insurance business and other activities of the company. Eligible actuary (3) An eligible actuary is a Fellow or Accredited Member of the Institute of Actuaries of Australia who is not an employee of: (a) the mutual insurance company or, where demutualisation method 7 applies, the mutual insurance company or the mutual affiliate company; or (b) a subsidiary of that company or, where demutualisation method 7 applies, of either company. Security (4) A security is: (a) a bond, debenture, certificate of entitlement, bill of exchange or promissory note; or (b) a deposit with a bank or other financial institution; or (c) a secured or unsecured loan.

Amendment history: Inserted by No 171 of 1995, Sch 3 item 1993 | Sch 3 item 10, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 44 of 1999, Sch 4 item 89, effective Sch 7 (items 59–104): 1 July 1999 (s 3(2)(e)) Sch 8 (items 18, 22, 23): 17 June 1999 (s 2(1)) | Amended by No 154 of 2007, Sch 1 item 172A, effective Sch 1 (item 172A): 1 Jan 2008 (s 2(1) item 3) Sch 1 (item 296) and Sch 3 (item 3): 24 Sept 2007 (s 2(1) items 6, 7)

s 121AP — Subsidiary and wholly ‑ owned subsidiary

Subsidiary (1) A company (the test company ) is a subsidiary of another company (the holding company ) if at least half of the shares in the test company are beneficially owned by: (a) the holding company; or (b) a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; or (c) the holding company and a company that is, or 2 or more companies each of which is, a subsidiary of the holding company. (2) If a company is a subsidiary of another company (including because of this subsection), every company that is a subsidiary of the first ‑ mentioned company is a subsidiary of the other company. Wholly ‑ owned subsidiary (3) A company is a wholly ‑ owned subsidiary of another company if it would, under subsection (1) or (2), be a subsidiary of the other company assuming that the reference in subsection (1) to at least half of the shares were instead a reference to all of the shares.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4))

s 121AQ — Other definitions

In this Division: annuity has the same meaning as in section 10 of the Superannuation Industry (Supervision) Act 1993 . first trading day price , in relation to a listed share, means the price on the stock market operated by ASX Limited, as published by that company, at which the share was last traded on the trading day on which it was listed. general insurance business means insurance business (within the meaning of the Insurance Act 1973 ) other than life insurance business. life insurance business has the same meaning as in the Life Insurance Act 1995 . listed means listed for quotation in the official list of ASX Limited. superannuation interest has the same meaning as in the Income Tax Assessment Act 1997 .

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 15 of 2007, Sch 1 item 90 | Sch 1 item 91 | Sch 1 item 92 | Sch 1 item 93 | Sch 1 item 94 | Sch 1 item 95, effective Sch 1 (items 1–8, 22–149, 406(1)–(3)) and Sch 3 (items 6, 7): 15 Mar 2007 (s 2(1) items 2, 6) | Amended by No 97 of 2008, Sch 3 item 21 | Sch 3 item 22, effective Sch 1 (items 1, 2, 12) and Sch 3 (items 5–43): 3 Oct 2008 (s 2(1) items 2, 3)

s 121AR — List of definitions

The following table lists the expressions defined in this Division and shows the provisions in which they are defined: Definition Provision annuity 121AQ applicable accounting day 121AM(3) and 121AN(4) capital reserve adequacy level 121AO(2) eligible actuary 121AO(3) embedded value 121AM(1) demutualise 121AD(1) and (2) demutualisation method 121AE(3) demutualisation method 1 to demutualisation method 7 121AF to 121AL demutualisation resolution day 121AD(3) first trading day price 121AQ general insurance business 121AQ general insurance company 121AB(4) insurance company 121AB(2) life insurance business 121AQ life insurance company 121AB(3) listed 121AQ listing period 121AE(6) mutual affiliate company 121AC mutual insurance company 121AB(1) net tangible asset value 121AN(1) policyholder/member group 121AE(4) and (5) security 121AO(4) subsidiary 121AP(1) and (2) superannuation interest 121AQ Treasury bond rate 121AO(1) wholly ‑ owned subsidiary 121AP(3)

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 15 of 2007, Sch 1 item 96, effective Sch 1 (items 1–8, 22–149, 406(1)–(3)) and Sch 3 (items 6, 7): 15 Mar 2007 (s 2(1) items 2, 6)

