Income Tax Assessment Act 1997

s 230-455 — Certain taxpayers where no significant deferral

(1) This Division does not apply in relation to your gains or losses from a * financial arrangement for any income year if: (a) you are: (i) an individual; or (ii) a superannuation entity (within the meaning of section 10 of the Superannuation Industry (Supervision) Act 1993 ), a * superannuation fund that is not such an entity, a managed investment scheme (within the meaning of the Corporations Act 2001 ) or an entity with a similar status to such a scheme under a * foreign law relating to corporate regulation; or (iii) an * ADI, a * securitisation vehicle, an entity that is required to register under the Financial Sector (Collection of Data) Act 2001 or an entity that would be required to register under that Act if it were a corporation; or (iv) an entity other than an entity of a kind mentioned in subparagraph (i), (ii) or (iii); and (b) where subparagraph (a)(ii) applies—you satisfy subsection (2) for the income year in which you start to have the arrangement; and (c) where subparagraph (a)(iii) applies—you satisfy subsection (3) for the income year in which you start to have the arrangement; and (d) where subparagraph (a)(iv) applies—you satisfy subsection (4) for the income year in which you start to have the arrangement; and (e) either: (i) the arrangement is to end not more than 12 months after you start to have it; or (ii) the arrangement is not a * qualifying security. (2) An entity satisfies this subsection for an income year if: (a) the value of the entity’s assets (see subsection (5)) for the income year (worked out at the end of the income year) is less than $100 million if the income year is the one in which the entity comes into existence; or (b) the value of the entity’s assets for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $100 million if the income year is an income year after the one in which the entity comes into existence. (3) An entity satisfies this subsection for an income year if: (a) the entity’s * aggregated turnover for the income year (worked out at the end of the income year) is less than $20 million if the income year is the one in which the entity comes into existence; or (b) the entity’s aggregated turnover for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $20 million if the income year is an income year after the one in which the entity comes into existence. (4) An entity satisfies this subsection for an income year if: (a) either: (i) the entity’s * aggregated turnover for the income year (worked out at the end of the income year) is less than $100 million if the income year is the one in which the entity comes into existence; or (ii) the entity’s aggregated turnover for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $100 million if the income year is an income year after the one in which the entity comes into existence; and (b) either: (i) the value of the entity’s financial assets (see subsection (5)) for the income year (worked out at the end of the income year) is less than $100 million if the income year is the one in which the entity comes into existence; or (ii) the value of the entity’s financial assets for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $100 million if the income year is an income year after the one in which the entity comes into existence; and (c) either: (i) the value of the entity’s assets (see subsection (5)) for the income year (worked out at the end of the income year) is less than $300 million if the income year is the one in which the entity comes into existence; or (ii) the value of the entity’s assets for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $300 million if the income year is an income year after the one in which the entity comes into existence. (5) For the purposes of subsections (2) and (4), the value of the entity’s assets or financial assets is to be determined in accordance with: (a) if the entity applies * accounting standard AAS 25 in preparation of its financial reports—that accounting standard or another accounting standard prescribed by the regulations for the purposes of this paragraph; or (b) if paragraph (a) does not apply and the entity prepares its financial reports in accordance with the * accounting principles—the entity’s financial reports; or (c) if paragraphs (a) and (b) do not apply and the entity prepares its financial reports in accordance with an accounting standard comparable to accounting standard AAS 25 under a * foreign law—that comparable standard; or (d) if paragraphs (a), (b) and (c) do not apply—commercially accepted valuation principles. (6) Subsection (1) does not apply to your gains or losses from a * financial arrangement for an income year if: (a) you have made an election under subsection (7) in that income year or an earlier income year; and (b) you start to have the arrangement after the beginning of the income year in which you make the election. (7) An election under this subsection is an election to have this Division apply to all of the * financial arrangements that you start to have in the income year in which the election is made or a later income year. (8) An election under subsection (7) is irrevocable. (9) This section does not apply in relation to your gains or losses from a * financial arrangement that you start to have after a time if you are not an individual and you failed to satisfy subsection (2), (3) or (4) (as the case may be) for an income year ending before that time.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 136 of 2010, effective s. 4, Schedule 2, Schedule 3 (items 95, 135–149), Schedule 4, Schedule 6 (items 2–4, 6, 7) and Schedule 7 (items 1, 2, 4): Royal Assent Sch 3 (items 3–94, 96–130): 26 Mar 2009 (s 2(1) items 3, 5) Sch 3 (item 131): 1 July 2010 (s 2(1) item 6) Sch 6 (items 1, 5): 1 Apr 2010 (s 2(1) items 11, 13) | Amended by No 85 of 2013, effective s 4, Sch 1, Sch 2 (items 1–3), Sch 4 (items 1–11) and Sch 7 (items 1, 7–10): 28 June 2013 (s 2(1) items 1–3, 7, 10) Sch 2 (item 6): 1 July 2016 (s 2(1) item 4) Sch 2 (items 7–9): 1 July 2017 (s 2(1) item 5) Sch 4 (items 12, 13): 1 July 2022 (s 2(1) item 8) Sch 4 (items 14, 15): 1 July 2023 (s 2(1) item 9) Sch 8 (items 1–48, 55–64): 26 Mar 2009 (s 2(1) item 11)

s 230-460 — Various rights and/or obligations

Rights and/or obligations subject to an exception (1) This Division does not apply to your gains and losses from a * financial arrangement for any income year to the extent that your rights and/or obligations under the arrangement are the subject of an exception under any of the following subsections. Note: Further exceptions are also provided for in section 230 ‑ 475. Leasing or property arrangement (2) A right or obligation arising under: (a) an * arrangement to which Division 242 (about luxury car leases) applies; or (b) an arrangement to which Division 240 (about arrangements treated as a sale and loan) applies; or (c) an arrangement that relates to an asset to which Division 250 (about assets put to tax preferred use) applies; or (d) an arrangement that, in substance or effect, depends on the use of a specific asset that is: (i) real property; or (ii) goods or a personal chattel (other than money or a * money equivalent); or (iii) intellectual property; and gives a right to control the use of the asset; or (e) an arrangement that is a licence to use: (i) real property; or (ii) goods or a personal chattel (other than money or a money equivalent); or (iii) intellectual property; is the subject of an exception. Interest in partnership or trust (3) A right carried by an interest in a partnership or a trust, or an obligation that corresponds to such a right, is the subject of an exception if: (a) there is only one class of interest in the partnership or trust; or (b) the interest is an * equity interest in the partnership or trust; or (c) for a right or obligation relating to a trust—the trust is managed by a funds manager or custodian, or a responsible entity (as defined in the Corporations Act 2001 ) of a registered scheme (as so defined). (4) Subsection (3) does not apply if, assuming that the * financial arrangement were a * Division 230 financial arrangement, a * fair value election, or an * election to rely on financial reports, would apply to it. Certain insurance policies (5) A right or obligation under a * life insurance policy is the subject of an exception unless: (a) you are not a * life insurance company that is the insurer under the policy; and (b) the policy is an annuity that is a * qualifying security. (6) A right or obligation under a * general insurance policy is the subject of an exception unless: (a) you are not a * general insurance company; and (b) the policy is a * derivative financial arrangement. Certain workers’ compensation arrangements (7) A right or obligation in relation to a liability for workers’ compensation claims to which Subdivision 321 ‑ C applies is the subject of an exception. Certain guarantees and indemnities (8) A right or obligation under a guarantee or indemnity is the subject of an exception unless: (a) assuming that the * financial arrangement were a * Division 230 financial arrangement, it would be the subject of a * fair value election or an * election to rely on financial reports; or (b) the financial arrangement is a * derivative financial arrangement; or (c) the guarantee or indemnity is given in relation to a financial arrangement. Personal arrangements and personal injury (9) The following rights and obligations are the subject of an exception: (a) a right to receive, or an obligation to provide, consideration for providing personal services; (b) a right, or obligation, arising from the administration of a deceased person’s estate; (c) a right to receive, or an obligation to provide, a gift under a deed; (d) a right to receive, or an obligation to provide, a * financial benefit by way of maintenance: (i) to an individual who is or has been the * spouse of the person liable to provide the benefit; or (ii) to or for the benefit of an individual who is or has been a child of the person liable to provide the benefit; or (iii) to or for the benefit of an individual who is or has been a child of an individual who is or has been a spouse of the person liable to provide the benefit; (e) a right to receive, or an obligation to provide, a financial benefit in relation to personal injury to an individual; (f) a right to receive, or an obligation to provide, a financial benefit in relation to an injury to an individual’s reputation. (10) Without limiting paragraph (9)(e), that paragraph applies: (a) even if the person to whom the * financial benefit is to be provided is not the individual who was injured; and (b) even if the personal injury to the individual takes the form of: (i) a wrong to the individual; or (ii) illness of the individual. Note: The person referred to in paragraph (a) may, for example, be a relative of the individual who was injured. Superannuation and pension benefits (11) A right to receive, or an obligation to provide, * financial benefits is the subject of an exception if the right or obligation arises from a person’s membership of a superannuation or pension scheme, including: (a) a right of a dependant of a member to receive financial benefits or an obligation to provide financial benefits to a dependant of a member; and (b) a right or obligation arising from an interest in: (i) a * complying superannuation entity; or (ii) a * non ‑ complying superannuation fund or * non ‑ complying approved deposit fund; or (iii) an * RSA. Interest in controlled foreign companies (12) A right or obligation that arises under a * direct participation interest of an * attributable taxpayer in a * controlled foreign company is the subject of an exception. Proceeds from certain business sales (13) A right to receive, or an obligation to provide, * financial benefits arising from the sale of: (a) a business; or (b) shares in a company that operates a business; or (c) interests in a trust that operates a business; is the subject of an exception if the amounts, or the values, of those benefits are only * contingent on aspects of the economic performance of the business after the sale. Farm management deposits (15) A right to receive, or an obligation to provide, * financial benefits is the subject of an exception if: (a) the right or obligation is the right or obligation of an * owner of a * farm management deposit; and (b) the right or obligation relates to the deposit. Rights and obligations to which section 121EK of the Income Tax Assessment Act 1936 applies (16) A right or obligation that arises because of a payment of an amount to which section 121EK of the Income Tax Assessment Act 1936 applies is the subject of an exception. Forestry managed investment scheme interests (17) A right or obligation under a * forestry interest in a * forestry managed investment scheme in relation to which you can claim deductions under Division 394 is the subject of an exception. Exploration benefits (17A) A right or obligation that arises because of the provision of an * exploration benefit under a * farm ‑ in farm ‑ out arrangement is the subject of an exception. Regulations may provide for exceptions (18) A right or obligation of a kind specified in the regulations for the purposes of this subsection is the subject of an exception.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 114 of 2010, effective Schedule 1 (items 40–86, 93(1), 95): Royal Assent | Amended by No 136 of 2010, effective s. 4, Schedule 2, Schedule 3 (items 95, 135–149), Schedule 4, Schedule 6 (items 2–4, 6, 7) and Schedule 7 (items 1, 2, 4): Royal Assent Sch 3 (items 3–94, 96–130): 26 Mar 2009 (s 2(1) items 3, 5) Sch 3 (item 131): 1 July 2010 (s 2(1) item 6) Sch 6 (items 1, 5): 1 Apr 2010 (s 2(1) items 11, 13) | Amended by No 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011 | Amended by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5) | Amended by No 10 of 2016, effective Sch 1 (items 1–32, 38, 39) and Sch 2 (items 3–9, 30): 26 Feb 2016 (s 2(1) items 2, 4) | Amended by No 4 of 2018, effective Sch 6 (items 9–20, 27): 21 Feb 2018 (s 2(1) item 1) | Amended by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7)

s 230-465 — Ceasing to have a financial arrangement in certain circumstances

(1) This section applies if: (a) you cease to have a * financial arrangement (or part of a financial arrangement); and (b) you make a loss from ceasing to have the arrangement (or that part of the arrangement); and (c) if the arrangement is a marketable security (within the meaning of section 70B of the Income Tax Assessment Act 1936 ): (i) you did not acquire the arrangement in the ordinary course of trading on a securities market (within the meaning of that section); and (ii) at the time you acquired the arrangement, it was not open to you to acquire an identical financial arrangement in the ordinary course of trading on a securities market; and (d) if the arrangement is a marketable security—you did not dispose of the arrangement in the course of trading on a securities market; and (e) it would be concluded that you ceased to have the arrangement wholly or partly because there was an apprehension or belief that the other party or other parties to the arrangement were, or would be likely to be, unable or unwilling to discharge all their liabilities to pay amounts under the arrangement. (2) The amount of the loss is reduced by so much of that amount as is a loss of capital or a loss of a capital nature. Note: However, the amount by which the loss is reduced is a capital loss. (3) In applying paragraph (1)(e), you must have regard to: (a) the financial position of the other party or parties to the * financial arrangement; and (b) the perceptions of the financial position of the other party or parties to the arrangement; and (c) other relevant matters.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-470 — Forgiveness of commercial debts

If a gain that you make from a * financial arrangement arises from the * forgiveness of a debt to which Subdivisions 245 ‑ C to 245 ‑ G apply, the gain is reduced by: (a) if section 245 ‑ 90 (about agreements to forgo capital losses or deductions) applies—the debt’s provisional net forgiven amount mentioned in that section; or (b) if that section does not apply—the debt’s * net forgiven amount. Note: Section 51AAA (about a net capital gains limit) of the Income Tax Assessment Act 1936 also has the effect of preventing you from deducting losses.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 230-475 — Clarifying exceptions

Exceptions (1) To avoid doubt, this Division does not apply to your gains and losses from a * financial arrangement for any income year to the extent that your rights and/or obligations are the subject of an exception under any of the following subsections. (2) This section is not intended to limit, expand or otherwise affect the operation of sections 230 ‑ 45 to 230 ‑ 55 (which tell you what is covered by the concept of financial arrangement ) in relation to rights and/or obligations other than those dealt with in this section. Retirement village and residential or specialist care arrangements (3) The following rights and obligations are the subject of an exception: (a) a right or obligation arising under a * retirement village residence contract; (b) a right or obligation arising under a * retirement village services contract; (c) a right or obligation arising under an * arrangement under which * funded aged care services are provided at an * approved residential care home or under a * specialist aged care program. (4) For the purposes of subsection (3): (a) a retirement village residence contract is a contract that gives rise to a right to occupy * residential premises in a * retirement village; and (b) a retirement village services contract is a contract under which a resident of a retirement village is provided with general or personal services in the retirement village.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 45 of 2025, effective sch 3 (items 217 ‑ 223): 1 Nov 2025 (s 2(1) item 6)

s 230-480 — Treatment of gains in form of franked distribution etc.

(1) This section applies if a gain you make from a * financial arrangement is in the form of: (a) a * franked distribution (including a franked distribution that * flows indirectly to you); or (b) a right to receive a franked distribution (including a franked distribution that will flow indirectly to you). (2) This Division does not apply to the gain to the extent that the * franked distribution has a * franked part.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-481 — Registered emissions units

A * registered emissions unit is exempt from this Division.