s 121AS — CGT consequences of demutualisation

The table below sets out modifications of the application of Parts 3 ‑ 1 and 3 ‑ 3 (about CGT) of the Income Tax Assessment Act 1997 in respect of events that are described in, or relate to events that are described in, particular demutualisation methods. TABLE 1—MODIFICATIONS OF CGT RULES Item Event Modifications 1 Any demutualisation method: Extinguishment of membership rights as mentioned in paragraph (1)(a) of sections 121AF to 121AL. A capital gain or capital loss arising from a CGT event constituted by the extinguishment is disregarded. 2 Demutualisation method 6: The whole of the life insurance business of the life insurance company is transferred to the other company as mentioned in paragraph 121AK(1)(b). Subdivision 126 ‑ B of the Income Tax Assessment Act 1997 as in force immediately before 21 October 1999 (about roll ‑ overs for transfers) applies as if the life insurance company and the other company were members of the same wholly ‑ owned group within the meaning of that Act. 3 Any demutualisation method: A person (the disposer ) in the policyholder/ member group disposes of a right to have ordinary shares issued or distributed to the person, or the proceeds of sale of ordinary shares distributed to the person, as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d). 1. A capital loss that the disposer makes from the disposal is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. For the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, he or she is taken: (a) to have paid, as consideration for the acquisition of the right disposed of, an amount worked out using the following formula: ; and (b) to have paid the amount in paragraph (a), and to have acquired the right disposed of, on the demutualisation resolution day. 4 Demutualisation method 2, 4, 5, 6 or 7: A person (the disposer ) in the policyholder/member group disposes of an asset consisting of all or part of the person’s interest in the trust property of the trustee mentioned in paragraph 121AG(1)(b) or (c), 121AI(1)(c) or (e), 121AJ(1)(c), 121AK(1)(c) or 121AL(1)(c). 1. A capital loss that the disposer makes from the disposal is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. For the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, he or she is taken: (a) to have paid, as consideration for the acquisition of the interest disposed of, an amount worked out using the following formula: ; and (b) to have paid the amount in paragraph (a), and to have acquired the interest disposed of, on the demutualisation resolution day. 5 Demutualisation method 3, 4 or 5: After the issue of the shares (each of which is a demutualisation share ) in the mutual insurance company as mentioned in paragraph 121AH(1)(b), 121AI(1)(b) or 121AJ(1)(b), the holding company (the disposer ) disposes of an asset consisting of: (a) a demutualisation share, or an interest in such a share; or (b) another share (a non ‑ demutualisation bonus share) in the mutual insurance company, or an interest in such a share, where the share is a bonus share mentioned in Division 8 of former Part IIIA and any of the demutualisation shares are the original shares mentioned in that Division. 1. A capital loss that the disposer makes from the disposal of the demutualisation share or interest in such a share is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. If the disposal is of a demutualisation share (other than a demutualisation original share) or an interest in such a share then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, the disposer is taken: (a) to have paid as consideration for the acquisition of the share or interest both: (i) the amount worked out using the formula: ; and (ii) any consideration actually paid or given for the acquisition; and (For the purposes of the modifications relating to this item, if any of the original shares mentioned in Division 8 of former Part IIIA is a demutualisation share, it is called a demutualisation original share .) (b) to have paid the amount in subparagraph (a)(i) on the demutualisation resolution day and the amount in subparagraph (a)(ii) when it was actually paid; and (c) to have acquired the share or interest on the demutualisation resolution day. 3. If the disposal is of either: (a) a demutualisation original share, or an interest in such a share; or (b) a non ‑ demutualisation bonus share, or an interest in such a share; then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal: (c) for the purposes of applying section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 , the consideration for the acquisition of all of the demutualisation original shares to be taken into account under that section is taken to consist of both: (i) if the disposal and all previous disposals of the demutualisation original shares and the non ‑ demutualisation bonus shares, or interests in them, take place after the demutualisation listing day—the amount worked out using the formula: ; and (ii) if subparagraph (i) does not apply—the amount worked out using the formula: ; and (iii) any consideration actually paid or given for the acquisition of the share or interest disposed of; and (d) if the disposal is of a demutualisation original share or an interest in such a share, the disposer is taken: (i) to have paid the amount in subparagraph (c)(i) or (ii) on the demutualisation resolution day and the amount in subparagraph (c)(iii) when it was actually paid; and (ii) to have acquired the share or interest on the demutualisation resolution day. 6 Demutualisation method 7 : After the issue of the shares (each of which is a demutualisation share ) in the mutual insurance company and the mutual affiliate company as mentioned in paragraph 121AL(1)(b), the holding company (the disposer ) disposes of an asset consisting of: (a) a demutualisation share, or an interest in such a share; or (b) another share (a non ‑ demutualisation bonus share ) in the mutual insurance company or the mutual affiliate company, or an interest in such a share, where the share is a bonus share mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares are the original shares mentioned in that section. 1. A capital loss that the disposer makes from the disposal of the demutualisation share or interest in such a share is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. If the disposal is of a demutualisation share (other than a demutualisation original share) or an interest in such a share then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, the disposer is taken: (a) to have paid as consideration for the acquisition of the share or interest both: (i) the amount worked out using the formula: ; and (ii) any consideration actually paid or given for the acquisition; and (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) (b) to have paid the amount in subparagraph (a)(i) on the demutualisation resolution day and the amount in subparagraph (a)(ii) when it was actually paid; and (c) to have acquired the share or interest on the demutualisation resolution day. 3. If the disposal is of either: (a) a demutualisation original share, or an interest in such a share; or (b) a non ‑ demutualisation bonus share, or an interest in such a share; then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal: (c) for the purposes of applying section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 , the consideration for the acquisition of all of the demutualisation original shares to be taken into account under that section is taken to consist of both: (i) the amount worked out using the formula: ; and (ii) any consideration actually paid or given for the acquisition of the share or interest disposed of; and (d) if the disposal is of a share connected with the demutualisation or interest in such a share, the disposer is taken: (i) to have paid the amount in subparagraph (c)(i) on the demutualisation resolution day and the amount in subparagraph (c)(ii) when it was actually paid; and (ii) to have acquired the share or interest on the demutualisation resolution day. 7 Demutualisation method 3, 4, 5 or 7: After the issue of the shares in the mutual insurance company to the holding company as mentioned in paragraph 121AH(1)(b), 121AI(1)(b), 121AJ(1)(b), or in the mutual insurance company and the mutual affiliate company as mentioned in paragraph 121AL(1)(b): (a) the ultimate holding company (the disposer ) disposes of an asset consisting of either of the following shares in the holding company or an interposed holding company: (i) a share (a demutualisation share ) acquired before the issue of the shares in the mutual insurance company, or an interest in such a share; or The same modifications apply as for item 5. (ii) another share (a non ‑ demutualisation bonus share ), or an interest in such a share, where the share is a bonus share mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that section; or (b) the interposed holding company, or any of the interposed holding companies, (the disposer ) disposes of an asset consisting of either of the following shares in the holding company or an interposed holding company: (i) a share (a demutualisation share ) acquired before the issue of the shares in the mutual insurance company, or an interest in such a share; or (ii) another share (a non ‑ demutualisation bonus share ), or an interest in such a share, where the share is a bonus share mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that section. (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) (The ultimate holding company and interposed holding company are those mentioned in paragraph 121AH(1)(c), 121AI(1)(c), 121AJ(1)(c) or 121AL(1)(c)). 8 Demutualisation method 2 or 4: The rights attaching to the special shares held by the trustee become the same as those attaching to the ordinary shares as mentioned in subparagraph 121AG(1)(b)(ii) or paragraph 121AI(1)(d). A capital gain or capital loss arising from a CGT event constituted by the change in the rights is disregarded. 9 Demutualisation method 2, 4, 5, 6 or 7: The trustee (the disposer ): (a) sells an ordinary share (a demutualisation share ) in the company as mentioned in paragraph 121AG(1)(d), 121AI(1)(f), 121AJ(1)(d), 121AK(1)(d) or 121AL(1)(d); or (b) sells another share (a non ‑ demutualisation bonus share ), where the share is a bonus share mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not sold at the time) are the original shares mentioned in that section. (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) 1. The person in the policyholder/member group, instead of the trustee, is taken: (a) to have sold the demutualisation share or non ‑ demutualisation bonus share; and (b) to have paid, given and received any consideration that was paid, given or received by the trustee in respect of either share; and (c) to have done any other act in relation to either share that was done by the trustee. 2. The modifications in item 5 apply to the sale of the demutualisation share or non ‑ demutualisation bonus share in the same way as they do to the disposal of such shares covered by that item. 10 Demutualisation method 2, 4, 5, 6 or 7: The trustee distributes an ordinary share as mentioned in paragraph 121AG(1)(d), 121AI(1)(f), 121AJ(1)(d), 121AK(1)(d) or 121AL(1)(d). A capital gain or capital loss arising from a CGT event constituted by the distribution is disregarded. 11 Any demutualisation method: A person (the disposer ) in the policyholder/member group disposes of an asset consisting of: (a) a share (a demutualisation share ), or an interest in such a share, issued or distributed to the person as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d); or The same modifications apply as for item 5. (b) another share (a non ‑ demutualisation bonus share ) in the same company, or an interest in such a share, where the share is a bonus share mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that section. (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) 12 Various demutualisation methods: A disposal of an asset takes place before the demutualisation listing day, where: (a) modification 1 of item 3, 4, 5, 6, 7 or 11 of this table applies to the disposal; and (b) a roll ‑ over provision (see note 5 to this table) applies to the disposal. 1. If the person who is taken to acquire the asset under the roll ‑ over provision disposes of it before the demutualisation listing day, a capital loss that the person makes from the disposal is disregarded. 2. If the person disposes of the asset on or after the demutualisation listing day, then for the purposes of applying the roll ‑ over provision to that disposal, the modifications in the item in this table apply as if modification 1 were not made. Notes: 1. For the purposes of the table, the applicable company valuation amount , in relation to the disposal of an asset or the allocation of an amount to a member in the records of a superannuation fund, is: (a) if the asset is disposed of, or the amount is allocated, before the demutualisation listing day—the pre ‑ listing day company valuation amount; or (b) in any other case—the listing day company valuation amount. 2. The pre ‑ listing day company valuation amount is: (a) in relation to demutualisation methods 1 to 6, where the mutual insurance company is a life insurance company—the embedded value of the company; or (b) in relation to demutualisation methods 1 to 6, where the mutual insurance company is a general insurance company—the net tangible asset value of the company; or (c) in relation to demutualisation method 7—the sum of the net tangible asset values of the general insurance company and the mutual affiliate company. 3. The listing day company valuation amount is the lesser of: (a) the pre ‑ listing day company valuation amount; and (b) the amount worked out using the formula: 4. The demutualisation listing day is the day on which the ordinary shares mentioned in the demutualisation method concerned are listed. 5. A roll ‑ over provision is: any of these Subdivisions of the Income Tax Assessment Act 1997 : 122 ‑ A, 122 ‑ B, 124 ‑ B, 124 ‑ C, 124 ‑ D, 124 ‑ E, 124 ‑ F, 124 ‑ I, 126 ‑ A, 126 ‑ B; or section 128 ‑ 10 or 128 ‑ 15, or Division 615, of that Act. 6. A trustee who gets a roll ‑ over under Subdivision 124 ‑ M of the Income Tax Assessment Act 1997 for an original interest consisting of shares issued as part of a demutualisation may be eligible for a further roll ‑ over under Subdivision 126 ‑ E of that Act when a beneficiary becomes absolutely entitled to the replacement shares.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 46 of 1998, Sch 10 item 30 | Sch 10 item 112 | Sch 10 item 118 | Sch 10 item 126 | Sch 10 item 283 | Sch 10 item 284 | Sch 10 item 285 | Sch 10 item 286 | Sch 10 item 287 | Sch 10 item 288 | Sch 10 item 289 | Sch 10 item 290 | Sch 10 item 291 | Sch 10 item 292 | Sch 10 item 293 | Sch 10 item 294 | Sch 10 item 295 | Sch 10 item 296 | Sch 10 item 297 | Sch 10 item 298 | Sch 10 item 299 | Sch 10 item 300 | Sch 10 item 301 | Sch 10 item 302 | Sch 10 item 303 | Sch 10 item 304 | Sch 10 item 305 | Sch 10 item 306 | Sch 10 item 307 | Sch 10 item 308 | Sch 10 item 309 | Sch 10 item 310 | Sch 10 item 311 | Sch 10 item 312 | Sch 10 item 313 | Sch 10 item 314 | Sch 10 item 315 | Sch 10 item 316 | Sch 10 item 317 | Sch 10 item 318 | Sch 10 item 319 | Sch 10 item 320 | Sch 10 item 321 | Sch 10 item 322, effective s 4, Sch 2 (items 49–522), Sch 3 (items 13–20), Sch 4 (items 12–27), Sch 5 (items 6–10), Sch 6 (items 8–30), Sch 7 (items 12–19), Sch 8 (items 2–9) and Sch 9 (items 7, 8): 22 June 1998 (s 2(1)–(4)) | Amended by No 169 of 1999, Sch 10 item 17, effective Sch 2 (items 4, 5), Sch 3 (items 5–7), Sch 4 (items 16–19), Sch 7 (items 1–5, 10, 12) and Sch 9 (items 16–22): 10 Dec 1999 (s 2(1), (3)) Sch 5 (item 15): 22 Feb 1999 (s 2(2)) Sch 7 (items 6–9): 22 Sept 2002 (s 2(4)) Sch 9 (item 15): 22 Dec 1999 (s 2(5)) | Amended by No 57 of 2002, Sch 11 item 1, effective Sch 1: 1 July 2001 (s 2(1) item 2) Sch 3, 5, 6, Sch 9 (items 1–8, 41–44), Sch 11 (items 1, 5), Sch 12 ,(items 8–10, 14, 15): 3 July 2002 (s 2(1) items 4, 7, 8, 16, 18, 24, 27) Sch 4 (items 1, 2, 4) and Sch 12 (item 42): 1 July 2000 (s 2(1) items 5, 46) Sch 10: 17 Nov 1999 (s 2(1) item 17) Sch 12 (items 4, 11): 1 July 1998 (s 2(1) items 21, 25) Sch 12 (items 5, 6): 21 Dec 1998 (s 2(1) item 22) Sch 12 (item 7): 7 Dec 1998 (s 2(1) item 23) Sch 12 (items 12, 13): 23 June 1998 (s 2(1) item 26) Sch 12 (item 38): 1 Oct 1997 (s 2(1) item 42) Sch 12 (item 40): 22 Dec 1999 (s 2(1) item 44) Sch 12 (items 43, 65): 1 July 1997 (s 2(1) items 47, 63) | Amended by No 58 of 2006, Sch 7 item 44, effective s 4 and Sch 7 (items 35–50, 241–256): 22 June 2006 (s 2(1) items 1, 6, 24) Sch 7 (items 173, 175): 30 June 2000 (s 2(1) items 9, 11) Sch 7 (item 174): 24 Oct 2002 (s 2(1) item 10) Sch 7 (items 176, 178): 30 June 2004 (s 2(1) items 12, 14) Sch 7 (item 177): 24 Dec 1992 (s 2(1) item 13) | Amended by No 101 of 2006, Sch 2 item 304, effective Sch 1 (items 1, 5–199), Sch 2 (items 118–565, 1017, 1023–1037) and Sch 6 (items 1–4, 6–15): 14 Sept 2006 (s 2(1) items 2, 4) Sch 3 (items 1–10) and Sch 4 (items 1–11): 1 Jan 2008 (s 2(1) item 3) | Amended by No 133 of 2014, Sch 1 item 2 | Sch 1 item 3, effective Sch 1 (items 2, 3, 39) and Sch 3: 12 Dec 2014 (s 2(1) item 2)