Amendment history: Inserted by No 132 of 2011, effective Sch 2 (items 4–71): 2 Apr 2012 (s 2(1) item 5) Sch 2 (items 74–77): never commenced (s 2(1) item 6 (rep by 83, 2014, Sch 3 item 1))

s 230-485 — Effect of change of residence—rules for particular methods

(1) The object of this section is to deal with your gains and losses for an income year in which you change residence by: (a) allocating the gains and losses to your periods of Australian and foreign residence in that income year; and (b) determining the assessability of the gains and the deductibility of the losses according to: (i) your residency in each period; and (ii) the sources of the gains and the connection of the losses with your assessable income. (2) This section applies if: (a) you are a foreign resident for part of an income year (the foreign residency period ) and an Australian resident for the other part of the income year (the Australian residency period ); and (b) section 230 ‑ 490 does not apply in respect of the change of residence. Note: See section 230 ‑ 490 if you change residence, and after the change the gains and losses you make from the arrangement are not assessable or deductible under this Division. Realisation method (3) Subsection (4) applies if: (a) you have a * financial arrangement at the time (the residence change time ): (i) you cease to be an Australian resident; or (ii) you become an Australian resident; and (b) you apply the realisation method to determine the amount of a gain or loss you make from the arrangement. (4) You are taken for the purposes of this Division: (a) to have disposed of the arrangement just before the residence change time for its fair value just before that time; and (b) to have acquired the arrangement again at the residence change time for its fair value at that time. Accruals and hedging financial arrangement methods (5) Subsection (6) applies if: (a) assuming that you disregarded this section and subsection 230 ‑ 40(2), you would apply the accruals or hedging financial arrangement method to determine the amount of: (i) a gain included in your assessable income under section 230 ‑ 15 for the income year; or (ii) a loss you can deduct under section 230 ‑ 15 for the income year; and (b) subsection (4) does not apply in relation to any gain or loss under the arrangement. (6) Apply that method by apportioning the gain or loss on a reasonable basis between those periods so as to work out: (a) a gain or loss from the arrangement for the foreign residency period; and (b) a gain or loss from the arrangement for the Australian residency period. Fair value, foreign exchange retranslation and financial reports methods (7) Subsection (8) applies if: (a) assuming that you disregarded this section and subsection 230 ‑ 40(2), you would apply the fair value or foreign exchange retranslation method or the method of relying on your financial reports to determine the amount of: (i) a gain included in your assessable income under section 230 ‑ 15 for the income year; or (ii) a loss you can deduct under section 230 ‑ 15 for the income year; and (b) subsection (4) does not apply in relation to any gain or loss under the arrangement. (8) Apply that method to work out: (a) a gain or loss from the arrangement for the foreign residency period; and (b) a gain or loss from the arrangement for the Australian residency period.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-490 — Effect of change of residence—disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement

(1) This section applies if: (a) you cease to be an Australian resident at a particular time (the residence change time ); and (b) you have a * financial arrangement at the residence change time; and (c) at the residence change time you expect that any gains and losses you make from the arrangement after that time will not be assessable or deductible under this Division. (2) You are taken for the purposes of this Division: (a) to have disposed of the arrangement just before that time for its fair value just before that time; and (b) to have acquired the arrangement again at the residence change time for its fair value at that time.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-495 — Effect of change of accounting principles or standards

(1) This section applies if: (a) one of these methods apply to take account of a gain or loss you make from a * financial arrangement: (i) the fair value method provided for in Subdivision 230 ‑ C; or (ii) the foreign exchange retranslation method provided for in Subdivision 230 ‑ D; or (iii) the method of relying on your financial reports provided for in Subdivision 230 ‑ F; and (b) there is a change in, or in the application of, the relevant principles or standards (as mentioned in section 230 ‑ 230 (fair value method), 230 ‑ 280 (foreign exchange retranslation method) or 230 ‑ 420 (method of relying on financial reports)) that apply in relation to the arrangement; and (c) that change applies to a particular income year and later years; and (d) as a result of the change, those principles or standards require you to recognise in your statement of financial position an amount (the equity amount ), in order to avoid the need to increase or decrease gains or losses recognised in profit or loss from the financial arrangement in respect of previous income years. (2) If the equity amount is positive, include in your assessable income for the particular income year mentioned in paragraph (1)(c) so much of it as relates to the * financial arrangement mentioned in paragraph (1)(a). (3) If the equity amount is negative, you are entitled to a deduction for the particular income year mentioned in paragraph (1)(c) equal to so much of it as relates to the * financial arrangement mentioned in paragraph (1)(a).

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 136 of 2010, effective s. 4, Schedule 2, Schedule 3 (items 95, 135–149), Schedule 4, Schedule 6 (items 2–4, 6, 7) and Schedule 7 (items 1, 2, 4): Royal Assent Sch 3 (items 3–94, 96–130): 26 Mar 2009 (s 2(1) items 3, 5) Sch 3 (item 131): 1 July 2010 (s 2(1) item 6) Sch 6 (items 1, 5): 1 Apr 2010 (s 2(1) items 11, 13)

s 230-500 — Comparable foreign accounting and auditing standards

The regulations may: (a) specify that particular standards that apply under a * foreign law are to be taken for the purposes of this Division to be comparable to the * accounting principles; and (b) specify that particular standards that apply under a foreign law are to be taken for the purposes of this Division to be comparable to the * auditing principles.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 136 of 2010, effective s. 4, Schedule 2, Schedule 3 (items 95, 135–149), Schedule 4, Schedule 6 (items 2–4, 6, 7) and Schedule 7 (items 1, 2, 4): Royal Assent Sch 3 (items 3–94, 96–130): 26 Mar 2009 (s 2(1) items 3, 5) Sch 3 (item 131): 1 July 2010 (s 2(1) item 6) Sch 6 (items 1, 5): 1 Apr 2010 (s 2(1) items 11, 13)

s 230-505 — Financial arrangement as consideration for provision or acquisition of a thing

(1) This section applies if you start or cease to have a * Division 230 financial arrangement as consideration for the provision or acquisition of a thing. (2) Work out the * market value of the thing at the time at which you (in fact) provide or acquire it. For the purposes of applying this Act to you, treat the amount: (a) you obtain for providing the thing; or (b) you provide for acquiring the thing; as being that market value. Note 1: The amount may be relevant, for example, for the purposes of applying the provisions of this Act dealing with capital gains, capital allowances or trading stock to the thing. Note 2: This subsection does not affect the financial benefits received or provided under the financial arrangement from you starting or ceasing to have it (except in the circumstances described in Note 3). However: (a) the market value of the thing will be, or form part of, those financial benefits for the purposes of section 230 ‑ 445; and (b) in the case of a non arm’s length transaction, the amount of those financial benefits may be affected by section 230 ‑ 510. Note 3: If the thing is itself a Division 230 financial arrangement and subsection (3) does not apply, this subsection will determine the financial benefits received or provided under the financial arrangement from you starting or ceasing to have it. (3) Subsection (2) does not apply if: (a) you start or cease to have the * financial arrangement as mentioned in subsection (1) under an arrangement (the starting or ceasing arrangement ); and (b) the thing is itself a * Division 230 financial arrangement; and (c) the starting or ceasing arrangement is not itself a Division 230 financial arrangement. Example: An arrangement for exchanging a share subject to Subdivision 230 ‑ C for another share subject to Subdivision 230 ‑ C, where the arrangement itself is not a Division 230 financial arrangement. (4) For the purposes of this section: (a) treat yourself as providing a thing to another entity if: (i) you have provided, or are to provide, the thing to the other entity; or (ii) you cease to have, have ceased to have or are to cease to have, the thing; or (iii) the other entity starts to have, has started having or is to start to have, the thing; and (b) treat yourself as acquiring a thing if: (i) another entity has provided, or is to provide, the thing to you; or (ii) another entity ceases to have, has ceased to have or is to cease to have, the thing; or (iii) you start to have, have started to have or are to start to have, the thing. (5) For the purposes of this section, treat part of a * Division 230 financial arrangement as a Division 230 financial arrangement. (6) Without limiting subsection (1), the thing provided, or the thing acquired, need not be a tangible thing and may take the form of services, conferring a right, incurring an obligation or extinguishing or varying a right or obligation. (7) To avoid doubt, this section applies even if your starting or ceasing to have the * financial arrangement mentioned in subsection (1) is only part of the consideration for the provision or acquisition of the thing. (8) For the purposes of this section, treat your starting or ceasing to have the * financial arrangement mentioned in subsection (1) as consideration for the provision or acquisition of the thing if that starting or ceasing is, in substance or effect, done for the provision or acquisition of the thing. Example: Starting to have a financial arrangement in satisfaction of an obligation, where the obligation itself was incurred as consideration for the thing.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-510 — Non ‑ arm’s length dealings in relation to financial arrangement

(1) This section applies if: (a) a balancing adjustment is made under Subdivision 230 ‑ G in relation to a * Division 230 financial arrangement you have; and (b) if the balancing adjustment was made because of paragraph 230 ‑ 435(1)(b) or (d) (cessations without transfer)—the arrangement is not a * debt interest or loan. Non ‑ arm’s length transaction resulting in you starting to have the arrangement (2) Subsection (3) applies if the parties to the dealing that resulted in you starting to have the arrangement were not dealing at * arm’s length in relation to the dealing. (3) For the purposes of this Division: (a) disregard the amount of the * financial benefit (if any) that you provided or received in relation to you starting to have the arrangement; and (b) instead, treat yourself as having provided or received a financial benefit in relation to you starting to have the arrangement that is equal to the amount of the financial benefit that you would have provided or received if the parties to the dealing mentioned in subsection (2) were dealing at * arm’s length in relation to the dealing. Non ‑ arm’s length transaction resulting in change of an amount of a financial benefit that you provided or received under the financial arrangement (4) Subsection (5) applies if the parties to a dealing that resulted in a change of an amount of a * financial benefit that you provide or receive under the * financial arrangement were not dealing at * arm’s length in relation to the dealing. (5) For the purposes of this Division: (a) disregard the amount of the * financial benefit (if any) that you provide or receive under the * financial arrangement as a result of the dealing; and (b) instead, treat yourself as providing or receiving a financial benefit under the financial arrangement as a result of the dealing that is equal to the amount of the financial benefit that you would have provided or received if the parties to the dealing were dealing at * arm’s length in relation to the dealing. Non ‑ arm’s length transaction resulting in balancing adjustment (6) Subsection (7) applies if the parties to the dealing that resulted in the balancing adjustment mentioned in subsection (1) being made were not dealing at * arm’s length in relation to the dealing. (7) For the purposes of this Division: (a) disregard the amount of the * financial benefit (if any) that you provide or receive in relation to the balancing adjustment; and (b) instead, treat yourself as providing or receiving a financial benefit in relation to the balancing adjustment that is equal to the amount of the financial benefit that you would have provided or received if the parties to the dealing mentioned in subsection (6) were dealing at * arm’s length in relation to the dealing.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-515 — Arm’s length dealings in relation to financial arrangement—adjustment to gain or loss in certain situations

(1) This section applies if: (a) disregarding this Division, a provision mentioned in subsection (2) makes an adjustment to an amount (including a nil amount) (the relevant amount ); and (b) the relevant amount is relevant in determining the amount of a gain or loss you make from a * Division 230 financial arrangement. (2) The provisions are as follows: (a) section 52A of the Income Tax Assessment Act 1936 ; (c) Division 16J of Part III of the Income Tax Assessment Act 1936 ; (d) Division 16K of Part III of the Income Tax Assessment Act 1936 ; (e) item 3 of the table in subsection 245 ‑ 65(1) of this Act; (f) section 775 ‑ 40 of this Act. (3) In determining the amount of the gain or loss, treat the relevant amount as having been adjusted by the provision mentioned in subsection (2). (4) However, if the circumstances that give rise to the adjustment result in section 230 ‑ 510 having the effect of altering the amount of the gain or loss, do not treat the relevant amount as having been adjusted under subsection (3) to the extent of that alteration.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent

s 230-520 — Disregard gains or losses covered by value shifting regime

(1) Disregard a gain or loss under this Division from a * financial arrangement to the extent that it is attributable to: (a) a shifting of value that has consequences under Division 723; or (b) a * direct value shift that has consequences under Division 725; or (c) an * indirect value shift that has consequences under Division 727; or (d) a shifting of value that has consequences analogous to those under Division 725 or 727 under a repealed provision of this Act or of the Income Tax Assessment Act 1936 . (2) Determine whether a shifting of value has the consequences mentioned in paragraph (1)(a) on the assumption that a * realisation event in respect of all or part of the * financial arrangement happens in the income year for the gain or loss.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 136 of 2010, effective s. 4, Schedule 2, Schedule 3 (items 95, 135–149), Schedule 4, Schedule 6 (items 2–4, 6, 7) and Schedule 7 (items 1, 2, 4): Royal Assent Sch 3 (items 3–94, 96–130): 26 Mar 2009 (s 2(1) items 3, 5) Sch 3 (item 131): 1 July 2010 (s 2(1) item 6) Sch 6 (items 1, 5): 1 Apr 2010 (s 2(1) items 11, 13)

s 230-522 — Adjusting a gain or loss that gives rise to a hybrid mismatch

(1) This section applies if a provision of Division 832 would, apart from section 832 ‑ 785, apply to make not allowable an amount (the relevant amount ) that is all or a part of the deduction for: (a) a loss from a * Division 230 financial arrangement; or (b) an amount treated under section 832 ‑ 790 as a separate loss from a Division 230 financial arrangement. (2) The following have effect: (a) if (disregarding section 832 ‑ 790) you made a loss from the * financial arrangement, and the relevant amount does not exceed the amount of the loss—the amount of the loss you made is reduced by the relevant amount; (b) if (disregarding section 832 ‑ 790) you made a loss from the financial arrangement, and the relevant amount exceeds the amount of the loss: (i) you do not make a loss from the financial arrangement; and (ii) instead, you make a gain from the financial arrangement equal to the amount of the excess; (c) if (disregarding section 832 ‑ 790) you made a gain from the financial arrangement—the amount of the gain is increased by the relevant amount. (3) The effect of subsection (2) is to be disregarded for the purposes of paragraph (c) of step 1 and paragraph (c) of step 2 of subsection 230 ‑ 445(1) (about balancing adjustments).