s 121AT — Other tax consequences of demutualisation

The table below sets out modifications of the application of this Act (except Parts 3 ‑ 1 and 3 ‑ 3 (about CGT) of the Income Tax Assessment Act 1997 ) in respect of events that are described in, or relate to events that are described in, particular demutualisation methods. TABLE 2—MODIFICATIONS OF THIS ACT (EXCEPT CGT RULES) Item Event Modifications 1 Event described in item 1 of Table 1. No amount is included in, or allowable as a deduction from, assessable income in respect of the extinguishment. 2 Event described in item 3 or 4 of Table 1. 1. If the disposal takes place before the demutualisation listing day (see note 4 to Table 1): (a) no loss is allowable as a deduction from the disposer’s assessable income in respect of the disposal; and (b) any deduction allowable from the disposer’s assessable income in respect of the acquisition of the right or interest does not exceed the amount included in the disposer’s assessable income in respect of the disposal. 2. Paragraphs 2(a) and (b) of the modifications column for item 3 or 4 in Table 1 apply for the purposes of working out: (a) the amount of any profit included in the disposer’s assessable income in respect of the disposal; or (b) the amount of any deduction allowable from the disposer’s assessable income in respect of the acquisition of the right or interest. 3 Event that would be described in item 5 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. 1. If the disposal is of a demutualisation share, or interest in such a share, and the disposal takes place before the demutualisation listing day: (a) no loss is allowable as a deduction from the disposer’s assessable income in respect of the disposal; and (b) any deduction allowable from the disposer’s assessable income in respect of the acquisition of the share or interest does not exceed the amount included in the disposer’s assessable income in respect of the disposal. 2. If the disposal is of a demutualisation share (other than a demutualisation original share), or an interest in such a share, then paragraphs 2(a) to (c) of the modifications column for item 5 in Table 1 apply for the purposes of working out: (a) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or (b) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest 3. If the disposal is of either: (a) a demutualisation original share, or an interest in such a share; or (b) a non ‑ demutualisation bonus share, or an interest in such a share; then paragraphs 3(c) and (d) of the modifications column for item 5 in Table 1 apply for the purpose of working out: (c) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or (d) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest. In applying paragraph 3(c) of the modifications column for item 5 in Table 1, the reference to section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 is taken instead to be a reference to section 6BA. 4 Event that would be described in item 6 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. 1. If the disposal is of a demutualisation share, or interest in such a share, and the disposal takes place before the demutualisation listing day: (a) no loss is allowable as a deduction from the disposer’s assessable income in respect of the disposal; and (b) any deduction allowable from the disposer’s assessable income in respect of the acquisition of the share or interest does not exceed the amount included in the disposer’s assessable income in respect of the disposal. 2. If the disposal is of a demutualisation share (other than a demutualisation original share), or an interest in such a share, then paragraphs 2(a) to (c) of the modifications column for item 6 in Table 1 apply for the purposes of working out: (a) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or (b) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest. 3. If the disposal is of either: (a) a demutualisation original share, or interest in such a share; or (b) a non ‑ demutualisation bonus share, or an interest in such a share; then paragraphs 3(c) and (d) of the modifications column for item 6 in Table 1 apply for the purpose of working out: (c) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or (d) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest. In applying paragraph 3(c) of the modifications column for item 6 in Table 1, the reference to section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 is taken instead to be a reference to section 6BA. 5 Event that would be described in item 7 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. The same modifications as for item 3 of this table apply. 6 Event described in item 8 of Table 1. No amount is included in, or allowable as a deduction from, assessable income in respect of the change in the rights. 7 Event that would be described in item 9 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. 1. The person in the policyholder/member group, instead of the trustee is taken: (a) to have sold the demutualisation share or non ‑ demutualisation bonus share; and (b) to have paid, given and received any consideration that was paid, given or received by the trustee in respect of either share; and (c) to have done any other act in relation to either share that was done by the trustee. 2. The modifications in item 3 of this table apply to the sale of the demutualisation share or non ‑ demutualisation bonus share in the same way as they do to the disposal of such shares covered by that item. 8 Event that would be described in item 11 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130 ‑ 20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. The same modifications as for item 3 of this table apply. 9 Under demutualisation method 6, the whole of the life insurance business of a life insurance company is transferred to another company as mentioned in paragraph 121AK(1)(b). The other company is taken to continue to carry on the transferred life insurance business of the mutual life insurance company. 10 An ordinary share is issued or distributed to a person in the policyholder/member group as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d). No amount is included in, or allowable as a deduction from, assessable income of the person in respect of the issue or distribution of the share, except where the share is issued in consideration for services provided, or to be provided, by the person. 11 Ordinary shares in the company are issued or distributed as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d) to a person in the policyholder/member group who is the trustee of a superannuation fund to hold on behalf of a member of the fund. The trustee within 30 days allocates to the member, in the records of the fund, an amount representing the member’s contributions in respect of the shares (the allocation shares ). If the trustee pays a superannuation benefit to the member, the tax free component (within the meaning of the Income Tax Assessment Act 1997 ) of the superannuation interest (within the meaning of that Act) from which the benefit is paid is increased by the amount worked out using the formula: 12 A resolution is passed to proceed, in accordance with one of the demutualisation methods, with the demutualisation of: (a) a mutual insurance company that is a general insurance company; or (b) both such a mutual insurance company and a mutual affiliate company. The franking surplus is reduced to nil at the beginning of the demutualisation resolution day. Immediately before the demutualisation resolution day: (a) in the case of any demutualisation method—the general insurance company or any wholly ‑ owned subsidiary of the general insurance company; or (b) in the case of demutualisation method 7—the mutual affiliate company, a wholly ‑ owned subsidiary of the mutual affiliate company, or a company all of whose shares are beneficially owned by the general insurance company and the mutual affiliate company; has a franking surplus. 13 A resolution is passed to proceed with the demutualisation of a mutual insurance company or both a mutual insurance company and a mutual affiliate company. A dividend that was declared before the demutualisation resolution day is paid on or after the demutualisation resolution day to: (a) in the case of any demutualisation method—the mutual insurance company or any wholly ‑ owned subsidiary of the mutual insurance company; or (b) in the case of demutualisation method 7—the mutual affiliate company, a wholly ‑ owned subsidiary of the mutual affiliate company, or a company all of whose shares are beneficially owned by the general insurance company and the mutual affiliate company. No franking credit arises for the company or the subsidiary in relation to the payment of the dividend on or after the demutualisation resolution day.

Amendment history: Inserted by No 171 of 1995, effective s 4, Sch 1, Sch 2 (items 1, 2, 86), Sch 3 and Sch 4 (items 1–4): 16 Dec 1995 (s 2(1), (3)) Sch 2 (items 3–85, 87–160): 1 July 1995 (s 2(2)) Sch 4 (items 5–14): 1 Mar 1996 (s 2(4)) | Amended by No 41 of 1998, Sch 6 item 4, effective s 4, Sch 1 (items 4–16, 18–26), Sch 2 (items 1–4), Sch 3 (items 1–3, 7(1)), Sch 4 (items 4, 5), Sch 5 (items 16, 18) and Sch 6 (items 1, 2, 4, 5, 7–13, 15–18, 27): 4 June 1998 (s 2(1)) Sch 1 (item 17): 9 Apr 1999 (s 2(2)) Sch 5 (items 17, 19): 12 Dec 1995 (s 2(5)) Sch 6 (item 3): 16 Dec 1985 (s 2(6)) Sch 6 (item 6): 1 Jan 1993 (s 2(7)) Sch 6 (item 14): never commenced (s 2(9)) Sch 6 (item 16): 1 July 1998 (s 2(10)) | Amended by No 46 of 1998, Sch 10 item 323 | Sch 10 item 324 | Sch 10 item 325 | Sch 10 item 326 | Sch 10 item 327 | Sch 10 item 328 | Sch 10 item 329 | Sch 10 item 330 | Sch 10 item 331, effective s 4, Sch 2 (items 49–522), Sch 3 (items 13–20), Sch 4 (items 12–27), Sch 5 (items 6–10), Sch 6 (items 8–30), Sch 7 (items 12–19), Sch 8 (items 2–9) and Sch 9 (items 7, 8): 22 June 1998 (s 2(1)–(4)) | Amended by No 23 of 2005, Sch 3 item 39 | Sch 3 item 40 | Sch 3 item 41, effective s 4 and Sch 3 (items 14–74, 111(3)–(5), 112–114): 21 Mar 2005 (s 2(1) items 1, 6) | Amended by No 15 of 2007, Sch 1 item 97, effective Sch 1 (items 1–8, 22–149, 406(1)–(3)) and Sch 3 (items 6, 7): 15 Mar 2007 (s 2(1) items 2, 6)

s 121AU — This Subdivision does not apply to demutualisation of friendly society health or life insurers

This Subdivision does not apply in relation to the demutualisation of a company in relation to whose demutualisation Division 316 (Demutualisation of friendly society health or life insurers) of the Income Tax Assessment Act 1997 applies. Note: Section 316 ‑ 5 of the Income Tax Assessment Act 1997 explains which demutualisations of entities Division 316 of that Act applies to.