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

s 230-525 — Consolidated financial reports

For the purposes of this Division, treat a financial report prepared by another entity as being prepared by you if: (a) the other entity is a * connected entity of yours; and (b) the report is a consolidated financial report that deals with both your affairs and the affairs of the connected entity; and (c) the report properly reflects your affairs.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 230-527 — Elections—reporting documents of foreign ADIs

(1) So much of a Statement of Financial Performance and a Statement of Financial Position, given to * APRA by a foreign ADI (within the meaning of the Banking Act 1959 ) as required under section 13 of the Financial Sector (Collection of Data) Act 2001 , as: (a) cover the activities of an * Australian permanent establishment of the foreign ADI for the year; and (b) are prepared in accordance with the recognition and measurement standards under the * accounting principles; and (c) are audited in accordance with the * auditing principles; are treated, for the purposes of the provisions mentioned in subsection (2), as being a financial report for a year: (d) prepared by the foreign ADI in accordance with the accounting principles; and (e) audited in accordance with the auditing principles. (2) The provisions are as follows: (a) sections 230 ‑ 150 to 230 ‑ 165 (election for portfolio treatment of fees); (b) sections 230 ‑ 210 to 230 ‑ 220 (fair value election); (c) sections 230 ‑ 255 to 230 ‑ 265 (foreign exchange retranslation election); (d) sections 230 ‑ 315 to 230 ‑ 335 (hedging financial arrangement election); (e) sections 230 ‑ 395, 230 ‑ 400, 230 ‑ 410 and 230 ‑ 430 (election to rely on financial reports).

Amendment history: Inserted by No 85 of 2013, effective s 4, Sch 1, Sch 2 (items 1–3), Sch 4 (items 1–11) and Sch 7 (items 1, 7–10): 28 June 2013 (s 2(1) items 1–3, 7, 10) Sch 2 (item 6): 1 July 2016 (s 2(1) item 4) Sch 2 (items 7–9): 1 July 2017 (s 2(1) item 5) Sch 4 (items 12, 13): 1 July 2022 (s 2(1) item 8) Sch 4 (items 14, 15): 1 July 2023 (s 2(1) item 9) Sch 8 (items 1–48, 55–64): 26 Mar 2009 (s 2(1) item 11)

s 230-530 — Additional operation of Division

Foreign currency (1) This Division also applies to * foreign currency as if the currency were a right that constituted a * financial arrangement. Non ‑ equity shares (2) This Division also applies to a * non ‑ equity share in a company as if the share were a right that constituted a * financial arrangement. Commodities held by traders (3) This Division also applies to a commodity that you hold as if the commodity were a right that constituted a * financial arrangement if: (a) you are an entity that trades or deals both in: (i) that commodity; and (ii) financial arrangements whose values change in response to changes in the price or value of that commodity; and (b) you hold that commodity for the purposes of dealing in the commodity; and (c) a * fair value election or an * election to rely on financial reports applies to financial arrangements that you start to have when you start to have the commodity; and (d) the commodity is an asset that you are required (whether or not as a result of a choice you make) by: (i) the * accounting principles; or (ii) if the accounting principles do not apply to the preparation of the financial report—comparable standards for accounting that apply to the preparation of the financial report under a * foreign law; to classify or designate, in your financial reports, as at fair value through profit or loss. Offsetting commodity contracts held by traders (4) This Division also applies to a contract to which you are a party as if the contract were a * financial arrangement if: (a) you have a right to receive or an obligation to provide a commodity under the contract; and (b) you have a practice of dealing in the commodity through the performance of offsetting contracts to receive and provide the commodity; and (c) you do not have, as your sole or dominant purpose for entering into the contract, the purpose of receiving or delivering the commodity as part of your expected purchase, sale or usage requirements; and (d) a * fair value election or an * election to rely on financial reports applies to financial arrangements that you start to have when you enter into the contract; and (e) the contract is an asset or liability that you are required (whether or not as a result of a choice you make) by: (i) the * accounting principles; or (ii) if the accounting principles do not apply to the preparation of the financial report—comparable standards for accounting that apply to the preparation of the financial report under a * foreign law; to classify or designate, in your financial reports, as at fair value through profit or loss.

Amendment history: Inserted by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 136 of 2010, effective s. 4, Schedule 2, Schedule 3 (items 95, 135–149), Schedule 4, Schedule 6 (items 2–4, 6, 7) and Schedule 7 (items 1, 2, 4): Royal Assent Sch 3 (items 3–94, 96–130): 26 Mar 2009 (s 2(1) items 3, 5) Sch 3 (item 131): 1 July 2010 (s 2(1) item 6) Sch 6 (items 1, 5): 1 Apr 2010 (s 2(1) items 11, 13)

s 235-1 — What this Division is about

This Division is about the tax treatment of particular kinds of financial transactions.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-805 — What this Subdivision is about

An entity that invests in an asset through an instalment warrant, instalment receipt, or other similar arrangement, is treated for most income tax purposes as if it had invested in the asset directly. A regulated superannuation fund that invests in an asset through a limited recourse borrowing is treated in the same way. Table of sections Operative provisions 235 ‑ 810 Object of this Subdivision 235 ‑ 815 Application of Subdivision 235 ‑ 820 Look ‑ through treatment for instalment trusts 235 ‑ 825 Meaning of instalment trust and instalment trust asset 235 ‑ 830 What trusts are covered—instalment trust arrangements 235 ‑ 835 Requirement for underlying investments to be listed or widely held 235 ‑ 840 What trusts are covered—limited recourse borrowings by regulated superannuation funds 235 ‑ 845 Interactions with other provisions

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-810 — Object of this Subdivision

The object of this Subdivision is to ensure that, for most income tax purposes, the consequences of ownership of an * instalment trust asset flow to the entity that has the beneficial interest in the asset, instead of to the trustee.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-815 — Application of Subdivision

(1) This Subdivision applies to: (a) the entity that has the beneficial interest in an * instalment trust asset as the beneficiary of an * instalment trust; and (b) the trustee of the instalment trust. (2) This Subdivision applies for the purposes of this Act, apart from: (a) Part VA of the Income Tax Assessment Act 1936 (which is about tax file numbers); and (b) Subdivisions 12 ‑ E, 12 ‑ F and 12 ‑ H in Schedule 1 to the Taxation Administration Act 1953 (which are about PAYG withholding). Joint investments (3) This Subdivision applies in relation to 2 or more entities that hold an interest in a trust as joint tenants, or as tenants in common, in the same way it applies in relation to a single entity that holds such an interest. Note: Each investor that is treated by this Subdivision as jointly owning an instalment trust asset is treated for CGT purposes as owning a separate asset: see section 108 ‑ 7.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-820 — Look ‑ through treatment for instalment trusts

(1) If an entity (the investor ) has a beneficial interest in an * instalment trust asset under an * instalment trust, the asset is treated as being the investor’s asset (instead of being an asset of the trust). Example: A dividend in respect of the asset is paid to the trustee. It is treated (but not for the purposes of the PAYG withholding provisions mentioned in paragraph 235 ‑ 815(2)(b)) as if it had been paid directly to the investor. (2) An act done in relation to an * instalment trust asset of an * instalment trust by the trustee of the trust is treated as if the act had been done by the investor (instead of by the trustee). Example: A trustee disposes of the asset. Any capital gain or loss is made by the investor, not by the trustee. (3) The investor is treated as having the * instalment trust asset in the same circumstances as the investor actually has the interest in the * instalment trust. (4) Without limiting subsection (3), the circumstances include: (a) whether the interest is held on capital account or on revenue account; and (b) whether the interest is held as a joint tenant or tenant in common. (5) Any consequence arising under the * GST Act for the trustee of the * instalment trust, as a result of anything done in relation to the * instalment trust asset, is treated as if it had arisen for the investor (instead of for the trustee), even if that consequence would not have arisen had the thing been done by or to the investor. Example: If the trustee has a net input tax credit under the GST Act, the investor must apply the credit to reduce the investor’s cost base for the instalment trust asset (even if the investor is not registered or required to be registered for GST purposes): see section 103 ‑ 30.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-825 — Meaning of instalment trust and instalment trust asset

(1) A trust is an instalment trust if: (a) the trust is covered by section 235 ‑ 830 (about instalment trust arrangements) and satisfies the requirements in section 235 ‑ 835 (about requirements for underlying investments to be listed or widely held); or (b) the trust is covered by section 235 ‑ 840 (about limited recourse borrowings by * regulated superannuation funds). (2) An instalment trust asset is an asset that is, or is part of, the underlying investment of an * instalment trust (as mentioned in section 235 ‑ 830 or 235 ‑ 840, as the case requires).

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-830 — What trusts are covered—instalment trust arrangements

(1) This section covers a trust if, under an * arrangement: (a) an entity (the investor ) makes a * borrowing, or is provided with credit; and (b) to secure the borrowing or provision of credit, the trustee of the trust acquires an asset or assets (the underlying investment ); and (c) the investor has a beneficial interest in the underlying investment as the sole beneficiary of the trust; and (d) for a provision of credit—the credit was provided to the investor to acquire the asset, or one of the assets, that comprises the underlying investment; and (e) the investor is entitled to the benefit of all income from the underlying investment; and (f) the investor is entitled to acquire legal ownership of the underlying investment on discharging its obligations relating to the borrowing or provision of credit. Note: For paragraph (c), the sole beneficiary of the trust may be 2 or more entities that have an interest in the trust as joint tenants or tenants in common: see subsection 235 ‑ 815(3). (2) However, this section does not cover a trust if the investor is a trustee of a * regulated superannuation fund and the * arrangement includes a * borrowing. (3) This section does not cover a trust if the underlying investment is subject to any charge, security or other encumbrance (apart from any charge securing the obligations relating to the * borrowing or provision of credit).

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-835 — Requirement for underlying investments to be listed or widely held

(1) A trust satisfies the requirements in this section if: (a) each asset that is, or is part of, the underlying investment is: (i) a * share, a unit in a unit trust or a stapled security; or (ii) an interest in an entity that holds an interest in a share, a unit in a unit trust or a stapled security either directly, or indirectly through one or more interposed entities; and (b) each such share, unit or stapled security: (i) is listed for quotation in the official list of an * approved stock exchange; or (ii) meets the widely held requirement set out in the applicable item of the following table. Widely held requirements Item Column 1 Type of asset Column 2 Widely held requirement 1 A * share in a company The company is a * widely held company 2 A unit in a unit trust The unit trust is a widely held unit trust as defined in section 272 ‑ 105 in Schedule 2F to the Income Tax Assessment Act 1936 3 A stapled security All companies involved are * widely held companies and all trusts involved are such widely held unit trusts (2) A * share, unit in a unit trust or a stapled security that fails the widely held requirement set out in the table in subsection (1) is treated as satisfying that requirement if the failure: (a) is of a temporary nature only; and (b) is caused by circumstances outside the investor’s control. (3) In applying subsection (1), disregard an asset, or the cash proceeds from disposing of an asset, if: (a) the trustee became entitled to the asset in respect of a * share, unit or stapled security that was, or was part of, the underlying investment just before the entitlement arose; and (b) the asset is not a * share, unit in a unit trust, or stapled security; and (c) if the asset is an interest in an entity, or a right, option or similar interest that gives the holder an entitlement to acquire an interest in an entity: (i) an interest in the entity is listed for quotation in the official list of an * approved stock exchange; or (ii) the entity meets a widely held requirement set out in column 2 of item 1 or 2 of the table in subsection (1); and (d) the underlying investment comprises one or more other assets that are not disregarded under this subsection. Example: Examples of the types of assets disregarded by this subsection are: (a) assets that represent distributions and capital payments in respect of the underlying investment; and (b) bonus rights issued in respect of the underlying investment. (4) Despite subsections (1) to (3), the underlying investment does not satisfy the requirement in this section if an asset that is, or is part of, the underlying investment is an * ESS interest to which Subdivision 83A ‑ B or 83A ‑ C (about employee share schemes) applies.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-840 — What trusts are covered—limited recourse borrowings by regulated superannuation funds

This section covers a trust if: (a) under an * arrangement, an asset or assets (the underlying investment ) is acquired by the trustee of the trust for the benefit of a trustee of a * regulated superannuation fund to secure a * borrowing; and (b) until the borrowing is repaid, the arrangement is covered by: (i) the exception in subsection 67A(1) of the Superannuation Industry (Supervision) Act 1993 (which is about limited recourse borrowing arrangements); or (ii) the exception in former subsection 67(4A) of that Act (which was about instalment warrants).

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 235-845 — Interactions with other provisions

(1) Section 106 ‑ 50 (about absolutely entitled beneficiaries) does not apply to an * instalment trust asset. (2) Section 106 ‑ 60 (about securities, charges and encumbrances) does not apply to an * instalment trust asset. (3) Nothing in this Subdivision limits Division 247 (which is about capital protected borrowings). Note: Division 247 may apply to an arrangement to which this Subdivision applies.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 240-1 — What this Division is about

For income tax purposes, some arrangements (such as hire purchase agreements) are recharacterised as a sale of property, combined with a loan, by the notional seller to the notional buyer, to finance the purchase price.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-3 — How the recharacterisation affects the notional seller

Effect of notional sale (1) The consideration for the notional sale is either the price stated as the cost or value of the property or its arm’s length value. If the notional seller is disposing of the property as trading stock, the normal consequences of disposing of trading stock follow. In particular, the notional seller will be assessed on the sale price. (2) Where the property is not trading stock the notional seller’s assessable income will include any profit made by the notional seller on the notional sale or on the sale of the property after a notional re ‑ acquisition. Effect of notional loan (3) The notional seller’s assessable income will include notional interest over the period of the loan. Other effects (4) These effects displace the income tax consequences that would otherwise arise from the arrangement. For example, the actual payments to the notional seller are not included in its assessable income. Also, the notional seller loses the right to deduct amounts under Division 40 (about capital allowances).

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Inserted by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1))

s 240-7 — How the recharacterisation affects the notional buyer

Effect of notional purchase (1) The cost of the acquisition is either the price stated as the cost or value of the property or its arm’s length value. If the notional buyer is acquiring the property as trading stock, the normal consequences of acquiring trading stock follow. In particular, the notional buyer can usually deduct the purchase price. (2) If the property is not trading stock, the notional buyer may be able to deduct amounts for the expenditure under Division 40 (about capital allowances). Effect of notional loan (3) The notional buyer may be able to deduct notional interest payments over the period of the loan. Other effects (4) These effects displace the income tax consequences that would otherwise arise from the arrangement. For example, the notional buyer cannot deduct the actual payments to the notional seller.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Inserted by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1))

s 240-10 — Application of this Division

An * arrangement is treated as a notional sale and notional loan if: (a) the arrangement is listed in the table below; and (b) the arrangement relates to the kind of property listed in the table; and (c) any conditions listed in the table are satisfied. Special provisions that apply to particular arrangements are also listed in the table. This Division applies to: * Arrangements of this kind: That relate to this kind of property: If these conditions are satisfied: Special provisions: 1 * Hire purchase agreement Any goods None See Subdivision 240 ‑ I

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-15 — Scope of Division

This Division has effect for the purposes of this Act and for the purposes of the Income Tax Assessment Act 1936 other than: (a) Parts 3 ‑ 1 and 3 ‑ 3 of this Act (capital gains tax); and (b) Division 11A of Part III of the Income Tax Assessment Act 1936 (certain payments to non ‑ residents etc.).

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent

s 240-17 — Who is the notional seller and the notional buyer?

(1) An entity is the notional seller if it is a party to the * arrangement and: (a) actually owns the property; or (b) is the owner of the property because of a previous operation of this Division. (2) An entity is the notional buyer if it is a party to the * arrangement and, under the arrangement, has the * right to use the property. Example: If the arrangement is a hire purchase agreement, the finance provider will be the notional seller and the hirer will be the notional buyer.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-20 — Notional sale of property by notional seller and notional acquisition of property by notional buyer

(1) The * notional seller is taken to have disposed of the property by way of sale to the * notional buyer, and the notional buyer is taken to have acquired it, at the start of the * arrangement. (2) The * notional buyer is taken to own the property until: (a) the * arrangement ends; or (b) the notional buyer becomes the * notional seller under a later arrangement to which this Division applies.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 97 of 2008, effective Sch 1 (items 3–12) and Sch 3 (items 44–173, 189): 3 Oct 2008 (s 2(1) items 2, 3–5)

s 240-25 — Notional loan by notional seller to notional buyer

(1) On entering into the * arrangement, the * notional seller is taken to have made a loan (the notional loan ) to the * notional buyer. (2) The notional loan is for a period: (a) starting at the start of the * arrangement; and (b) ending on the day on which the arrangement is to cease to have effect or, if the arrangement is of indefinite duration, on the day on which it would be reasonable to conclude, having regard to the terms and conditions of the arrangement, that the arrangement will cease to have effect. (3) The notional loan is of an amount (the notional loan principal ) equal to the consideration for the sale of the property less any amount paid, or credited by the * notional seller as having been paid, by the * notional buyer to the notional seller, at or before the start of the * arrangement, for the cost of the property. Note: Section 240 ‑ 80 affects the amount of the notional loan principal where the arrangement is an extension or renewal of another arrangement. (4) The notional loan is subject to payment of interest. (5) The consideration for the sale of the property by the * notional seller, and the cost of the acquisition of the property by the * notional buyer, are each taken to have been: (a) if an amount is stated to be the cost or value of the property for the purposes of the * arrangement and the notional seller and the notional buyer were dealing with each other at * arm’s length in connection with the arrangement—the amount so stated; or (b) otherwise—the amount that could reasonably have been expected to have been paid by the notional buyer for the purchase of the property if: (i) the notional seller had actually sold the property to the notional buyer at the start of the arrangement; and (ii) the notional seller and the notional buyer were dealing with each other at arm’s length in connection with the sale. (6) The notional loan principal is taken to be repaid, and the interest is taken to be paid, by the making of the payments under the * arrangement.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-30 — What this Subdivision is about

This Subdivision provides for the inclusion in the notional seller’s assessable income of: (a) amounts (notional interest) on account of the interest for the notional loan that the notional seller is taken to have made to the notional buyer; and (b) any profit made by the notional seller: (i) on the notional sale of the property to the notional buyer; or (ii) on a sale of the property after any notional re ‑ acquisition of the property by the notional seller. Table of sections Operative provisions 240 ‑ 35 Amounts to be included in notional seller’s assessable income 240 ‑ 40 Arrangement payments not to be included in notional seller’s assessable income

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-35 — Amounts to be included in notional seller’s assessable income

Notional interest (1) The * notional seller’s assessable income of an income year includes the * notional interest for * arrangement payment periods, and parts of arrangement payment periods, in the income year. Profit on notional sale (2) If the property is not * trading stock of the * notional seller and the consideration for the notional sale of the property exceeds the cost of the acquisition of the property by the notional seller, the excess is included in the notional seller’s assessable income of the income year of the notional sale. Profit on actual sale after notional re ‑ acquisition (3) If: (a) the * notional seller is taken under this Division to have re ‑ acquired the property from the * notional buyer; and (b) the notional seller afterwards sells the property; and (c) the consideration for the sale exceeds the cost of the re ‑ acquisition; the excess is included in the notional seller’s assessable income of the income year in which the sale occurred.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-40 — Arrangement payments not to be included in notional seller’s assessable income

(1) The * arrangement payments that the * notional seller receives, or is entitled to receive, under the * arrangement: (a) are not to be included in the * notional seller’s assessable income of any income year; but (b) are not taken to be * exempt income of the notional seller. (2) However, those * arrangement payments are taken into account in calculating * notional interest that is included in the * notional seller’s assessable income under section 240 ‑ 35. (3) A loss or outgoing incurred by the * notional seller in deriving any such * arrangement payments is not taken to be a loss or outgoing incurred by the notional seller in relation to gaining or producing * exempt income.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-45 — What this Subdivision is about

This Subdivision provides that the notional buyer may, in certain circumstances, be entitled to deductions for the notional interest for the notional loan that the notional seller is taken to have made to the notional buyer. Table of sections Operative provisions 240 ‑ 50 Extent to which deductions are allowable to notional buyer 240 ‑ 55 Arrangement payments not to be deductions

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-50 — Extent to which deductions are allowable to notional buyer

(1) The * notional buyer is only entitled to deduct * notional interest for an income year to the extent that the notional buyer would, apart from this Division, have been entitled to deduct * arrangement payments for that income year if no part of those payments were capital in nature. (2) The * notional buyer is entitled to deduct * notional interest for * arrangement payment periods, and parts of arrangement payment periods, in the income year.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-55 — Arrangement payments not to be deductions

The * notional buyer is not entitled to deduct * arrangement payments that the * notional buyer makes under the * arrangement, but those payments are taken into account in calculating * notional interest that may be deducted under section 240 ‑ 50.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 14 of 2009, effective Schedule 1, Schedule 4 (items 11–34, 52) and Schedule 5 (items 7–13): Royal Assent Schedule 5 (items 2, 3, 14): 29 Jan 2009 Schedule 5 (items 5, 6): 1 July 2011

s 240-60 — Notional interest

(1) The * notional interest for an * arrangement payment period is worked out as follows: Calculating * notional interest Step 1. Add the * notional interest from previous * arrangement payment periods to the notional loan principal. Step 2. Subtract any * arrangement payments that have already been made or that are due but that have not been made. The result is the outstanding notional loan principal as at the start of the * arrangement payment period. Step 3. Work out the implicit interest rate for the * arrangement payment period, taking into account the * arrangement payments payable by the * notional buyer under the * arrangement and any * termination amounts. Step 4. Multiply the outstanding notional loan principal by the implicit interest rate. The result is the notional interest for the * arrangement payment period. (2) If only part of an * arrangement payment period occurs during an income year, the * notional interest for that part of the arrangement payment period is so much of the notional interest for that arrangement payment period as may appropriately be related to that income year in accordance with generally accepted accounting principles. (3) In calculating the implicit interest rate, if any of the relevant amounts are not known at the start of the * arrangement, a reasonable estimate of the amount is to be made and is to be used for the purposes of calculating the implicit interest rate for each income year of the * notional seller. (4) If a reasonable estimate cannot be made at that time, an estimate of the amount is to be made at the end of each income year of the * notional seller for the purposes of calculating the implicit interest rate for each income year of the notional seller.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-65 — Arrangement payments

An arrangement payment is an amount that the * notional buyer is required to pay under the * arrangement but does not include: (a) an amount in the nature of a penalty payable for failure to make a payment on time; or (b) a * termination amount.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-70 — Arrangement payment periods

(1) An * arrangement payment period is a period for which a payment under the * arrangement is allocated or expressed to be payable. (2) However, if a period exceeds 6 months, the period is not an * arrangement payment period but each of the following parts of the period is a separate arrangement payment period: (a) the part of the period beginning at the start of that period and ending 6 months later; (b) each part of the period: (i) beginning immediately after a part of the period that is an arrangement payment period under paragraph (a) or under a previous application of this paragraph; and (ii) ending 6 months after the start of that later part or at the end of the period, whichever first occurs.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-75 — When is the end of the arrangement?

(1) If the * arrangement is stated to cease to have effect at a particular time, it is taken for the purposes of this Division to end (even if it is extended or renewed) at the earlier of: (a) that time; or (b) the time at which the arrangement ceases to have effect (whether because the arrangement is terminated or for any other reason). Note: Section 240 ‑ 80 deals with extensions and renewals. (2) An * arrangement is taken to have ended if it is extended or renewed. (3) If the * arrangement is of indefinite duration, it ends at the time at which the arrangement ceases to have effect even if the * arrangement is renewed. Note: Section 240 ‑ 80 deals with extensions and renewals. (4) An * arrangement is taken to have ended if it is reasonable to conclude, having regard to the terms and conditions of the * arrangement, that the arrangement has ceased to have effect. (5) An * arrangement is also taken to have ended if the property has been lost or destroyed.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-80 — What happens if the arrangement is extended or renewed

(1) This section sets out what happens if, after the end of the * arrangement, the * notional buyer and * notional seller extend or renew the * arrangement. (2) This Division applies as if the original * arrangement has ended and the extended arrangement or renewed arrangement is a separate arrangement (the new arrangement ). (3) There is not, however, taken to be any disposal or acquisition as a result of the original arrangement ending or of the new arrangement starting and the * notional buyer does not cease to own the property. (4) Also, the notional loan principal for the new loan is: (a) if the * arrangement as extended or renewed states an amount as the cost or value of the property for the purposes of the extension or renewal and the * notional seller and the * notional buyer were dealing with each other at * arm’s length in connection with the extension or renewal—the amount so stated; or (b) otherwise—the amount that could reasonably have been expected to have been paid by the notional buyer for the purchase of the property if: (i) the notional seller had actually sold the property to the notional buyer when the arrangement was extended or renewed; and (ii) the notional seller and notional buyer were dealing with each other at arm’s length in connection with the sale. (5) Subdivision 240 ‑ G applies to the notional loan for the original arrangement. For that purpose, the notional loan principal for the new arrangement is taken to be a * termination amount paid to the * notional seller under the original arrangement.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-85 — What happens if an amount is paid by or on behalf of the notional buyer to acquire the property

If, at or after the end of the * arrangement, an amount is paid to the * notional seller by, or on behalf of, the * notional buyer to acquire the property, the following provisions have effect: (a) the amount paid is not included in the notional seller’s assessable income; (b) the notional buyer cannot deduct the payment; (c) the notional buyer is taken to continue to own the property; (d) the transfer to the notional buyer of legal title to the property is not taken to be a disposal of the property by the notional seller.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-90 — What happens if the notional buyer ceases to have the right to use the property

(1) This section applies if, at the end of the * arrangement: (a) the arrangement is not extended or renewed in the way mentioned in subsection 240 ‑ 80(1); and (b) no amount is paid to the * notional seller by, or on behalf of, the * notional buyer to acquire the property; and (c) the property is not lost or destroyed. (2) The property is taken to have been disposed of by the * notional buyer by way of sale back to the * notional seller, and to have been acquired by the * notional seller, at the end of the * arrangement. (3) The consideration for the sale of the property by the * notional buyer, and the cost of the acquisition of the property by the * notional seller, are each taken to be equal to the * market value of the property at the end of the * arrangement. (4) Subsection (5) applies where the property is a * car and if it: (a) had been bought from the * notional seller, when this Division first applied to an * arrangement in respect of the car, by the * notional buyer for a price equal to the notional loan principal; and (b) had been first used by the notional buyer for any purpose in the * financial year in which that time occurred; the cost of the car, for the purpose of working out its decline in value for that person under Division 40, would have been limited by section 40 ‑ 230. (5) Where an associate of the * notional buyer acquires the * car, the * cost of the car for the purposes of the application of Division 40 to the associate is taken to be whichever is the lesser of: (a) the sum of: (i) the amount that would have been the * adjustable value of the car at that time for the purposes of the application of that Division to the notional buyer if the notional buyer were not taken under this Division to have disposed of the car; and (ii) any amount that is included in the notional buyer’s assessable income under section 40 ‑ 285 because the notional buyer is taken to have disposed of the car; or (b) the cost of the acquisition of the car by the associate.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Inserted by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1)) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20) | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-100 — What this Subdivision is about

This Subdivision provides for adjustments if the sum of the amounts included in the notional seller’s assessable income are greater or less than the interest, worked out at the end of the arrangement, for the notional loan. Table of sections Operative provisions 240 ‑ 105 Adjustments for notional seller 240 ‑ 110 Adjustments for notional buyer

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-105 — Adjustments for notional seller

(1) This section applies at the end of the * arrangement. (2) If the sum of: (a) all amounts (other than * termination amounts) that were paid or payable to the * notional seller under the * arrangement; and (b) any termination amounts paid or payable to the notional seller; exceeds the amount worked out using the formula in subsection (4), the excess is included in the notional seller’s assessable income of the income year in which the arrangement ends. Note: Subsection 240 ‑ 80(5) provides that the amount of a notional loan that is taken to be made by an extended or renewed arrangement is a termination amount paid under the previous arrangement. (3) If the amount worked out using the formula in subsection (4) exceeds: (a) all amounts (other than * termination amounts) that were paid or payable to the * notional seller under the * arrangement; and (b) any termination amounts paid or payable to the notional seller; the notional seller is entitled to deduct the excess in the income year in which the arrangement ends. Note: Subsection 240 ‑ 80(5) provides that the amount of a notional loan that is taken to be made by an extended or renewed arrangement is a termination amount paid under the previous arrangement. (4) The formula for the purposes of subsections (2) and (3) is: where: assessed notional interest means the * notional interest that has been or is to be included in the * notional seller’s assessable income of any income year.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 240-110 — Adjustments for notional buyer

(1) If: (a) an amount is included in the * notional seller’s assessable income of an income year under subsection 240 ‑ 105(2); or (b) an amount would have been so included if the notional seller had been subject to tax on assessable income; the * notional buyer is entitled to deduct a corresponding amount in the notional buyer’s income year. (2) If: (a) the * notional seller is entitled to deduct an amount for an income year under subsection 240 ‑ 105(3); or (b) the notional seller would have been so entitled if the * notional seller had been subject to tax on assessable income; a corresponding amount is included in the notional buyer’s assessable income for the notional buyer’s income year. (3) The * notional buyer is entitled to a deduction, and is required to include an amount in his or her assessable income only to the extent (if any) that the notional buyer would, apart from this Division, have been entitled to deduct * arrangement payments if no part of those payments were capital in nature.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-112 — Division 16E applies to certain arrangements

(1) Division 16E of Part III of the Income Tax Assessment Act 1936 applies in relation to an arrangement (the assignment arrangement ) between the notional seller and another person (the holder ) to transfer the right to payments (the Division 240 payments ) under an arrangement that is treated as a sale and loan by this Division (the sale and loan arrangement ). (2) In applying Division 16E, the following assumptions are to be made: (a) the assignment arrangement is the qualifying security; (b) the notional seller is the issuer; (c) the qualifying security is issued when the assignment arrangement is entered into; (d) the issue price is consideration provided to the notional seller under the assignment arrangement; (e) the Division 240 payments are payments made by the notional seller under the assignment arrangement; (f) no part of the payments represent periodic interest. (3) This Subdivision does not apply if the assignment arrangement gives rise to a termination of the sale and loan arrangement for the purposes of this Division. (4) To avoid doubt, Division 6A of Part III of the Income Tax Assessment Act 1936 does not apply to an assignment arrangement to which this Subdivision applies.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 240-115 — Another person, or no person taken to own property in certain cases