Amendment history: Inserted by No 88 of 2009, effective s 4, Sch 1, Sch 3 (items 2–4), Sch 4 (items 1, 5) and Sch 5 (items 21–112, 306–318): 18 Sept 2009 (s 2(1) items 1, 2, 6, 7, 10) Sch 2 (items 2, 3): 1 Oct 2009 (s 2(1) item 3)

s 121B — Simplified outline

Scope of section (1) The following is a simplified outline of the Division. Main concepts (2) Subdivision B sets out the concepts used in the Division, the most important being: (a) OB activity (sections 121D, 121EA and 121EAA) together with the related definition of offshore person (section 121E); and (b) special income and allowable deduction definitions relating to OB activities (sections 121EDA to 121EF). Operative provisions (3) Subdivision C contains the operative provisions. Basically, they provide as follows: (d) income from OB activities is taken to be Australian sourced; (e) a deemed interest penalty applies to equity provided by an OBU’s resident owner; (f) income of OBU offshore investment trusts is exempt from tax; (g) income derived by overseas charitable institutions from OBUs is exempt from tax; (h) certain adjustments are made to the capital gains and losses that flow from disposals of certain interests in trusts of which an OBU is the trustee.

Amendment history: Inserted by No 63 of 1947, effective s 3–13 and 15: 15 Dec 1947 (s 2) | Repealed and substituted by No 62 of 1955, effective s 3–12: 4 Nov 1955 (s 2) | Repealed by No 65 of 1957, effective s 3–23: 28 Nov 1957 (s 2) | Inserted by No 17 of 1961, effective 12 June 1961 | Repealed and substituted by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 108 of 1981, effective s 4–25: 24 June 1981 (s 2) | Amended by No 47 of 1984, effective 25 June 1984 (s 2) | Amended by No 49 of 1985, item 20, effective s 4–36, 38, 39 and Sch: 30 May 1985 (s 2) | Amended by No 123 of 1985, item 19 | item 20, effective s 10–36: 28 Oct 1985 (s 2) | Amended by No 138 of 1987, Sch 2 item 24 | Sch 2 item 25, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Repealed by No 97 of 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 191 of 1992, item 20, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 93 of 1999, Sch 1 item 1 | Sch 1 item 2 | Sch 1 item 3, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2)) | Amended by No 143 of 2007, Sch 1 item 55 | Sch 1 item 56, effective Sch 1 (items 2, 3, 18–127, 222, 223, 224(1), (2), 225, 226), Sch 4 (items 1–46, 51, 52), Sch 7 (items 9–17, 104(2)) and Sch 8: 24 Sept 2007 (s 2(1) items 2, 4, 11, 12) | Amended by No 70 of 2015, Sch 3 item 3 | Sch 3 item 9, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20) | Amended by No 110 of 2021, Sch 2 item 2, effective Sch 2 (items 1–7, 13–15): 1 Oct 2021 (s 2(1) item 2)

s 121C — Interpretation

In this Division: adjusted assessable OB income has the meaning given by subsection 121EE(4). adjusted total assessable income has the meaning given by subsection 121EE(5). allowable OB deduction has the meaning given by subsection 121EF(2). apportionable OB deduction has the meaning given by subsection 121EF(5). assessable OB income has the meaning given by subsection 121EE(2). associate has the meaning given by section 318. Australian thing has the meaning given by subsection 121DA(5). average Australian asset percentage has the meaning given by subsection 121DA(2). borrow includes raise finance by the issue of a security. eligible contract means: (a) any of the following: (i) a futures contract; (ii) a forward contract; (iii) an options contract; (iv) a swap contract; (v) a cap, collar, floor or similar contract; or (b) a loan contract; or (c) a securities lending or repurchase arrangement; or (d) a non ‑ deliverable forward foreign currency contract. exclusive non ‑ OB deduction has the meaning given by subsection 121EF(6). exclusive OB deduction has the meaning given by subsection 121EF(3). general OB deduction has the meaning given by subsection 121EF(4). lend includes provide finance by the purchase of a security. loss deduction has the meaning given by subsection 121EF(7). monthly Australian asset percentage has the meaning given by subsection 121DA(3). non ‑ OB accounting records has the meaning given by subsection 121EAA(3). non ‑ OB money , in relation to an OBU, means money of the OBU other than: (a) money received by the OBU in carrying on an OB activity; or (b) OBU resident ‑ owner money of the OBU; or (c) money paid to the OBU by a non ‑ resident (other than in carrying on business in Australia at or through a permanent establishment of the non ‑ resident) by way of subscription for, or a call on, shares in the OBU; (an example of non ‑ OB money being money borrowed from a resident whose lending of the money does not occur in carrying on business in a country outside Australia at or through a permanent establishment of the resident). non ‑ resident trust means a unit trust that is not a resident unit trust within the meaning of section 102Q. OB activity has the meaning given by section 121D. OB advisory activity has the meaning given by section 121DC. OB eligible contract activity has the meaning given by section 121DB. OB income has the meaning given by section 121EDA. OB leasing activity has the meaning given by section 121DD. OBU (offshore banking unit) means an offshore banking unit within the meaning of Division 11A of Part III. Note: In this Division, the head company of a consolidated group or MEC group may be treated for certain purposes as an OBU at a time when a subsidiary member of the group is an OBU (see Subdivision 717 ‑ O of the Income Tax Assessment Act 1997 ). OBU resident ‑ owner money has the meaning given by section 121EC. offshore person has the meaning given by section 121E. offshore property means property that: (a) cannot be in Australia; or Example: Land outside Australia. (b) is used, or will be used: (i) wholly outside Australia; or (ii) in Australia to an extent that is not material. overseas charitable institution means a non ‑ resident institution the income of which: (a) would be exempt from tax under item 1.1 of section 50 ‑ 5 of the Income Tax Assessment Act 1997 (and not under any other item of that section) if the institution had a physical presence in Australia and incurred its expenditure and pursued its objectives principally in Australia; and (b) is exempt in the country in which it is resident. owner , in relation to a company, means a person who, alone or together with an associate or associates, is the beneficial owner of all of the shares in the company. portfolio investment has the meaning given by subsection 121DA(1). related person , in relation to an OBU, means: (a) an associate of the OBU; or (b) a permanent establishment referred to in paragraph 121EB(1)(b) in relation to the OBU. security means a bond, debenture, debt interest, bill of exchange, promissory note or other security or similar instrument. trade with a person has the meaning given by section 121ED. 90 ‑ day bank bill rate , at a particular time, means: (a) if the Reserve Bank of Australia has published a rate described as the 90 ‑ day bank accepted bill rate in respect of a period in which the particular time occurs—that rate; or (b) in any other case—the rate declared by regulations for the purposes of this definition to be the 90 ‑ day bank accepted bill rate in respect of a period in which the particular time occurs.

Amendment history: Inserted by No 63 of 1947, effective s 3–13 and 15: 15 Dec 1947 (s 2) | Repealed by No 62 of 1955, effective s 3–12: 4 Nov 1955 (s 2) | Inserted by No 17 of 1961, effective 12 June 1961 | Amended by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 108 of 1981, effective s 4–25: 24 June 1981 (s 2) | Amended by No 54 of 1983, Sch 4 item 10, effective Sch 4: 1 Feb 1984 (s 2(2)) | Repealed by No 49 of 1985, item 21 | item 7 | item 13 | item 20 | item 22 | item 29, effective s 4–36, 38, 39 and Sch: 30 May 1985 (s 2) | Inserted by No 123 of 1985, item 21 | item 22 | item 23 | item 34, effective s 10–36: 28 Oct 1985 (s 2) | Repealed by No 138 of 1987, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Inserted by No 191 of 1992, item 20, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 76 of 1996, Sch 1 item 1 | Sch 1 item 2 | Sch 1 item 3 | Sch 1 item 4 | Sch 1 item 5, effective s 4 and Sch 1 (items 1–43, 47): 18 Dec 1996 (s 2(1)) Sch 1 (items 44–46): 1 Jan 1993 (s 2(2)) Sch 2: 27 June 1996 (s 2(3)) Sch 4 (items 19–24): 16 Feb 1997 (s 2(4)) | Amended by No 93 of 1999, Sch 1 item 4 | Sch 1 item 26, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2)) | Amended by No 16 of 2003, Sch 10 item 1, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 5 (item 1), Sch 9 (items 3–12), Sch 10 (item 1) and Sch 23 (items 1–9): 24 Oct 2002(s 2(1) items 4–6, 13) Sch 29 (items 1–11, 14): 29 June 2002 (s 2(1) items 20, 22) | Amended by No 21 of 2005, Sch 3 item 1, effective Sch 3 (items 1–31, 45, 47(1), (2)): 21 Mar 2005 (s 2) | Amended by No 70 of 2015, Sch 3 item 4 | Sch 3 item 10 | Sch 3 item 11 | Sch 3 item 17 | Sch 3 item 18, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121D — Meaning of OB activity