(1) This section sets out special modifications of the effect of this Division that apply in relation to a * hire purchase agreement unless: (a) the notional buyer would have been the owner or the * quasi ‑ owner of the property if the * arrangement had been a sale of the property; and (b) it is reasonably likely that the right, obligation or contingent obligation to acquire the property will be exercised by, or in respect of, the notional buyer. Note: An example of a contingent obligation is a put option. (2) The modifications also apply if the * notional buyer: (a) disposes of his or her interest in the property; or (b) enters into a lease covered by Division 242 (about luxury car leases) under which he or she leases the property to another person. Modifications (3) For the purpose of the * capital allowance provisions, if, apart from the operation of this Division, an entity other than the * notional seller would own the property that is the subject of an agreement covered by this section, that entity is taken to be the owner of the property. (4) For the purpose of the * capital allowance provisions, if, apart from the operation of this Division, the * notional seller would own the property that is the subject of an agreement covered by this section, no entity is taken to be the owner of the property.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-1 — What this Division is about

A luxury car is one whose market value exceeds the car limit set for a car’s capital allowance deductions by section 40 ‑ 230. If the lessor of a luxury car is tax exempt, or taxed at a lower rate than the lessee, the lease could be structured to give both parties a better after ‑ tax outcome than if the lessee had bought the car. The lessee could fully deduct the lease payments, thereby avoiding the capital allowance limit for luxury cars, and the lessor would receive higher lease payments. This Division removes the tax benefit for the lessee by putting both parties in the same position as if the lessor had sold the car to the lessee and lent the lessee the purchase price.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-5 — What this Subdivision is about

A leased luxury car is treated for income tax purposes as if it had been sold by the lessor to the lessee for the car’s market value. The lessor is treated as having lent the lessee the money to buy the car, and the lease payments are treated as payments of the principal and interest on that notional loan. Table of sections Operative provisions 242 ‑ 10 Application 242 ‑ 15 Notional sale and acquisition 242 ‑ 20 Consideration for notional sale, and cost, of car 242 ‑ 25 Notional loan by lessor to lessee

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-10 — Application

(1) This Division applies to a * car that: (a) is leased (but not under a * short ‑ term hire agreement or a * hire purchase agreement) for consideration; and (b) was a * luxury car when the lessor first leased it; and (c) is not * trading stock of the lessee; and (d) is not a car covered by subsection 40 ‑ 230(2) (about cars modified to carry individuals with a disability). (2) The provisions of this Division do not have effect for the purposes of Division 11A of Part III of the Income Tax Assessment Act 1936 (about withholding tax on dividends, interest and royalties). Note: This subsection prevents interest on the notional loan that this Division creates being subject to withholding tax under Division 11A. (3) For the purposes of paragraph (1)(a), the question whether an agreement is a * short ‑ term hire agreement is determined on the basis that an employee or employer of an entity is an * associate of the entity. Note: Under the definition of short ‑ term hire agreement in subsection 995 ‑ 1(1), successive agreements for the hire of the same asset to an entity or its associates are not short ‑ term hire agreements if they result in substantial continuity of hiring.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-15 — Notional sale and acquisition

(1) This Act has effect as if: (a) the * car had been disposed of (the notional sale ) by the lessor to the lessee; and (b) the car had been acquired by the lessee; at the start of the term of the lease. Note: This Act will apply as it would have if the lessor had actually disposed of the car to the lessee. For example, if the lessor had been deducting an amount for the car’s decline in value, the notional disposal will activate the balancing adjustment rules in Subdivision 40 ‑ D because the lessor would be treated as no longer holding the car. (2) This Act also has effect as if the lessee owns the * car until: (a) the lease (not including any extension or renewal of the lease) ends; or (b) the lessee enters into a sublease of the car and this Division applies to the car in relation to the sublease. Note 1: This means that the lessee (and not the lessor) may be able to deduct amounts for the decline in value of the car under Division 40. Note 2: The lessee will be treated as continuing to own the car until the end of any extension or renewal: see section 242 ‑ 80.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-20 — Consideration for notional sale, and cost, of car

(1) The consideration for the notional sale by the lessor, and the first element of the * cost of the * car for the lessee, are the car’s * market value at the start of the term of the lease. (2) If: (a) the lease is a sublease; and (b) the lessee is one or more of the following: (i) an * associate of the lessor; (ii) an employer of the lessor; (iii) an employee of the lessor; the first element of the * cost of the * car to the lessee is the sum of: (c) the amount that would have been the car’s * adjustable value at the start of the term of the lease for the purposes of applying this Act to the lessor if the lessor were not taken under this Division to have disposed of the car; and (d) any amount that is included in the lessor’s assessable income under section 40 ‑ 285 as a balancing adjustment because the lessor is treated as having disposed of the car. Note: Section 242 ‑ 20 of the Income Tax (Transitional Provisions) Act 1997 extends paragraph (2)(d) to cover amounts included in assessable income under former provisions corresponding to section 40 ‑ 285.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-25 — Notional loan by lessor to lessee

(1) This Act has effect as if, on the grant of the lease, the lessor had made a loan (the notional loan ) to the lessee: (a) for a period equal to the term of the lease (not including the term of any extension or renewal); and (b) of an amount (the notional loan principal ) equal to the consideration for the notional sale of the * car less any amount paid, or credited by the lessor as having been paid, by the lessee to the lessor, at or before the start of the term of the lease, for the first element of the * cost of the car to the lessee; and (c) subject to payment of interest. Note: There is a further notional loan if the lease is extended or renewed: see section 242 ‑ 80. (2) This Act has effect as if the notional loan principal were repaid, and the interest were paid, by the making of the * luxury car lease payments.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-30 — What this Subdivision is about

The lessor’s assessable income includes the interest on the notional loan. The lease payments to the lessor are non ‑ assessable non ‑ exempt income. Note: If the consideration for a notional sale of a car exceeds the adjustable value of the car to the lessor, the excess will be included in the lessor’s assessable income under section 40 ‑ 285. There would be a similar result if the lessor is treated as having reacquired the car and then sells the car for more than the cost of reacquisition. Table of sections Operative provisions 242 ‑ 35 Amount to be included in lessor’s assessable income 242 ‑ 40 Treatment of lease payments

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-35 — Amount to be included in lessor’s assessable income

Accrual amounts (1) The lessor’s assessable income for an income year includes: (a) if a * luxury car lease payment period for the lease of a * car occurs wholly during that income year—the amount (an accrual amount ) worked out under subsection (2) for that luxury car lease payment period; and (b) if part of a luxury car lease payment period for the lease of a car occurs during that income year—so much of the amount (also an accrual amount ) worked out under subsection (2) for that luxury car lease payment period as may appropriately be related to that income year in accordance with generally accepted accounting principles. (2) The amount is: where: implicit interest rate is the implicit interest rate under the lease for the * luxury car lease payment period, taking into account the payments to be made by the lessee under the lease and any * termination amounts. outstanding notional loan principal at the start of the lease payment period is: (a) the sum of the notional loan principal and the accrual amounts for earlier * luxury car lease payment periods; less (b) the sum of the * luxury car lease payments that the lessee was required to make before the start of the relevant luxury car lease payment period. Excessive periods (3) If, apart from this subsection, a * luxury car lease payment period for the lease of a * car would exceed 6 months, this Division applies as if each of the following were a separate luxury car lease payment period: (a) the first 6 months of the original luxury car lease payment period; (b) if the original luxury car lease payment period was not longer than 12 months—the remaining part of the original luxury car lease payment period; (c) if the original luxury car lease payment period was longer than 12 months—each successive 6 month period in the original luxury car lease payment period; (d) the period (if any) after the end of the last of the periods to which paragraph (c) applies.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-40 — Treatment of lease payments

(1) The * luxury car lease payments under the lease are not assessable income and are not * exempt income of the lessor. Note: Those lease payments are instead taken into account in calculating accrual amounts that are included in the lessor’s assessable income under section 242 ‑ 35. (2) In working out the amounts the lessor can deduct for any income year, ignore the fact that subsection (1) makes the * luxury car lease payments * non ‑ assessable non ‑ exempt income. Note: This allows the lessor to continue to deduct amounts related to earning the lease payments (such as interest on an amount the lessor borrowed to acquire the car), just as if the amounts related to earning interest on the notional loan to the lessee.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-45 — What this Subdivision is about

The lessee is entitled to deduct the interest on the notional loan to the same extent that the lessee would have been able to deduct the lease payments apart from this Division. Table of sections Operative provisions 242 ‑ 50 Extent to which deductions are allowable to lessee 242 ‑ 55 Lease payments not deductible

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-50 — Extent to which deductions are allowable to lessee

(1) If a * luxury car lease payment period for the lease of a * car occurs wholly during an income year of the lessee, the lessee can deduct the accrual amount for that period for that income year. Note 1: If a luxury car lease payment period would otherwise be longer than 6 months, subsection 242 ‑ 35(3) divides the original period into periods of no longer than 6 months. Note 2: For accrual amount , see subsection 242 ‑ 35(1). (2) If part of a * luxury car lease payment period for the lease of a * car occurs during an income year of the lessee, the lessee can deduct so much of the accrual amount for that period as may appropriately be related to that income year in accordance with generally accepted accounting principles. (3) The lessee can deduct an accrual amount, or part of an accrual amount, for a * luxury car lease payment period under subsection (1) or (2) for an income year only to the extent that the lessee could deduct the luxury car lease payments made for that year apart from this Division.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-55 — Lease payments not deductible

The lessee cannot deduct the * luxury car lease payments that the lessee makes under the lease for any income year. Note: Those payments are instead taken into account in calculating accrual amounts that are deductible under section 242 ‑ 50.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-60 — What this Subdivision is about

When a luxury car lease is extended, renewed or ends, the overall nominal gain to the lessor is compared to the nominal interest so far paid under the lease. If the overall nominal gain is greater, the difference is assessable income of the lessor, and the lessee may be able to deduct it. If the overall nominal gain is less, the lessor can deduct the difference, which may also be assessable income of the lessee. This process ensures that the right amount has been taxed over the term of the lease. Table of sections Operative provisions 242 ‑ 65 Adjustments for lessor 242 ‑ 70 Adjustments for lessee

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-65 — Adjustments for lessor

(1) This section applies at the following times: (a) if the term of the lease is extended—when the extension takes effect; (b) if the lease is renewed—when the renewal takes effect; (c) when the lease (including any extension or renewal of the lease) ends. (2) If the sum of all amounts (whether * luxury car lease payments, a * termination amount or any other payments) that were paid or payable to the lessor under the lease exceeds the amount worked out under subsection (4), the excess is included in the lessor’s assessable income for the income year in which the relevant time occurs. Note: Subsection 242 ‑ 80(8) treats the amount of a notional loan that is taken to be made by an extended or renewed lease to be a termination amount paid under the previous lease. (3) If the sum of all amounts (whether * luxury car lease payments, a * termination amount or any other payments) that were paid or payable to the lessor under the lease is less than the amount worked out under subsection (4), the lessor can deduct the difference for the income year in which the relevant time occurs. (4) The amount for the purposes of subsections (2) and (3) is the sum of: (a) the notional loan principal; and (b) the sum of the accrual amounts that have been or are to be included in the lessor’s assessable income of any income year. Note: For accrual amount , see subsection 242 ‑ 35(1).

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-70 — Adjustments for lessee

(1) If: (a) an amount is included in the lessor’s assessable income for an income year under subsection 242 ‑ 65(2); or (b) an amount would have been so included if the lessor had been subject to tax on assessable income; the lessee can deduct a corresponding amount for the same income year. (2) If: (a) the lessor can deduct an amount for an income year under subsection 242 ‑ 65(3); or (b) the lessor could have deducted an amount under that subsection if the lessor had been subject to tax on assessable income; a corresponding amount is included in the lessee’s assessable income for the same income year. (3) The lessee cannot deduct an amount for any income year under subsection (1), and an amount is not included in the lessee’s assessable income of any income year under subsection (2), except to the extent (if any) that the lessee could deduct the * luxury car lease payments made apart from this Division.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-75 — What this Subdivision is about

When a luxury car lease ends (whether it expires or is terminated before its expiry date), one of 3 things will happen: (a) if the lease is extended or renewed—the original notional loan is treated as having been repaid and the lessor is treated as having made a new loan to the lessee; or (b) if the lessee acquires the car from the lessor—the lessee continues to own the car for tax purposes, and the actual transfer and the termination payment to acquire the car are ignored for tax purposes; or (c) if the lessee’s right to use the car ends—the lessee is treated as having sold the car back to the lessor. In each case, there may be adjustments under Subdivision 242 ‑ D to ensure that the right amount has been taxed over the term of the lease. Table of sections Operative provisions 242 ‑ 80 What happens if the term of the lease is extended or the lease is renewed 242 ‑ 85 What happens if an amount is paid by the lessee to acquire the car 242 ‑ 90 What happens if the lessee stops having the right to use the car

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-80 — What happens if the term of the lease is extended or the lease is renewed

(1) The rules in this section have effect if, after the end of the lease (or the end of any extension of the lease term or renewal of the lease), the lessee continues to have the * right to use the * car because the term of the lease is extended (or further extended) or the lease is renewed (or further renewed). (2) This Act has effect as if the lessee continued to be the owner of the * car until the end of the lease as extended or renewed. (3) However, this Act has effect as if the lessee stopped being the owner of the * car if: (a) the lessee enters into a sublease in respect of the car; and (b) this Division applies to the car in respect of that sublease. (4) This Act has effect as if the notional loan that arose because of the grant of the lease, or because of the previous extension or renewal, had been repaid. Note: Also, Subdivision 242 ‑ D (about balancing adjustments) will apply to the ending, extension or renewal. (5) This Act has effect as if, on the grant of the extension or renewal, the lessor had made a new loan (the notional loan ) to the lessee: (a) for the period of the extension of the term of the lease or the period of the renewed lease, as the case may be; and (b) of an amount (the notional loan principal ) equal to the * car’s * market value when the extension or renewal is granted; and (c) subject to the payment of interest. (6) This Act has effect as if the notional loan principal were repaid, and the interest were paid, by the making of the * luxury car lease payments under the lease as extended or renewed (or further extended or renewed). (7) In determining whether subsection (1) applies to the lessee, disregard any period after the end of the lease (or the end of any extension of the lease term or renewal of the lease) and before the extension or renewal (or further extension or renewal) is granted and during which the lessee did not have the * right to use the * car if the extension or renewal (or further extension or renewal): (a) has effect from the time immediately after the end of that term, extension or renewal; or (b) otherwise results in substantial continuity of the leasing of the car to the lessee. (8) The amount of the notional loan is treated, for the purposes of section 242 ‑ 65 (about the lessor’s balancing adjustments), as a * termination amount paid to the lessor under the lease or under the previous extension or renewal.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-85 — What happens if an amount is paid by the lessee to acquire the car