Kinds of OB activity (1) Each of the following things done by an OBU is an OB activity (offshore banking activity) of the OBU (subject to sections 121EA and 121EAA): (a) a borrowing or lending activity described in subsection (2); or (b) a guarantee ‑ type activity described in subsection (3); or (c) a trading activity described in subsection (4) (subject to subsection (4A)); or (d) an OB eligible contract activity (see section 121DB); or (e) an investment activity described in subsection (6), (6A) or (6B); or (f) an OB advisory activity (see section 121DC); or (g) a hedging activity described in subsection (8); or (ga) an OB leasing activity (see section 121DD); or (h) any other activity involving an offshore person, being an activity declared by regulations for the purposes of this paragraph to be an OB activity. Borrowing or lending activity (2) For the purposes of paragraph (1)(a), a borrowing or lending activity is: (a) borrowing money from an offshore person where, if that person is a related person or a person to whom paragraph 121E(b) applies and is not an OBU, the money is not Australian currency; or (b) lending money, or making commitments to lend money, to an offshore person where, if that person is a person to whom paragraph 121E(b) applies and is not an OBU, the money is not Australian currency; or (c) borrowing gold from an offshore person; or (d) lending gold to an offshore person; or (e) acting as an arranger in a syndicated lending arrangement that includes a borrowing or lending activity to which paragraph (a), (b), (c) or (d) applies. Guarantee ‑ type activity (3) For the purposes of paragraph (1)(b), a guarantee ‑ type activity is: (a) providing a guarantee or letter of credit to an offshore person in relation to activities that are, or will be, conducted: (i) wholly outside Australia; or (ii) in Australia to an extent that is not material; or (b) underwriting a risk for an offshore person in respect of: (i) offshore property; or (ii) an event, if the likelihood of the event happening in Australia is not material; or (c) syndicating a loan for an offshore person; or (d) issuing a performance bond to an offshore person in relation to activities that are, or will be, conducted: (i) wholly outside Australia; or (ii) in Australia to an extent that is not material; where, if the offshore person is a related person, any money payable under the guarantee, letter, underwriting, loan or bond is not Australian currency. Trading activity (4) For the purposes of paragraph (1)(c), a trading activity is: (a) trading with an offshore person in: (i) securities issued by non ‑ residents; or (ii) eligible contracts, under which any amounts payable are payable by non ‑ residents; or (aa) trading with any person in non ‑ deliverable forward foreign currency contracts; or (b) trading with an offshore person in: (i) shares in non ‑ resident companies; or (ii) units in non ‑ resident trusts; or (c) trading with an offshore person in options or rights in respect of securities, eligible contracts, shares or units referred to in paragraph (a) or (b); or (d) trading (including on behalf of an offshore person) on the Sydney Futures Exchange in futures contracts, or options contracts, under which any money payable is not Australian currency; or (e) trading in currency, or options or rights in respect of currency, with any person, where the currency is not Australian currency; or (ea) trading in currency, or options or rights in respect of currency, with an offshore person; or (f) trading in gold bullion, or in options or rights in respect of such bullion: (i) with an offshore person where the money or moneys payable or receivable is or are in any currency; or (ii) a person other than an offshore person where the money or moneys payable or receivable is or are in a currency other than Australian currency; or (g) trading with an offshore person in silver, platinum or palladium bullion, or in options or rights in respect of such bullion; or (h) trading with an offshore person in base metals; or (i) trading with an offshore person in commodities, or in options or rights in respect of commodities, if: (i) the commodities, options or rights are not mentioned in another paragraph of this subsection; and (ii) the trading is incidental to an OB eligible contract activity. (4A) However, paragraph (1)(c) does not apply to a trading activity done by an OBU if: (a) the thing traded in affected the OBU’s total participation interest (within the meaning of the Income Tax Assessment Act 1997 ) in another entity; and (b) just before the trading activity: (i) the OBU’s total participation interest in the other entity was at least 10%; or (ii) any of the thing traded in was held by the OBU, and was not recorded in the OBU’s accounting records as held for trading in accordance with accounting standards (within the meaning of that Act). (4B) For the purposes of subsection (4A), disregard rights on winding ‑ up. Investment activity (6) For the purposes of paragraph (1)(e), an investment activity is making (but not managing), as broker or agent for, or trustee for the benefit of, an offshore person to whom paragraph 121E(a) applies, an investment with an offshore person to whom that paragraph applies, where: (a) the currency in which the investment is made is not Australian currency; and (b) if the investment involves the purchase of any thing: (i) if the thing is a share in a company—the company is a non ‑ resident company; or (ii) if the thing is a unit in a unit trust—the unit trust is a non ‑ resident trust; or (iii) if the thing is land or a building—the land or building is not in Australia; or (iv) in any other case—the thing is located outside Australia. Investment activity—portfolio investment (6A) For the purposes of paragraph (1)(e), an investment activity is also the managing by an OBU of a portfolio investment (see subsection 121DA(1)) for the whole or part (the investment management period ) of a year of income, where: (a) the portfolio investment is managed as broker, agent or custodian for, or trustee for the benefit of, a non ‑ resident; and (b) the portfolio investment was made by the OBU or the non ‑ resident; and (c) the portfolio investment was made with a non ‑ resident (except to the extent that making the investment consisted of making a loan or purchasing an Australian thing); and (d) the currency in which the portfolio investment was made was not Australian currency; and (e) if the portfolio investment consists of only a single thing—the thing is not an Australian thing (see subsection 121DA(5)). Investment activity—portfolio investment for overseas charitable institutions (6B) For the purposes of paragraph (1)(e), an investment activity is also the managing by an OBU of a portfolio investment (see subsection 121DA(1)) for the whole or part (the investment management period ) of a year of income, where: (a) the portfolio investment is managed as broker, agent or custodian for, or trustee for the benefit of, an overseas charitable institution; and (b) the portfolio investment was made by the OBU or the overseas charitable institution. Hedging activities (8) For the purposes of paragraph (1)(g), a hedging activity is entering into a financial arrangement (within the meaning of the Income Tax Assessment Act 1997 ) with an offshore person for the sole purpose of eliminating or reducing the risk of adverse financial consequences that might result to the OBU from: (a) interest rate exposure of the OBU in respect of borrowing or lending activities (described in subsection (2)) of the OBU; or (b) currency exposure of the OBU in respect of borrowing or lending activities (described in subsection (2)) of the OBU. Effect of subsection (8) (9) Subsection (8) does not limit the scope of any other OB activity of the OBU (for example the trading activity mentioned in paragraph (4)(e)).

Amendment history: Inserted by No 17 of 1961, effective 12 June 1961 | Repealed and substituted by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 108 of 1981, effective s 4–25: 24 June 1981 (s 2) | Repealed by No 49 of 1985, item 23 | item 22, effective s 4–36, 38, 39 and Sch: 30 May 1985 (s 2) | Inserted by No 138 of 1987, Sch 2 item 32 | Sch 2 item 58, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Repealed by No 97 of 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 191 of 1992, item 15 | item 90 | item 2 | item 16 | item 20, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 82 of 1994, Sch 4 item 111, effective s 8–43, 47–71, 80–83, 93–112, 114–119, 122, 128–134: 23 June 1994 (s 2(1)) s 7, 120 and 121: 22 Oct 1986 (s 2(2)) s 44–46: 9 June 1993 (s 2(3)) s 72–79: 1 Jan 1993 (s 2(4)) s 84–92: 30 June 1992 (s 2(5)) s 113: 21Dec 1992 (s 2(6)) s 123–127): 24 Dec 1992 (s 2(7)) | Amended by No 76 of 1996, Sch 1 item 6 | Sch 1 item 8 | Sch 1 item 9 | Sch 1 item 10 | Sch 1 item 11 | Sch 1 item 13 | Sch 1 item 15 | Sch 1 item 16 | Sch 1 item 17, effective s 4 and Sch 1 (items 1–43, 47): 18 Dec 1996 (s 2(1)) Sch 1 (items 44–46): 1 Jan 1993 (s 2(2)) Sch 2: 27 June 1996 (s 2(3)) Sch 4 (items 19–24): 16 Feb 1997 (s 2(4)) | Amended by No 93 of 1999, Sch 1 item 5 | Sch 1 item 10 | Sch 1 item 11 | Sch 1 item 12 | Sch 1 item 13 | Sch 1 item 14 | Sch 1 item 15 | Sch 1 item 16 | Sch 1 item 21 | Sch 1 item 22, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2)) | Amended by No 15 of 2009, Sch 1 item 36, effective Sch 1 (items 31–51, 102–105): 26 Mar 2009 (s 2(1) item 2) | Amended by No 70 of 2015, Sch 3 item 1 | Sch 3 item 2 | Sch 3 item 5 | Sch 3 item 12 | Sch 3 item 13 | Sch 3 item 19 | Sch 3 item 20 | Sch 3 item 21 | Sch 3 item 22 | Sch 3 item 23 | Sch 3 item 25 | Sch 3 item 26 | Sch 3 item 27 | Sch 3 item 28 | Sch 3 item 29 | Sch 3 item 30 | Sch 3 item 31 | Sch 3 item 32, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121DA — Meaning of expressions relevant to investment activity

Portfolio investment (1) If, under a contract or trust instrument, an OBU manages one or more investments as broker an agent or custodian for, or trustee for the benefit of, a non ‑ resident, the investment, or all of the investments, constitute a portfolio investment . Average Australian asset percentage (2) The average Australian asset percentage of a portfolio investment is the average, for all months that wholly or partly fall within the investment management period (see subsection 121D(6A) or (6B)), of the monthly Australian asset percentages (see subsection (3)) of all of the things comprising the portfolio investment. Monthly Australian asset percentage (3) For the purposes of subsection (2), the monthly Australian asset percentage of the things for a month is the percentage of the total value of all of the things comprising the portfolio investment, for the month, that is represented by the value of Australian things. Basis for working out percentage (4) The percentage in subsection (3) must be worked out according to reasonable accounting practice that applies on the same basis for all months falling wholly or partly within the investment management period. Australian thing (5) A thing is an Australian thing at a particular time if: (a) where the thing is a share in a company—the company is a resident company at the time; or (b) where the thing is a unit in a unit trust—the unit trust is a resident trust (within the meaning of section 102Q) in relation to the year of income in which the time occurs; or (c) where the thing is land or a building—the land or building is in Australia; or (d) where the thing is a loan—the loan was made to an Australian resident; or (e) in any other case—the thing is located in Australia at the time.

Amendment history: Inserted by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 108 of 1981, effective s 4–25: 24 June 1981 (s 2) | Amended by No 47 of 1984, effective 25 June 1984 (s 2) | Amended by No 49 of 1985, item 24, effective s 4–36, 38, 39 and Sch: 30 May 1985 (s 2) | Amended by No 123 of 1985, item 24, effective s 10–36: 28 Oct 1985 (s 2) | Amended by No 138 of 1987, Sch 2 item 27, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Repealed by No 97 of 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 76 of 1996, Sch 1 item 2 | Sch 1 item 3 | Sch 1 item 4 | Sch 1 item 5 | Sch 1 item 10 | Sch 1 item 13 | Sch 1 item 17, effective s 4 and Sch 1 (items 1–43, 47): 18 Dec 1996 (s 2(1)) Sch 1 (items 44–46): 1 Jan 1993 (s 2(2)) Sch 2: 27 June 1996 (s 2(3)) Sch 4 (items 19–24): 16 Feb 1997 (s 2(4)) | Amended by No 93 of 1999, Sch 1 item 15 | Sch 1 item 17 | Sch 1 item 18, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2))

s 121DB — Meaning of OB eligible contract activity

An OB eligible contract activity is entering into an eligible contract (other than a loan contract that is not a securities lending or repurchase arrangement) with: (a) an offshore person; or (b) if the eligible contract is a non ‑ deliverable forward foreign currency contract—any person.