If, at the end of the lease or, if it is extended or renewed, at the end of any extension or renewal (the end time ), an amount is paid to the lessor by, or on behalf of, the lessee to acquire the * car, the following provisions have effect: (a) the amount paid is not included in the lessor’s assessable income; (b) the lessee cannot deduct the payment; (c) this Act has effect as if: (i) the lessee continued to be the owner of the car until the lessee disposes of it; and (ii) the transfer to the lessee of legal title to the car were not a disposal of the car by the lessor.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 242-90 — What happens if the lessee stops having the right to use the car

(1) If, at the end time: (a) the lessee stops having the * right to use the * car; and (b) no amount is paid to the lessor by, or on behalf of, the lessee to acquire the car; the following provisions have effect. Note: For end time , see section 242 ‑ 85. (2) This Act has effect as if the * car: (a) were sold by the lessee to the lessor; and (b) were acquired by the lessor; at the end time. (3) The consideration for the sale of the * car by the lessee, and the first element of the * cost of the car to the lessor, are the * market value of the car at the end time. (4) If the * car is afterwards acquired by an * associate of the lessee or an employer or employee of the lessee, this Act has effect as if the first element of the * cost of the car as a * depreciating asset were the lesser of: (a) the sum of: (i) the amount that would have been the * adjustable value of the car at that time for the purposes of applying this Act to the lessee if the lessee were not treated under this Division as having disposed of the car; and (ii) any amount that is included in the lessee’s assessable income under section 40 ‑ 285 as a balancing adjustment because the lessee is treated as having disposed of the car; and (b) the cost of the acquisition of the car by the associate, employer or employee. Note: Section 242 ‑ 20 of the Income Tax (Transitional Provisions) Act 1997 extends subparagraph (a)(ii) to cover amounts included in assessable income under former provisions corresponding to section 40 ‑ 285. (5) For the purposes of paragraph (1)(a), the lessee is not treated as having stopped to have the * right to use the * car if: (a) the term of the lease is extended (or further extended), or the lease is renewed (or further renewed), at a time after, but not immediately after, the end of that term, extension or renewal with effect from the time immediately after that end; or (b) the extension or renewal (or further extension or renewal) otherwise results in substantial continuity of the leasing of the car to the lessee.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 243-10 — What this Division is about

This Division tells you when you must include an additional amount in your assessable income at the termination of a limited recourse debt arrangement. It also tells you what the additional amount is. Basically, the Division applies where the capital allowance deductions that have been obtained for expenditure that is funded by the debt and the deductions are excessive having regard to the amount of the debt that was repaid. The reason for the adjustment is to ensure that, where you have not been fully at risk in relation to an amount of expenditure, you do not get a net deduction if you fail to pay that amount.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-15 — When does this Division apply?

(1) This Division applies if: (a) * limited recourse debt has been used to wholly or partly finance or refinance expenditure; and (b) at the time that the debt * arrangement is terminated, the debt has not been paid in full by the debtor; and (c) the debtor can deduct an amount as a * capital allowance for the income year in which the termination occurs, or has deducted or can deduct an amount for an earlier income year, in respect of the expenditure or the * financed property. Note: This Division does not apply to certain limited recourse debts that are used to refinance limited recourse debt to which this Division has applied (see subsection 243 ‑ 50(4)). (2) However, unless the net * capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid (see section 243 ‑ 35), no amount is included in the debtor’s assessable income under this Division although future deductions may be reduced. (3) In working out if the debt has been paid in full, and in working out the unpaid amount of the debt, the following amounts are to be treated as if they were not payments in respect of the debt: (a) any reduction in the debt as a result of the * financed property being surrendered or returned to the creditor at the termination of the debt; (b) any payment to reduce the debt that is funded directly or indirectly by * non ‑ arm’s length limited recourse debt or by proceeds from the disposal of the debtor’s interest in the financed property. However, any amounts accrued that are interest, * notional interest or in the nature of interest are taken not to be unpaid. (4) In working out if the debt has been paid in full, and in working out the unpaid amount of the debt, payments are to be attributed first to the payment of any accrued amounts that are interest, * notional interest or in the nature of interest. (5) A notional loan arising because of Division 240 (about arrangements treated as a sale and loan) is taken to be a debt that has been used to wholly or partly finance or refinance expenditure.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 243-20 — What is limited recourse debt?

(1) A limited recourse debt is an obligation imposed by law on an entity (the debtor ) to pay an amount to another entity (the creditor ) where the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are limited wholly or predominantly to any or all of the following: (a) rights (including the right to money payable) in relation to any or all of the following: (i) the * debt property or the use of the debt property; (ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property; (iii) the loss or disposal of the whole or a part of the debt property or of the debtor’s interest in the debt property; (b) rights in respect of a mortgage or other security over the debt property or other property; (c) rights that arise out of any * arrangement relating to the financial obligations of an end ‑ user of the * financed property towards the debtor, and are financial obligations in relation to the financed property. (2) An obligation imposed by law on an entity (the debtor ) to pay an amount to another entity (the creditor ) is also a limited recourse debt if it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest: (a) are capable of being limited in the way mentioned in subsection (1); or (b) are in substance or effect limited wholly or predominantly to rights (including the right to money payable) in relation to any or all of the following: (i) the * debt property or the use of the debt property; (ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property; (iii) the loss or disposal of the whole or a part of the debt property or of the debtor’s interest in the debt property. Note: Paragraph (b) could apply to a special purpose entity. For example, an entity’s only significant asset is one that it financed by way of a bank loan. The bank’s rights to recover the debt (if the entity defaults) are not contractually limited, however they are in effect limited to rights in relation to the asset. (3) An obligation imposed by law on an entity (the debtor ) to pay an amount to another entity (the creditor ) is also a limited recourse debt if there is no * debt property and it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are capable of being limited. (3A) In reaching a conclusion for the purposes of subsection (2) or (3), have regard to the following: (a) the debtor’s assets (other than assets that are indemnities or guarantees provided in relation to the debt); (b) any * arrangement to which the debtor is a party; (c) except for the purposes of paragraph (2)(b)—whether all of the debtor’s assets would be available for the purpose of discharging the debt (other than assets that are security for other debts of the debtor or any other entity); (d) whether the debtor and creditor are dealing at * arm’s length in relation to the debt. (4) A notional loan arising because of Division 240 (about arrangements treated as a sale and loan) under a * hire purchase agreement is also a limited recourse debt . (5) However, an obligation that is covered by subsection (1) is not a limited recourse debt if the creditor’s recourse is not in practice limited due to the creditor’s rights in respect of a mortgage or other security over property of the debtor (other than the financed property) the value of which exceeds, or is likely to exceed, the amount of the debt. (6) Also, an obligation that is covered by subsection (1), (2) or (3) is not a limited recourse debt if, having regard to all relevant circumstances, it would be unreasonable for the obligation to be treated as limited recourse debt. (7) A * limited recourse debt is a non ‑ arm’s length limited recourse debt if the debtor and creditor do not deal with each other at * arm’s length in relation to the debt.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 84 of 2013, effective s 4, Sch 1 (items 2–9, 19–23), Sch 2, Sch 3, Sch 6 and Sch 8 (items 27–32): 28 June 2013 (s 2(1) items 1, 2, 4) | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15)

s 243-25 — When is a debt arrangement terminated?

(1) A debt arrangement is taken to have terminated if: (a) it is actually terminated; or (b) the debtor’s obligation to repay the debt is waived, novated or otherwise varied so as to reduce, transfer or extinguish the debt; or (c) an agreement is entered into to waive, novate or otherwise vary the debtor’s obligation to repay the debt so as to reduce, transfer or extinguish the debt; or (d) the creditor ceases to have an entitlement to recover the debt from the debtor (other than as a result of an * arm’s length assignment of some or all of the creditor’s rights under the debt arrangement); or (e) the debtor ceases to be the owner or the * quasi ‑ owner of some or all of the * debt property because that property is surrendered to the creditor because of the debtor’s failure to pay the whole or a part of the debt; or (f) the debtor ceases to be the owner of a beneficial interest in some or all of the debt property because the interest is surrendered to the creditor because of the debtor’s failure to pay the whole or a part of the debt; or (g) the debt becomes a bad debt. (2) However, a debt arrangement that is a notional loan arising because of Division 240 (about arrangements treated as a sale and loan) is not taken to have terminated merely because it has been renewed or extended. Note: Under Division 240, notional loans are taken to have ended if the relevant arrangement is renewed or extended. (3) Where a debt is terminated under paragraph (1)(b) or (c) as a result of the debt being reduced, the remaining debt is taken to be a new debt to which section 243 ‑ 15 applies.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15)

s 243-30 — What is the financed property and the debt property?

(1) Property is the financed property if the expenditure referred to in paragraph 243 ‑ 15(1)(a) is on the property, is on the acquisition of the property, results in the creation of the property or is otherwise connected with the property. (2) If the debt agreement is a notional loan arising under Division 240 (about arrangements treated as a sale and loan), the property that is the subject of the agreement is the financed property . (3) Property is the debt property if: (a) it is the * financed property; or (b) the property is provided as security for the debt.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 243-35 — Working out the excessive deductions

(1) The * capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid if the amount worked out under subsection (2) exceeds the amount worked out under subsection (4). (2) This is how to work out the total net * capital allowance deductions: Working out the total net capital allowance deductions Step 1. Add up all of the debtor’s * capital allowance deductions in respect of the expenditure or the * financed property (including deductions because of balancing adjustments) for the income year in which the termination occurs or an earlier income year. Note: The amount of a capital allowance deduction may be reduced under section 707 ‑ 415. Step 2. Deduct from that any amount that is included in the assessable income of the debtor of any income year by virtue of a provision of this Act (other than this Division) as a result of the disposal of the * financed property the effect of which is to reverse a deduction covered by Step 1. Step 3. Deduct from the result an amount equal to the sum of any amounts included in the entity’s assessable income as a result of an earlier application of this Division to the debt. Step 4. Add to the result an amount equal to the sum of any deductions to which the entity is entitled under section 243 ‑ 45 (repayments of the original debt after termination) or 243 ‑ 50 (repayments of the replacement debt) because of payments in respect of the debt. (3) The reference in step 2 of the method statement in subsection (2) to an amount that is included in the assessable income of a taxpayer as a result of the disposal of the * financed property includes a reference to an amount that is included under section 26AG of the Income Tax Assessment Act 1936 as a result of the disposal of the financed property. Note: Division 20 deals with amounts included to reverse the effect of past deductions. (4) This is how to work out the total net capital allowance deductions that would otherwise be allowable taking into account the amount of the debt that is unpaid: Working out the total net capital allowance deductions that would otherwise be allowable Work out the amount that would be worked out under subsection (2) if the deductions and the amounts included in assessable income had been calculated using the following assumptions: (1) The original expenditure in respect of which deductions were calculated was reduced by the amount of the debt that was unpaid by the debtor when the debt was terminated. (In calculating the amount unpaid the following are to be disregarded: (a) any reduction in the amount as a result of the * financed property being surrendered or returned to the creditor at the termination of the debt; (b) any reduction in the amount to the extent that it is funded directly or indirectly by * non ‑ arm’s length limited recourse debt or by the consideration for the disposal of the debtor’s interest in the financed property.) (2) Deductions for income years after the income year in which the termination occurred were also taken into account. (3) The original expenditure in respect of which deductions were calculated was increased by any amount that is paid by the debtor as consideration for another person assuming a liability under the debt. (This assumption does not apply to the extent that the consideration is funded directly or indirectly by * non ‑ arm’s length limited recourse debt or by the consideration for the disposal of the debtor’s interest in the * financed property.) (4) Step 2 were omitted from subsection (2).

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Inserted by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1)) | Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent | Amended by No 88 of 2009, effective s. 4, Schedule 3 (items 1, 5–23), Schedule 4 (items 2–5) and Schedule 5 (items 113–204, 237, 238, 258, 282, 319–341, 344): 18 Sept 2009 Schedule 2 (items 4–15, 25–27, 30, 31): 1 Oct 2009 Schedule 2 (item 23): 1 Jan 2010

s 243-40 — Amount included in debtor’s assessable income

The debtor’s assessable income for the income year in which the termination occurs is to include the excess referred to in subsection 243 ‑ 35(1). Note: Section 243 ‑ 60 applies in relation to certain partnership debts.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-45 — Deduction for later payments in respect of debt

(1) This section applies if: (a) an amount was included in the debtor’s assessable income under section 243 ‑ 40 or a deduction was reduced under section 243 ‑ 55; and (b) the debtor makes a payment to the creditor, after the termination of the debt arrangement, in respect of the debt (other than an amount to the extent to which it is a payment of interest, of * notional interest or in the nature of interest). (2) This is how to work out the amount of the deduction: Working out the amount of the deduction Step 1. Work out the amount that would be worked out under subsection 243 ‑ 35(2) if the debt were terminated immediately before the payment. Step 2. Work out the amount that would have been worked out under subsection 243 ‑ 35(4) at that time if the payment had been taken into account. Step 3. The amount of the deduction is the amount (if any) by which the amount worked out under Step 2 exceeds the amount worked out under Step 1. (3) The amount can be deducted for the income year in which the payment is made. Limit on deductions (4) The total amounts deducted under this section in respect of a debt, and under section 243 ‑ 50 in respect of a replacement debt, cannot exceed the sum of: (a) any amounts included in the debtor’s assessable income under this Division in respect of the original debt; and (b) any amount by which deductions in respect of the original debt were reduced under section 243 ‑ 55.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-50 — Deduction for payments for replacement debt

Payments where debt refinanced (1) This section applies if: (a) an amount was included in the debtor’s assessable income under section 243 ‑ 40 or a deduction was reduced under section 243 ‑ 55; and (b) an amount funded by a * non ‑ arm’s length limited recourse debt (the replacement debt ) was disregarded in calculations under subsection 243 ‑ 35(4); and (c) the debtor makes a payment, after the termination of the original debt arrangement, in respect of the replacement debt (other than to the extent to which it is a payment of interest, of * notional interest or in the nature of interest). (2) This is how to work out the amount of the deduction: Working out the amount of the deduction Step 1. Work out the amount that would be worked out under subsection 243 ‑ 35(2) if the replacement debt were terminated immediately before the payment. Step 2. Work out the amount that would have been worked out under subsection 243 ‑ 35(4) at that time if the payment had been made in respect of the original debt and it had been taken into account. Step 3. The amount of the deduction is the amount (if any) by which the amount worked out under Step 2 exceeds the amount worked out under Step 1. (3) The amount can be deducted for the income year in which the payment is made. Division not to apply to termination of replacement debt (4) This Division does not apply to termination of the replacement debt referred to in paragraph (1)(b). Limit on deductions (5) The total amounts deducted under section 243 ‑ 45 in respect of the original debt, or under this section in respect of the replacement debt, cannot exceed the sum of: (a) any amounts included in the debtor’s assessable income under this Division in respect of the original debt; and (b) any amount by which deductions in respect of the original debt were reduced under section 243 ‑ 55.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-55 — Effect of Division on later capital allowance deductions