Amendment history: Inserted by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 47 of 1984, effective 25 June 1984 (s 2) | Amended by No 138 of 1987, Sch 2 item 31, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Repealed by No 97 of 1989, Sch 2 item 1988, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 70 of 2015, Sch 3 item 18 | Sch 3 item 19, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121DC — Meaning of OB advisory activity

(1) An OB advisory activity is giving investment or other financial advice to an offshore person, including advice about disposing of an investment. (2) Giving advice about the making of a particular investment is not an OB advisory activity unless the investment is of a kind mentioned in subsection 121D(6) (Investment activity). (3) Subsection (2) does not exclude giving advice about a particular investment of a different kind if doing so is incidental to advising on an investment of a kind mentioned in subsection 121D(6) (for example for the purpose of comparison or because the investments are commercially related). (4) To avoid doubt, for the purposes of this section, advice about disposing of an investment is not advice about the making of the investment.

Amendment history: Inserted by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 47 of 1984, effective 25 June 1984 (s 2) | Repealed and substituted by No 138 of 1987, item 32 | Sch 2 item 32, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Repealed by No 97 of 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 70 of 2015, Sch 3 item 18 | Sch 3 item 20, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121DD — Meaning of OB leasing activity

(1) An OB leasing activity is leasing activity with an offshore person involving offshore property. (2) Without limiting subsection (1), OB leasing activity includes entering into: (a) any arrangement (within the meaning of section 51AD) under which a right to use offshore property is granted by the owner to another person; or (b) any arrangement (within the meaning of that section) under which a right to use offshore property, being a right derived directly or indirectly from a right mentioned in paragraph (a) in relation to the property, is granted by a person to another person; with an offshore person.

Amendment history: Inserted by No 110 of 1964, effective s 3–46: 23 Nov 1964 (s 2(1)) | Amended by No 103 of 1965, effective 14 Dec 1965 (s 2) | Amended by No 47 of 1972, effective s 3–12: 7 June 1972 (s 2) | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Amended by No 126 of 1977, effective 10 Nov 1977 (s 2) | Amended by No 106 of 1982, effective 30 Oct 1982 (s 2) | Repealed and substituted by No 47 of 1984, effective 25 June 1984 (s 2) | Amended by No 138 of 1987, Sch 2 item 33, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Repealed by No 97 of 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 70 of 2015, Sch 3 item 18 | Sch 3 item 21, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121E — Meaning of offshore person

A reference to an offshore person, in relation to the doing of any thing by an OBU ( the first OBU ), is a reference to: (a) a non ‑ resident whose involvement in the doing of the thing does not occur in carrying on business in Australia at or through a permanent establishment of that person; or (b) a resident whose involvement in the doing of the thing occurs in carrying on business in a country outside Australia at or through a permanent establishment of the person; or (c) another OBU ( the second OBU ), where, if the doing of the thing involves the payment of any money (for example a loan of money) by the second OBU to the first OBU, the second OBU gives, at or before the time of the payment, a statement in writing to the first OBU to the effect that none of the money is non ‑ OB money of the second OBU.

Amendment history: Inserted by No 17 of 1961, effective 12 June 1961 | Amended by No 51 of 1973, effective s 25(1): 25 June 1968 (s 25(2)) Remainder: 14 June 1973 (s 2) | Repealed by No 97 of 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Inserted by No 191 of 1992, item 15 | item 90 | item 20, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 70 of 2015, Sch 3 item 3 | Sch 3 item 12, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121EA — OBU requirement

For a thing done by an OBU to be an OB activity, it is necessary that, when the thing is done: (a) the OBU is a resident and the thing is not done in carrying on business in a country outside Australia at or through a permanent establishment of the OBU; or (b) the OBU is a non ‑ resident and the thing is done in carrying on business in Australia at or through a permanent establishment of the OBU.

Amendment history: Inserted by No 191 of 1992, item 15 | item 90, effective s 4–35: 21 Dec 1992 (s 2)

s 121EAA — Activities recorded in domestic books not OB activities

(1) An OBU may, when it does a thing that would otherwise be an OB activity of the OBU, choose to have the thing not be an OB activity . Accounting records (2) The OBU recording the thing in the OBU’s non ‑ OB accounting records is sufficient evidence of the making of the choice, if the OBU uses money in the thing. Note 1: The OBU must maintain accounting records, separate from its non ‑ OB accounting records, in respect of money used in its OB activities: see subsection 262A(1A). Note 2: Subsection (2) of this section and subsection 262A(1A) do not apply if the OBU does not use money in the thing, but the OBU must keep documents containing particulars of the choice: see paragraph 262A(2)(b). Note 3: Subsection (2) does not prevent the OBU from correcting a mistake in its accounting records. (3) The OBU’s non ‑ OB accounting records are the OBU’s accounting records, other than the accounting records maintained in respect of money used in the OBU’s OB activities under subsection 262A(1A). Grouping (4) The OBU is treated as having chosen under subsection (1) to have a thing (the transaction ) done by the OBU not be an OB activity if: (a) it is reasonable to regard the transaction and one or more other things done by the OBU as constituting a single scheme (within the meaning of the Income Tax Assessment Act 1997 ); and (b) the OBU chooses under subsection (1) to have any of those other things done by the OBU not be an OB activity. (5) For the purposes of subsection (4), whether the transaction and one or more other things constitute a single scheme is a question of fact and degree determined having regard to the following (whichever are applicable): (a) the nature of the transaction and the other things; (b) their terms and conditions (including those relating to any payment or other consideration for them); (c) the circumstances surrounding their creation and their proposed exercise or performance (including what can reasonably be seen as the purposes of one or more of the entities involved); (d) whether they can be dealt with separately or must be dealt with together; (e) normal commercial understandings and practices in relation to them (including whether they are regarded commercially as separate things or as a group or series that forms a whole). (6) In applying subsection (5), have regard to the matters mentioned in paragraphs (5)(a) to (e) both: (a) in relation to the transaction and other things separately; and (b) in relation to the transaction and other things in combination with each other.

Amendment history: Inserted by No 70 of 2015, Sch 3 item 4, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20) | Amended by No 110 of 2021, Sch 2 item 3 | Sch 2 item 4 | Sch 2 item 5, effective Sch 2 (items 1–7, 13–15): 1 Oct 2021 (s 2(1) item 2)

s 121EB — Internal financial dealings of an OBU

Permanent establishments treated as separate persons (1) If an OBU consists of: (a) one or more permanent establishments in Australia at or through which the OBU carries on what are OB activities apart from this section; and (b) one or more other permanent establishments either in Australia or outside Australia; then sections 121D to 121EAA (inclusive) apply as if: (c) the OBU consisted only of the permanent establishments referred to in paragraph (a); and (d) the permanent establishments referred to in paragraph (b) were separate persons. Head office can be permanent establishment (2) For the purpose of determining under subsection (1) whether something is a permanent establishment, it does not matter whether it is a head office or not. (3) To avoid doubt, this section applies for the purposes of applying Subdivision 230 ‑ A of the Income Tax Assessment Act 1997 to a financial arrangement (within the meaning of that Act). Note: This means that it is possible for financial arrangements to be entered into between the bank and the branch and for the bank or the branch to have a gain or loss from such an arrangement dealt with under Division 230 of the Income Tax Assessment Act 1997 . Arm’s length pricing (4) For the purposes of this Division, treat an amount that, because of subsections (1) to (3): (a) is included in the OBU’s OB income; or (b) is an allowable OB deduction of the OBU; as being the amount that would be so included, or that would be the amount of the allowable OB deduction, were the OBU and the permanent establishments mentioned in paragraph (1)(d) dealing with each other at arm’s length. (5) For the purposes of determining the effect subsection (4) has in relation to the amount that is included or allowable, work out the arm’s length dealing so as best to achieve consistency with: (a) the documents covered by section 815 ‑ 235 of the Income Tax Assessment Act 1997 (Guidance); and (b) subject to paragraph (a), the documents covered by section 815 ‑ 135 of that Act.

Amendment history: Inserted by No 191 of 1992, item 15 | item 90, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 15 of 2009, Sch 1 item 230 | Sch 1 item 37, effective Sch 1 (items 31–51, 102–105): 26 Mar 2009 (s 2(1) item 2) | Amended by No 70 of 2015, Sch 3 item 7 | Sch 3 item 13 | Sch 3 item 33, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121EC — Meaning of OBU resident ‑ owner money

Money is OBU resident ‑ owner money of an OBU if it is paid to the OBU by a resident owner of the OBU by way of a subscription for, or a call on, shares in the OBU, except if the shares are redeemable preference shares.

Amendment history: Inserted by No 191 of 1992, item 15 | item 80 | item 20, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 63 of 1998, Sch 7 item 26, effective Sch 1–4 and Sch 5 (items 1–22, 25–53, 58–67): 1 July 1998 (s 2(1) and gaz 1998, No S325) Sch 5 (items 23, 24, 54–57): 1 July 1998 (s 2(2))

s 121ED — Meaning of trade with a person

A person ( the trader ) is said to trade with another person in a thing if: (a) the trader, for the purpose of trading in the thing, acquires it on issue from the other person; or (b) the trader, for the purpose of trading in the thing, buys it from the other person; or (c) the trader, in trading in the thing, sells it to the other person.

Amendment history: Inserted by No 191 of 1992, item 15, effective s 4–35: 21 Dec 1992 (s 2)

s 121EDA — Meaning of OB income

OB income (1) Subject to subsections (2) to (5), the OB income of an OBU of a year of income is so much of the OBU’s ordinary income and statutory income of the year of income as is: (a) derived from OB activities of the OBU or the part of the OBU to which paragraph 121EB(1)(c) applies; or (b) included in the statutory income because of such activities. (2) Subsection (1) does not apply to amounts included under Part 3 ‑ 1 of the Income Tax Assessment Act 1997 (about capital gains). (3) Subsection (1) does not apply to the extent that the money lent, invested or otherwise used in carrying on the OB activities is non ‑ OB money of the OBU. (4) A typical example of an amount covered by the exception in subsection (3) is interest derived from the OB activity of lending money to an offshore person, where the money lent is non ‑ OB money. Reduction of OB income because of certain investment activities (5) Ordinary or statutory income that: (a) would otherwise be taken into account under subsection (1); and (b) is derived from an investment activity (within the meaning of subsection 121D(6A) or (6B)) included in OB activities of the OBU or the part of the OBU to which paragraph 121EB(1)(c) applies; is reduced by the average Australian asset percentage (within the meaning of subsection 121DA(2)) of the portfolio investment concerned.

Amendment history: Inserted by No 70 of 2015, Sch 3 item 11 | Sch 3 item 16, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121EE — Definitions relating to assessable income of an OBU

Purpose of section (1) This section sets out certain definitions used in this Division that relate to the assessable income of an OBU of a year of income. Assessable OB income (2) The assessable OB income of an OBU is so much of the OBU’s OB income of the year of income as is assessable income. Adjusted assessable OB income (4) The adjusted assessable OB income of an OBU is the OBU’s assessable OB income of the year of income reduced by the sum of the OBU’s exclusive OB deductions for interest (including a discount in the nature of interest). Adjusted total assessable income (5) The adjusted total assessable income of an OBU is the OBU’s assessable income of the year of income reduced by the sum of the OBU’s exclusive OB deductions, and exclusive non ‑ OB deductions, for interest (including a discount in the nature of interest).

Amendment history: Inserted by No 191 of 1992, item 15 | item 80, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 76 of 1996, Sch 1 item 1 | Sch 1 item 12 | Sch 1 item 13, effective s 4 and Sch 1 (items 1–43, 47): 18 Dec 1996 (s 2(1)) Sch 1 (items 44–46): 1 Jan 1993 (s 2(2)) Sch 2: 27 June 1996 (s 2(3)) Sch 4 (items 19–24): 16 Feb 1997 (s 2(4)) | Amended by No 46 of 1998, Sch 10 item 332, effective s 4, Sch 2 (items 49–522), Sch 3 (items 13–20), Sch 4 (items 12–27), Sch 5 (items 6–10), Sch 6 (items 8–30), Sch 7 (items 12–19), Sch 8 (items 2–9) and Sch 9 (items 7, 8): 22 June 1998 (s 2(1)–(4)) | Amended by No 93 of 1999, Sch 1 item 19, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2)) | Amended by No 70 of 2015, Sch 3 item 10 | Sch 3 item 16, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121EF — Definitions relating to allowable deductions of an OBU

Purpose of section (1) This section sets out certain definitions used in this Division relating to allowable deductions of an OBU in relation to a year of income. Allowable OB deduction (2) An allowable OB deduction is any of the following 3 kinds of allowable deduction: (a) an exclusive OB deduction; (b) a general OB deduction; (c) an apportionable OB deduction. Exclusive OB deduction (3) An exclusive OB deduction is any deduction (other than a loss deduction) allowable from the OBU’s assessable income of the year of income that relates exclusively to assessable OB income. General OB deduction (4) A deduction that: (a) is none of the following: (i) a loss deduction; (ii) an apportionable deduction; (iii) an exclusive OB deduction; (iv) an exclusive non ‑ OB deduction; and (b) is allowable from the OBU’s assessable income of the year of income; is a general OB deduction to the extent that: (c) it is incurred in gaining or producing the OB income of the OBU; or (d) it is necessarily incurred in carrying on a business for the purpose of gaining or producing the OB income of the OBU. Apportionable OB deduction (5) An apportionable OB deduction is so much of any apportionable deduction allowable from the OBU’s assessable income of the year of income as is calculated by multiplying the deduction by the following fraction: Exclusive non ‑ OB deduction (6) An exclusive non ‑ OB deduction is any deduction (other than a loss deduction) allowable from the OBU’s assessable income of the year of income that relates exclusively to assessable income that is not assessable OB income. Loss deduction (7) A loss deduction is any allowable deduction under Division 36 of the Income Tax Assessment Act 1997 .

Amendment history: Inserted by No 191 of 1992, item 15, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 39 of 1997, Sch 4 item 139, effective Sch 1: 1 July 1997 (s 2) | Amended by No 70 of 2015, Sch 3 item 15, effective Sch 1 (items 47–64, 195–205): 1 July 2015 (s 2(1) items 3, 6) Sch 2 (items 1–16, 18–23, 38), Sch 3 and Sch 7 (items 2, 3, 11): 25 June 2015 (s 2(1) items 7, 20)

s 121EJ — Source of income derived from OB activities

For the purposes of this Act, income of an OBU that is derived from OB activities of the OBU is taken to be derived from a source in Australia.

Amendment history: Inserted by No 191 of 1992, item 19, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 93 of 1999, Sch 1 item 20, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2)) | Amended by No 143 of 2007, Sch 1 item 60 | Sch 1 item 61, effective Sch 1 (items 2, 3, 18–127, 222, 223, 224(1), (2), 225, 226), Sch 4 (items 1–46, 51, 52), Sch 7 (items 9–17, 104(2)) and Sch 8: 24 Sept 2007 (s 2(1) items 2, 4, 11, 12) | Amended by No 8 of 2019, Sch 8 item 28, effective Sch 6 (items 1, 2): 1 July 2018 (s 2(1) item 6) Sch 7 (item 1) and Sch 8 (items 12, 27–34): 1 Apr 2019 (s 2(1) items 7, 11)

s 121EK — Deemed interest on 90% of certain OBU resident ‑ owner money

Deemed interest (1) If: (a) an owner of an OBU pays an amount of money to the OBU and, because of section 121EC, the amount becomes OBU resident ‑ owner money of the OBU; and (b) the OBU uses, or holds ready for use, the whole or part of the amount (which whole or part is called the OB use amount ) in carrying on any of its OB activities during the whole or part of any year of income (which whole or part is called the OB use period ); then the assessable income of the owner of the year of income includes deemed interest as described in subsection (2). Amount of deemed interest (2) The deemed interest is: (a) applied to 90% of the OB use amount; and (b) applied on a daily ‑ rests basis for the OB use period at a rate that is 2% above the 90 ‑ day bank bill rate from time to time during that period. Deduction for deemed interest (3) A deduction is allowable from the OBU’s assessable income, equal to the amount included in the owner’s assessable income, for the year of income. The deduction is taken to be an exclusive OB deduction for interest.

Amendment history: Inserted by No 191 of 1992, item 19 | item 20, effective s 4–35: 21 Dec 1992 (s 2)

s 121EL — Exemption of income etc. of OBU offshore investment trusts

(1) If: (a) an OBU is a trustee, or is the central manager and controller, of a trust estate; and (b) the only persons who benefit, or are capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust are non ‑ residents; and (c) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6) or (6A); then: (d) any income of the trust estate derived from an investment activity covered by subsection 121D(6) is exempt from income tax; and (e) any capital gain or capital loss made by the trust estate from a CGT event happening in relation to a CGT asset of the trust estate in the course of, or in connection with, an investment activity covered by subsection 121D(6) is disregarded; and (f) any income of the trust estate derived from an investment activity covered by subsection 121D(6A) is exempt from income tax, in so far as the income exceeds the average Australian asset percentage (within the meaning of subsection 121DA(2)) for the portfolio investment concerned; and (g) if, apart from this section, the trust estate would make a capital gain or capital loss from a CGT event happening in relation to a CGT asset of the trust estate in the course of, or in connection with, an investment activity covered by subsection 121D(6A)—the trust estate makes only the average Australian asset percentage (for the portfolio investment concerned) of the gain or loss. (2) If: (a) an OBU is a trustee, or is the central manager and controller, of a trust estate; and (b) the only person who benefits, or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust is an overseas charitable institution; and (c) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6B); then: (d) any income of the trust estate derived from an investment activity covered by subsection 121D(6B) is exempt from income tax; and (e) any capital gain or capital loss made by the trust estate from a CGT event happening in relation to a CGT asset of the trust estate in the course of, or in connection with, an investment activity covered by subsection 121D(6B) is disregarded.