(1) This section applies where this Division (other than section 243 ‑ 65) has applied in relation to a debt and the debtor is entitled to a * capital allowance deduction in respect of the expenditure or the * financed property in relation to a time or period after the termination of the debt. (2) The * capital allowance deduction is reduced if the amount that would have been worked out under subsection 243 ‑ 35(2) would have exceeded the amount worked out under subsection 243 ‑ 35(4) if the following assumptions were applied in both subsections: Assumptions to be applied (1) That the debt was terminated at the time, or at the end of the period, referred to in subsection (1) of this section. (2) That the amount unpaid at the time, or at the end of the period, is reduced by any amounts paid under a replacement debt. (3) The debtor’s * capital allowance deductions in respect of the expenditure or the * financed property were increased by the amount of the capital allowance deduction referred to in subsection (1) of this section. (3) The deduction is to be reduced by the amount of the excess.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent

s 243-57 — Effect of Division on later capital allowance balancing adjustments

(1) This section applies where this Division (other than section 243 ‑ 65) has applied in relation to a debt and an amount is later included in the assessable income of an entity by virtue of a provision of this Act (other than this Division) as a result of the disposal of the * financed property the effect of which is to reverse a deduction covered by Step 1 in subsection 243 ‑ 35(2). (2) Any amount that would be included in the debtor’s assessable income is reduced if the amount that would have been worked out under subsection 243 ‑ 35(4) would have exceeded the amount worked out under subsection 243 ‑ 35(2) if the following assumptions were applied in both subsections: Assumptions to be applied (1) That the debt was terminated at the time of the disposal of the * financed property, referred to in subsection (1) of this section. (2) The amount in Step 2 in subsection 243 ‑ 35(2) were increased by the amount that would otherwise be included in the debtor’s assessable income. (3) The amount worked out under subsection 243 ‑ 35(4) were reduced by any amount by which: (a) the amount arising as a result of the disposal that is taken into account for the purposes of the provision mentioned in subsection (1); exceeds: (b) the unpaid amount of the debt immediately before the time of the disposal of the * financed property, referred to in subsection (1). (3) The amount is to be reduced by the amount of the excess.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-58 — Adjustment where debt only partially used for expenditure

If the debt is only partially used to finance the expenditure, or the property, in respect of which the * capital allowance deductions referred to in Step 1 in subsection 243 ‑ 35(2) are allowed, the amount of any deduction, any reduction in a deduction or any amount included in assessable income is to be so much as is reasonable taking into account the proportion of the debt that is used for that purpose.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-60 — Application of Division to partnerships

This Division applies to a partnership in respect of the partnership’s debts and in respect of debts of a partner, and references to a debtor include a reference to a partnership.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-65 — Application where partner reduces liability

(1) This section applies to a debt in relation to a partner in a partnership if: (a) in connection with an * arrangement, the partner’s liability to pay the debt is reduced or eliminated and the partner’s interest in the partnership ceases or is varied or transferred; and (b) an excess would have been worked out under subsection 243 ‑ 35(1) if, at the time when the debt is reduced or eliminated, the debt had been terminated and remained unpaid and this section had not applied. (2) If this section applies to a debt in relation to a partner in a partnership, an amount is to be included in his or her assessable income. (3) This is how to work out the amount to be included: Working out the amount included Step 1. Work out which income years the partner was a member of the partnership and the partnership was entitled to a * capital allowance deduction in respect of the expenditure or the * financed property (including deductions because of balancing adjustments). Step 2. For each of those income years, work out the proportion of net income of the partnership or the partnership loss (as the case requires) that was included in the assessable income of the partner or which the partner could deduct. Step 3. For each of those income years, multiply the * capital allowance deductions in respect of the expenditure or the * financed property (including deductions because of balancing adjustments) of the partnership by the corresponding proportion worked out under Step 2. Sum all of the amounts. Step 4. Divide the sum by the total of the * capital allowance deductions in respect of the expenditure or the * financed property (including deductions because of balancing adjustments) of the partnership for all of those income years. Step 5. Work out the amount that would have been included in the partnership’s assessable income under section 243 ‑ 40 if the debt had been terminated and remained unpaid and this section had not applied. Step 6. Multiply the amount worked out in Step 5 by the factor worked out in Step 4. The result is the amount to be included in the partner’s assessable income.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent

s 243-70 — Application of Division to companies ceasing to be 100% subsidiary

(1) This section applies to a company if: (a) the company ceases to be a * 100% subsidiary in relation to at least one other company; and (b) at that time, the company is the debtor for a * limited recourse debt that has not been paid in full by the company; and (c) the creditor’s rights under the debt are transferred or assigned to another entity. (2) If this section applies, this Division applies as if the debt were terminated, and refinanced with * non ‑ arm’s length limited recourse debt, at the time the company ceased to be a * 100% subsidiary of that other company.

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001

s 243-75 — Application of Division where debt forgiveness rules also apply

(1) This section is to remove doubt about how this Division and Division 245 apply where both apply to the same debt. (2) Where both apply: (a) this Division is to be applied first and is to be applied disregarding any operation of Division 245; and (b) any amounts included in assessable income under this Division are taken into account under paragraph 245 ‑ 85(1)(a).

Amendment history: Inserted by No 72 of 2001, effective 30 June 2001 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-1 — What this Division is about

When a creditor forgives a commercial debt you owe, you make a gain. This is usually not included in your assessable income. Instead, this Division offsets the forgiven amount against amounts that could otherwise reduce your taxable income in the same or a later income year. Those amounts are: (a) your tax losses and net capital losses; and (b) capital allowances and some similar deductions; and (c) the cost bases of your CGT assets.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-2 — Simplified outline of this Division

(1) This Division applies to any commercial debt (or part of a commercial debt) you owe that is forgiven. Note: This Division does not apply if: (a) the debt is waived and the waiver constitutes a fringe benefit; or (b) the amount of the debt has been, or will be, included in your assessable income in any income year; or (c) the debt is forgiven under an Act relating to bankruptcy; or (d) the debt is forgiven by will; or (e) the debt is forgiven for reasons of natural love and affection; or (f) the debt is a tax ‑ related liability. (2) The net forgiven amount of a debt is worked out by reducing the value of your forgiven debt by: (a) any consideration you provided for the forgiveness; and (b) any amounts that this Act already brings to account because of the forgiveness. (3) The net forgiven amounts of all your forgiven debts in an income year are added up. This total net forgiven amount is applied to reduce the following amounts (in the following order): (a) your tax losses from previous income years; (b) your net capital losses from previous income years; (c) the deductions you would otherwise get in the income year, or in a later year, because of expenditure from a previous year (e.g. the capital allowance deductions you would get for the cost of a depreciating asset); (d) the cost bases of your CGT assets. (4) Any unapplied total net forgiven amount is disregarded. (5) Special rules apply to debts of partnerships.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-5 — What this Subdivision is about

This Division applies to a debt if you can deduct interest payable on the debt. Table of sections Application of Division 245 ‑ 10 Commercial debts 245 ‑ 15 Non ‑ equity shares 245 ‑ 20 Parts of debts

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-10 — Commercial debts

Subdivisions 245 ‑ C to 245 ‑ G apply to a debt of yours if: (a) the whole or any part of interest, or of an amount in the nature of interest, paid or payable by you in respect of the debt has been deducted, or can be deducted, by you; or (b) interest, or an amount in the nature of interest, is not payable by you in respect of the debt but, had interest or such an amount been payable, the whole or any part of the interest or amount could have been deducted by you; or (c) interest or an amount mentioned in paragraph (a) or (b) could have been deducted by you apart from the operation of a provision of this Act (other than paragraphs 8 ‑ 1(2)(a), (b) and (c)) that has the effect of preventing a deduction. Note: Paragraphs 8 ‑ 1(2)(a), (b) and (c) prevent deductions for capital, private or domestic outgoings and for outgoings relating to exempt income or non ‑ assessable non ‑ exempt income.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-15 — Non ‑ equity shares

This Division applies to a * non ‑ equity share issued by a company as if it were a debt to which section 245 ‑ 10 applies that is owed by the company to the relevant shareholder.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-20 — Parts of debts

This Division applies to part of a debt in the same way as it applies to a whole debt. Note: This Division treats interest, or an amount in the nature of interest, payable on a debt as being a separate debt if the interest or amount has accrued but has not been paid.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-30 — What this Subdivision is about

A debt is forgiven if you no longer have to pay it. However, this Division does not apply to some cases of forgiveness, such as bankruptcy. Table of sections Operative provisions 245 ‑ 35 What constitutes forgiveness of a debt 245 ‑ 36 What constitutes forgiveness of a debt if the debt is assigned 245 ‑ 37 What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt 245 ‑ 40 Forgivenesses to which operative rules do not apply 245 ‑ 45 Application of operative rules if forgiveness involves an arrangement

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-35 — What constitutes forgiveness of a debt

A debt is forgiven if and when: (a) the debtor’s obligation to pay the debt is released or waived, or is otherwise extinguished other than by repaying the debt in full; or (b) the period within which the creditor is entitled to sue for the recovery of the debt ends, because of the operation of a statute of limitations, without the debt having been paid.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-36 — What constitutes forgiveness of a debt if the debt is assigned

A debt is forgiven if and when the creditor assigns the right to receive payment of the debt to another entity (the new creditor ) and the following conditions are met: (a) either the new creditor is the debtor’s * associate or the assignment occurred under an * arrangement to which the new creditor and debtor were parties; (b) the right to receive payment of the debt was not acquired by the new creditor in the ordinary course of * trading on a market, exchange or other place on which, or facility by means of which, offers to sell, buy or exchange securities (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936 ) are made or accepted. Note 1: Division 16E of Part III of the Income Tax Assessment Act 1936 brings to account gains and losses on some securities on an accruals basis. Note 2: This Division also applies if an assigned debt is subsequently forgiven by the new creditor. Section 245 ‑ 61 tells you how to work out the value of the debt in that case.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-37 — What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt

If an entity subscribes for * shares in a company to enable the company to make a payment in or towards discharge of a debt it owes to the entity, the debt is forgiven when, and to the extent that, the company applies any of the money subscribed in or towards payment of the debt.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-40 — Forgivenesses to which operative rules do not apply

Subdivisions 245 ‑ C to 245 ‑ G do not apply to a * forgiveness of a debt if: (a) the debt is waived and the waiver constitutes a * fringe benefit; or Note: The waiver by an employer of a debt owed by an employee is usually a fringe benefit: see section 14 of the Fringe Benefits Tax Assessment Act 1986 . (b) the amount of the debt has been, or will be, included in the assessable income of the debtor in any income year; or (c) the forgiveness is effected under an Act relating to bankruptcy; or (d) the forgiveness is effected by will; or (e) the forgiveness is for reasons of natural love and affection; or (f) the debt is a * tax ‑ related liability or a civil penalty under Division 290 in Schedule 1 to the Taxation Administration Act 1953 (about penalties for promoters and implementers of tax avoidance schemes). Note: If the forgiveness of your debt involved an arrangement which was entered into before 28 June 1996, see section 245 ‑ 10 of the Income Tax (Transitional Provisions) Act 1997 .

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-45 — Application of operative rules if forgiveness involves an arrangement

(1) If: (a) the debtor and the creditor in relation to a debt enter into an * arrangement; and (b) under the arrangement, the debtor’s obligation to pay the debt is to cease at a particular future time; and (c) the cessation of the obligation is to occur without the debtor incurring any financial or other obligation (other than an obligation that, having regard to the debtor’s circumstances, is of a nominal or insignificant amount or kind); Subdivisions 245 ‑ C to 245 ‑ G apply as if the debt were * forgiven when the arrangement is entered into. (2) If, after the arrangement is entered into, the debt is forgiven, the later forgiveness is disregarded for the purposes of those Subdivisions.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-48 — What this Subdivision is about

The amount of forgiveness (called the gross forgiven amount) for the debtor reflects the loss that the creditor makes for tax purposes. It is worked out in 2 steps: (a) the value of the debt when it was forgiven is worked out on the basis that you were solvent both then and when you incurred the debt; and (b) the value of the debt is then offset by any consideration given for the forgiveness of the debt. The difference between the value of the debt and the amount offset is the gross forgiven amount. If the debt was owed by several debtors, the gross forgiven amount is divided between them equally . Table of sections Working out the value of a debt 245 ‑ 50 Extent of forgiveness if consideration is given 245 ‑ 55 General rule for working out the value of a debt 245 ‑ 60 Special rule for working out the value of a non ‑ recourse debt 245 ‑ 61 Special rule for working out the value of a previously assigned debt Working out if an amount is offset against the value of the debt 245 ‑ 65 Amount offset against amount of debt Working out the gross forgiven amount 245 ‑ 75 Gross forgiven amount of a debt 245 ‑ 77 Gross forgiven amount shared between debtors

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-50 — Extent of forgiveness if consideration is given

If any consideration is paid or given in respect of the * forgiveness of a debt, the debt that is forgiven is: (a) the obligation that existed before the forgiveness to pay so much of the debt as is expressed, or is taken, to be forgiven; and (b) the obligation that existed before the forgiveness to pay any part of the debt to which paragraph (a) does not apply but which ceases to be payable as a result of the payment or giving of the consideration. Example: Daniel owes Samara $100. Samara agrees to accept $60 in full payment of the debt. If their agreement specifies that Samara forgives the whole debt in return for $60, paragraph (a) provides that the forgiven debt is $100. If their agreement instead requires Daniel to repay $60 and specifies that Samara forgives the remaining $40, paragraph (a) would deal with the $40 and paragraph (b) would add the remaining $60, again producing a forgiven amount of $100. In either case, the $60 Daniel pays is offset against the forgiven amount of $100 in working out the gross forgiven amount of the debt: see sections 245 ‑ 65 and 245 ‑ 75.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-55 — General rule for working out the value of a debt

(1) The value of your debt at the time (the forgiveness time ) when it is * forgiven is the amount that would have been its * market value (considered as an asset of the creditor) at the forgiveness time, assuming that: (a) when you incurred the debt, you were able to pay all your debts (including that one) as and when they fell due; and (b) your capacity to pay the debt is the same at the forgiveness time as when you incurred it. (2) However, the value of the debt at the forgiveness time is the sum of the following amounts, if that sum is less than the amount applicable under subsection (1): (a) what would have been the amount applicable under subsection (1) if there had been no change, from the time the debt was incurred until the forgiveness time, in any rate of interest, or rate of exchange between currencies, that affects the * market value of the debt; (b) each amount: (i) that you have deducted or can deduct as a result of the * forgiveness of the debt; and (ii) that is attributable to such a change. (3) Paragraph (1)(a) does not apply to the debt if: (a) either: (i) the creditor was an Australian resident at the forgiveness time; or (ii) the * forgiveness of the debt was a * CGT event involving a * CGT asset that was * taxable Australian property; and (b) you and the creditor were not dealing with each other at * arm’s length in respect of you incurring the debt; and (c) the debt was not a * moneylending debt. Note: This subsection reduces your gross forgiven amount to reflect the reduction in the creditor’s loss on the forgiven debt under the capital gains tax regime. (4) This section has effect subject to sections 245 ‑ 60 and 245 ‑ 61 (about non ‑ recourse and assigned debts).