Amendment history: Inserted by No 191 of 1992, item 19, effective s 4–35: 21 Dec 1992 (s 2) | Amended by No 76 of 1996, Sch 1 item 15 | Sch 1 item 17, effective s 4 and Sch 1 (items 1–43, 47): 18 Dec 1996 (s 2(1)) Sch 1 (items 44–46): 1 Jan 1993 (s 2(2)) Sch 2: 27 June 1996 (s 2(3)) Sch 4 (items 19–24): 16 Feb 1997 (s 2(4)) | Amended by No 46 of 1998, Sch 10 item 118 | Sch 10 item 333 | Sch 10 item 334, effective s 4, Sch 2 (items 49–522), Sch 3 (items 13–20), Sch 4 (items 12–27), Sch 5 (items 6–10), Sch 6 (items 8–30), Sch 7 (items 12–19), Sch 8 (items 2–9) and Sch 9 (items 7, 8): 22 June 1998 (s 2(1)–(4)) | Amended by No 93 of 1999, Sch 1 item 21 | Sch 1 item 22 | Sch 1 item 37, effective s 4, Sch 1 (items 1–35, 39–48), Sch 2, Sch 3 (items 26–33), Sch 4 (items 1–23, 25), Sch 5 and 7: 16 July 1999 (s 2(1)) Sch 4 (item 24): 16 Apr 1998 (s 2(2))

s 121ELA — Exemption of income etc. of overseas charitable institutions

Investment with OBU (1) Income, derived by an overseas charitable institution, is exempt to the extent that it is: (a) a payment or outgoing from an OBU as part of the OB activities of the OBU; or (b) a distribution of income that is exempt under subsection 121EL(2). Capital gains and losses (2) If: (a) an OBU is a trustee, or is the central manager and controller, of a unit trust estate; and (b) the only person who benefits, or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust is an overseas charitable institution; and (c) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6B); and (d) the overseas charitable institution disposes of its interest in the trust; then the overseas charitable institution makes no capital gain or capital loss from a CGT event happening in relation to the disposal.

s 121ELB — Adjustment of capital gains and losses from disposal of units in OBU offshore investment trusts

Trust with subsection 121D(6) investment activities (1) If: (a) an OBU is a trustee, or is the central manager and controller, of a unit trust estate; and (b) the only persons who benefit, or are capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust are non ‑ residents; and (c) all units in the trust are held by non ‑ residents; and (d) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6); and (e) a non ‑ resident disposes of a unit in the trust; then the non ‑ resident makes no capital gain or capital loss from a CGT event happening in relation to the disposal. Trust with subsection 121D(6A) investment activities (2) If: (a) an OBU is a trustee, or is the central manager and controller, of a unit trust estate; and (b) the only persons who benefit, or are capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust are non ‑ residents; and (c) all units in the trust are held by non ‑ residents; and (d) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6A); and (e) a non ‑ resident disposes of a unit in the trust; and (f) the average Australian asset percentage for the portfolio investment concerned was 10% or less; then if, apart from this section, the non ‑ resident would make a capital gain or capital loss from a CGT event happening in relation to the disposal, the non ‑ resident makes only the average Australian asset percentage of the gain or loss. (3) In working out the average Australian asset percentage for the purposes of subsection (2), the investment management period is taken to be the period during the 12 months before the disposal during which the non ‑ resident held the unit.

s 121F — Interpretation

(1) In this Division, unless the contrary intention appears: agreement means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings. consideration includes a benefit of any kind. diverted income , in relation to a taxpayer, means all the amounts that are included under this Division in the diverted income of the taxpayer. diverted trust income , in relation to a trustee of a trust estate, means all the amounts that are included under this Division in the diverted trust income of the trust estate. income includes all amounts that, apart from the operation of the relevant exempting provisions, would be assessable income. property includes: (a) a chose in action; (b) any estate, interest, right or power, whether at law or in equity, in or over property; and (c) any right to receive income. public company rate means the rate of tax payable in respect of the taxable income of a company that is not a private company. relevant exempting provision means any of the following provisions: (aa) section 50 ‑ 5, 50 ‑ 10, 50 ‑ 15, 50 ‑ 25, 50 ‑ 30, 50 ‑ 40 or 50 ‑ 45 of the Income Tax Assessment Act 1997 ; (b) paragraph 23(ja) as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 4) 1987 ; (baa) paragraph 23(x) as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1988 ; (ba) section 23F, 23FA or 23FB, as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 4) 1987 ; (bb) paragraph 23(jaa) or section 23FC or 23FD, as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989 ; (bc) section 24AM; (c) paragraph 320 ‑ 37(1)(a) of the Income Tax Assessment Act 1997 ; (cb) regulations under the International Organisations (Privileges and Immunities) Act 1963 , insofar as those regulations provide that an organisation is not liable to income tax; (d) any provision of an Act other than this Act to the effect that income of a particular person or body is not subject to taxation under any law of the Commonwealth or to the effect that a particular person or body is not subject to taxation under any law of the Commonwealth. right to receive income , in relation to a person, means a right of the person to have income that will or may be derived (whether from property or otherwise) paid to, or applied or accumulated for the benefit of, the person. tax avoidance agreement means an agreement that was entered into after 24 June 1980 and was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that a person who, if the agreement had not been entered into or carried out, would have been liable to pay income tax in respect of a year of income would not be liable to pay income tax in respect of that year of income or would be liable to pay less income tax in respect of that year of income than that person would have been liable to pay if the agreement had not been entered into or carried out. taxpayer does not include a partnership. (2) In determining for the purposes of this Division whether an agreement is a tax avoidance agreement, no regard shall be had to a purpose that is a merely incidental purpose. (3) For the purposes of this Division, an agreement shall be taken to have been entered into or carried out for a particular purpose, or for purposes that included a particular purpose, if any of the parties to the agreement entered into or carried out the agreement for that purpose, or for purposes that included that purpose, as the case may be. (4) A reference in this Division to a person shall be read as including a reference to a person in the capacity of a trustee. (5) For the purposes of the application of this Division in relation to property acquired under a tax avoidance agreement, a reference to income that is derived from that property shall be read as including a reference to income that is derived from the disposal of that property, of any part of that property or of any interest in that property.

Amendment history: Inserted by No 108 of 1981, effective s 4–25: 24 June 1981 (s 2) | Amended by No 154 of 1981, effective s 4–31 and 39–41: 26 Oct 1981 (s 2) | Amended by No 47 of 1984, effective 25 June 1984 (s 2) | Amended by No 52 of 1986, effective 24 June 1986 (s 2) | Amended by No 138 of 1987, Sch 2 item 34, effective s 4, 5 and 7–52: 18 Dec 1987 (s 2(1)) s 6: 21 Dec 1987 (s 2(2)) | Amended by No 78 of 1988, item 19, effective s 8–13, 14(1), 16–36, 38, 55(1)–(14), 56, 57 and Sch: 24 June 1988 (s 2(1)) s 14(2): 1 July 1988 (s 2(2)) s 15: 22 Dec 1986 (s 2(3)) s 37, 39–53 and 55(15)–(25):1 Nov 1988 (s 2(4) and gaz 1988, No S331) | Amended by No 153 of 1988, item 15, effective s 9–42 and 44: 26 Dec 1988 (s 2(1)) s 43: 1 Jan 1989 (s 2(2)) | Amended by No 97 of 1989, Sch 2 item 1988 | Sch 1 item 1989, effective s 4–9, 11–15 and Sch 1: 30 June 1989 (s 2) | Amended by No 56 of 1994, item 58, effective s 14–23, 39–54, 65–69, 70(3), 71(3), (4), 72–74, 75(2), 76–82, 83(3) and 84–87: 7 Apr 1994 (s 2(1)) s 24–32: 1 July 1993 (s 2(2)) s 33–38: 20 Mar 1994 (s 2(3)) s 55–64: 1 July 1994 (s 2(4)) s 70(1) and 83(1): 30 June 1989 (s 2(5), (8)) s 70(2), 71(2) and 83(2): 8 Jan 1991 (s 2(9)) s 71(1) and 75(1): 17 Jan 1990 (s 2(6), (7)) | Amended by No 169 of 1995, Sch 1 item 9, effective Sch 1 (items 1–14, 16), Sch 2 (items 1–8, 11–15), Sch 3 (items 1–36, 40–44) and Sch 8 (items 1–5): 16 Dec 1995 (s 2(1)) Sch 3 (items 37–39): 1 July 1994 (s 2(2)) Sch 10 (item 2): 13 Oct 1994 (s 2(5)) | Amended by No 121 of 1997, Sch 3 item 50, effective s 4: 8 July 1997 (s 2(1)) Sch 2 (items 18–37), Sch 3 (items 31–61), Sch 4 (items 63–138), Sch 5 (items 43–93), Sch 6 (items 68–132), Sch 7 (items 5–7), Sch 8 (items 32–51), Sch 9 (items 16–40), Sch 10 (items 12–15), Sch 11 (items 37–57) and Sch 12 (items 15–23): 1 July 1997 (s 2(3), (5)) | Amended by No 150 of 1997, Sch 2 item 6, effective Sch 2 (items 3–7): 17 Oct 1997 (s 2(1)) | Amended by No 46 of 1998, Sch 10 item 336, effective s 4, Sch 2 (items 49–522), Sch 3 (items 13–20), Sch 4 (items 12–27), Sch 5 (items 6–10), Sch 6 (items 8–30), Sch 7 (items 12–19), Sch 8 (items 2–9) and Sch 9 (items 7, 8): 22 June 1998 (s 2(1)–(4)) | Amended by No 101 of 2004, effective s 4, Sch 1 (items 1, 4), Sch 8, Sch 10 (items 1–6) and Sch 11 (items 161, 162): 30 June 2004 (s 2(1) items 1, 2, 9, 10, 18) Sch 11 (items 1, 2): 16 July 1999 (s 2(1) item 11) Sch 11 (items 17–34, 38–43): 30 June 2000 (s 2(1) item 13) Sch 11 (items 44–46, 49–51, 60–87, 101–127): 1 July 2000 (s 2(1) item 14) Sch 11 (items 131–140): 1 July 2001 (s 2(1) item 16) | Amended by No 63 of 2005, Sch 1 item 2, effective Sch 1 (items 1–4, 23), Sch 2 and Sch 5: 26 June 2005 (s 2(1) items 2, 4) | Amended by No 101 of 2006, Sch 1 item 116 | Sch 2 item 48, effective Sch 1 (items 1, 5–199), Sch 2 (items 118–565, 1017, 1023–1037) and Sch 6 (items 1–4, 6–15): 14 Sept 2006 (s 2(1) items 2, 4) Sch 3 (items 1–10) and Sch 4 (items 1–11): 1 Jan 2008 (s 2(1) item 3) | Amended by No 96 of 2013, Sch 1 item 19 | Sch 1 item 20, effective Sch 1 (items 19–22): 1 Jan 2014 (s 2(1) item 2)