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-60 — Special rule for working out the value of a non ‑ recourse debt

(1) The value of a debt when it is * forgiven is the lesser of: (a) the amount of the debt outstanding at that time; and (b) the * market value at that time of the creditor’s rights mentioned in paragraph (2)(b). (2) Subsection (1) applies to a debt if: (a) you incurred the debt directly in respect of financing: (i) the acquisition of property by you; or (ii) the construction or development of property by you; (but not including the manufacture of goods); and (b) the creditor’s rights against you in the event of default in the payment of the debt or interest were, just before the debt was forgiven, limited to all or any of the following: (i) rights (including the right to money payable) in relation to all or any of the matters mentioned in subsection (3); (ii) rights in respect of a mortgage or other security over the property; (iii) rights arising out of any * arrangement relating to the financial obligations, in relation to the property, of the * end user of the property to you. (3) For the purposes of subparagraph (2)(b)(i), the matters are as follows: (a) the property or the use of the property; (b) goods produced, supplied, carried, transmitted or delivered by means of the property; (c) services provided by means of the property; (d) the loss or * disposal of the whole or a part of the property or of your interest in the property.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-61 — Special rule for working out the value of a previously assigned debt

If your debt has been assigned as mentioned in section 245 ‑ 36 and is later * forgiven by the new creditor, the value of that debt when it is later forgiven is: (a) if the debt was not a * moneylending debt and the creditor and the new creditor were not dealing with each other at * arm’s length in connection with the assignment—the * market value of the debt at the time of the assignment; or (b) in any other case—the sum of: (i) the amount or market value of the consideration (if any) you paid or gave, or are required to pay or give, to the creditor in respect of the assignment; and (ii) the amount or market value of the consideration (if any) the new creditor paid or gave in respect of the assignment.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-65 — Amount offset against amount of debt

(1) The table explains how to work out the amount (if any) that is offset against the value of a debt when it is forgiven (calculated under section 245 ‑ 55, 245 ‑ 60 or 245 ‑ 61) in working out the * gross forgiven amount of the debt. Amount offset against value of debt Item Column 1 In this case: Column 2 the amount offset is: 1 the debt is a * moneylending debt, and neither of items 4 and 6 applies the sum of: (a) each amount that the debtor has paid; and (b) the * market value, at the time of the * forgiveness, of each item of property (other than money) that the debtor has given; and (c) the market value, at that time, of each obligation of the debtor to pay an amount, or to give such an item of property; as a result of, or in respect of, the forgiveness of the debt. 2 the debt is not a * moneylending debt, and none of items 3, 4, 5 and 6 applies the sum of: (a) each amount that the debtor has paid, or is required to pay; and (b) the * market value, at the time of the * forgiveness, of each item of property (other than money) that the debtor has given, or is required to give; as a result of, or in respect of, the forgiveness of the debt. 3 the debt is not a * moneylending debt, the conditions in subsection (2) are met and none of items 4, 5 and 6 applies the * market value of the debt at the time of the * forgiveness. 4 the debt is assigned as mentioned in section 245 ‑ 36, and item 5 does not apply the sum of: (a) the amount or * market value of the consideration (if any) that the debtor has paid or given, or is required to pay or give, in respect of the assignment; and (b) the amount or market value of the consideration (if any) paid or given by the new creditor in respect of the assignment. 5 the debt is assigned as mentioned in section 245 ‑ 36, and: (a) the debt is not a * moneylending debt; and (b) the creditor and the new creditor were not dealing with each other at * arm’s length in connection with the assignment the * market value of the debt at the time of the assignment. 6 the debt is * forgiven by subscribing for * shares in a company as mentioned in section 245 ‑ 37 the amount worked out using the formula in subsection (3). (2) The conditions for the purposes of item 3 of the table in subsection (1) are: (a) at least one of the following is satisfied: (i) at the time when the debt was * forgiven, the creditor was an Australian resident; (ii) the forgiveness of the debt was a * CGT event involving a * CGT asset that was * taxable Australian property; and (b) at least one of the following is satisfied: (i) there is no amount, and no property, covered by column 2 of item 2 of the table; (ii) the amount worked out under item 2 of the table is greater or less than the * market value of the debt at the time of the forgiveness and the debtor and creditor did not deal with each other at * arm’s length in connection with the forgiveness. (3) The formula for the purposes of item 6 of the table in subsection (1) is: where: amount applied means the amount applied by the company as mentioned in section 245 ‑ 37. amount subscribed means the amount subscribed as mentioned in section 245 ‑ 37. market value of shares subscribed for means the * market value of all the shares in the company that were subscribed for as mentioned in section 245 ‑ 37, immediately after those shares were issued.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-75 — Gross forgiven amount of a debt

(1) The gross forgiven amount of a debt is: (a) if section 245 ‑ 65 does not apply to the debt—the value of the debt when it was * forgiven (worked out under section 245 ‑ 55, 245 ‑ 60 or 245 ‑ 61); or (b) if the value of the debt when it was forgiven exceeds the amount offset under section 245 ‑ 65 in relation to the debt—the excess. (2) If the value of the debt when it was * forgiven is equal to or less than the amount offset: (a) there is no gross forgiven amount in respect of the debt; and (b) Subdivisions 245 ‑ D to 245 ‑ F (about how to work out the net forgiven amount of a debt and how to treat it) do not apply in respect of the debt.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-77 — Gross forgiven amount shared between debtors

If 2 or more entities were liable (except as partners in a partnership) to pay a debt, whether their liability was joint or several, or joint and several, this Subdivision applies as if each entity had a * gross forgiven amount worked out using the formula:

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-80 — What this Subdivision is about

The net forgiven amount of a debt is worked out by subtracting, from the gross forgiven amount of the debt, any amount that this Act already takes into account for the debtor because the debt was forgiven (for example, if some part of the forgiven amount is treated as the debtor’s ordinary income). If the debtor and creditor were companies under common ownership, they may agree to transfer some of the net forgiven amount from the debtor to the creditor. The creditor must apply that amount to reduce the capital loss or deduction it has because of the forgiveness. Table of sections Operative provisions 245 ‑ 85 Reduction of gross forgiven amount 245 ‑ 90 Agreement between companies under common ownership for creditor to forgo capital loss or deduction

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-85 — Reduction of gross forgiven amount

(1) The * gross forgiven amount of your debt is reduced by the sum of the following amounts: (a) any amount that, under a provision of this Act other than this Division, has been, or will be, included in your assessable income for any income year as a result of the * forgiveness of the debt; (b) any amount by which, under a provision of this Act other than this Division, an amount you could otherwise have deducted for any income year has been, or will be, reduced as a result of the forgiveness of the debt (except a reduction under Division 727 (about indirect value shifting)); (c) any amount by which the * cost base of any of your * CGT assets has been, or will be, reduced under Part 3 ‑ 1 or 3 ‑ 3 as a result of the forgiveness of the debt. Note: Paragraph (1)(c) does not cover a reduction under Division 727 (indirect value shifting) because that Division is not in Part 3 ‑ 1 or 3 ‑ 3. (2) Subject to section 245 ‑ 90, the amount remaining after reducing the * gross forgiven amount under subsection (1) is the net forgiven amount of the debt.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-90 — Agreement between companies under common ownership for creditor to forgo capital loss or deduction

(1) This section applies if: (a) a debt owed by a company to another company is * forgiven; and (b) from the time when the debt was incurred until the time when the debt is forgiven, the companies were * under common ownership. (2) If, apart from this subsection, the creditor would have made a * capital loss as a result of the * forgiveness of the debt: (a) the debtor and creditor may agree that the creditor is to forgo so much of the loss as is stated in the agreement and does not exceed the amount that would be the net forgiven amount of the debt apart from this section (the provisional net forgiven amount of the debt); and (b) if such an agreement is made: (i) the creditor’s capital loss is reduced by the agreed amount; and (ii) the provisional net forgiven amount of the debt is also reduced by the agreed amount; and (iii) the amount remaining after the reduction of the provisional net forgiven amount of the debt under subparagraph (ii) is the net forgiven amount of the debt. (3) If, apart from this subsection, the creditor could deduct an amount in respect of the debt under section 8 ‑ 1 (about general deductions) or section 25 ‑ 35 (about bad debts) for the * forgiveness income year: (a) the debtor and creditor may agree that the creditor is to forgo so much of the deduction as is stated in the agreement and does not exceed the amount that would be the net forgiven amount of the debt apart from this section (the provisional net forgiven amount of the debt); and (b) if such an agreement is made: (i) the amount the creditor can deduct is reduced by the agreed amount; and (ii) the provisional net forgiven amount of the debt is also reduced by the agreed amount; and (iii) the amount remaining after the reduction of the provisional net forgiven amount of the debt under subparagraph (ii) is the net forgiven amount of the debt. (4) Neither subsection (2) nor (3) applies in relation to an agreement unless the agreement: (a) is in writing and signed by the public officer of each company; and (b) is made before: (i) the first of those companies lodges its * income tax return for the * forgiveness income year; or (ii) any later day that the Commissioner determines in writing. (5) A determination made under subparagraph (4)(b)(ii) is not a legislative instrument.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-95 — What this Subdivision is about

The total of the net forgiven amounts of all your debts forgiven in an income year is applied to reduce 4 classes of amounts that could otherwise reduce your taxable income in the same or a later income year. It is applied in the following order: (a) to your tax losses from previous income years; (b) to your net capital losses from previous income years; (c) to the deductions you would otherwise get in the income year, or in a later income year, because of expenditure from a previous year (for example, the capital allowance deductions you would get for expenditure on acquiring a depreciating asset); (d) to the cost bases of your CGT assets. You can choose the order in which the net forgiven amounts reduce the amounts within each class. If all the amounts in the 4 classes are reduced to nil, any remaining net forgiven amounts are disregarded. Table of sections General operative provisions 245 ‑ 100 Subdivision not to apply to calculation of attributable income 245 ‑ 105 How total net forgiven amount is applied Reduction of tax losses 245 ‑ 115 Total net forgiven amount is applied in reduction of tax losses 245 ‑ 120 Allocation of total net forgiven amount in respect of tax losses Reduction of net capital losses 245 ‑ 130 Remaining total net forgiven amount is applied in reduction of net capital losses 245 ‑ 135 Allocation of remaining total net forgiven amount in respect of net capital losses Reduction of expenditure 245 ‑ 145 Remaining total net forgiven amount is applied in reduction of expenditure 245 ‑ 150 Allocation of remaining total net forgiven amount in respect of expenditures 245 ‑ 155 How expenditure is reduced—straight line deductions 245 ‑ 157 How expenditure is reduced—diminishing balance deductions 245 ‑ 160 Amount applied in reduction of expenditure included in assessable income in certain circumstances Reduction of cost bases of assets 245 ‑ 175 Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets 245 ‑ 180 Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets 245 ‑ 185 Relevant cost bases of investments in associated entities are reduced last 245 ‑ 190 Reduction of the relevant cost bases of a CGT asset Unapplied total net forgiven amount 245 ‑ 195 No further consequences if there is any remaining unapplied total net forgiven amount

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-100 — Subdivision not to apply to calculation of attributable income

This Subdivision does not apply to the calculation of: (a) attributable income of a non ‑ resident trust estate within the meaning of section 102AAB of the Income Tax Assessment Act 1936 ; or (b) * attributable income of a * CFC.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-105 — How total net forgiven amount is applied

(1) Your total net forgiven amount for the * forgiveness income year is the total of the * net forgiven amounts of all your debts that are * forgiven in that year. Note 1: The total net forgiven amount may be reduced under section 707 ‑ 415. Note 2: The total net forgiven amount of a partner in a partnership is affected by section 245 ‑ 215. (2) Your * total net forgiven amount is applied, in accordance with sections 245 ‑ 115 to 245 ‑ 195, for the * forgiveness income year.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-115 — Total net forgiven amount is applied in reduction of tax losses

The * total net forgiven amount is applied first, to the maximum extent possible, in reduction, in accordance with section 245 ‑ 120, of your * tax losses (if any) for any income years, if the tax losses could, if you had enough assessable income, be deducted in: (a) the * forgiveness income year; or (b) a later income year.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-120 — Allocation of total net forgiven amount in respect of tax losses

(1) You may choose: (a) the order in which your * tax losses are reduced; and (b) the amount applied to reduce each of those losses; so long as the * total net forgiven amount is applied, to the maximum extent possible, in reduction of those losses. (2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-130 — Remaining total net forgiven amount is applied in reduction of net capital losses

(1) The * total net forgiven amount (if any) remaining after being applied under section 245 ‑ 115 is applied, to the maximum extent possible, in reduction, in accordance with section 245 ‑ 135, of your * net capital losses (if any) specified in subsection (2). (2) Those * net capital losses are your net capital losses for income years before the * forgiveness income year that you could apply in working out your * net capital gain for the forgiveness income year if you had enough capital gains.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-135 — Allocation of remaining total net forgiven amount in respect of net capital losses

(1) You may choose: (a) the order in which your * net capital losses are reduced; and (b) the amount applied in reduction of each of those losses; so long as the * total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of those losses. (2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-145 — Remaining total net forgiven amount is applied in reduction of expenditure

(1) The * total net forgiven amount (if any) remaining after being applied under sections 245 ‑ 115 and 245 ‑ 130 is applied, to the maximum extent possible, in reduction, in accordance with sections 245 ‑ 150, 245 ‑ 155 and 245 ‑ 157, of your expenditure that: (a) is mentioned in the following table (other than expenditure covered by subsection (2)) and was incurred by you before the * forgiveness income year; and (b) apart from this Subdivision, could be deducted by you for the forgiveness income year or a later income year if no event or circumstance (other than a * recoupment of the expenditure by you in the forgiveness income year) occurred that would affect its deductibility. Table of expenditure Item Column 1 General description of expenditure Column 2 Provision under which a deduction is available for the expenditure 1 Expenditure deductible under Division 40 (Capital allowances) Division 40 of this Act 2 Expenditure incurred in * borrowing money to produce assessable income Section 25 ‑ 25 of this Act 3 Expenditure on scientific research Subsection 73A(2) of the Income Tax Assessment Act 1936 4 Expenditure deductible under Division 355 (R&D) Division 355 of this Act 5 Advance revenue expenditure Subdivision H of Division 3 of Part III of the Income Tax Assessment Act 1936 6 Expenditure on acquiring a unit of industrial property to produce assessable income Subsection 124M(1) of the Income Tax Assessment Act 1936 7 Expenditure on Australian films Section 124ZAFA of the Income Tax Assessment Act 1936 8 Expenditure on assessable income ‑ producing buildings and other capital works Section 43 ‑ 10 of this Act Note: If the asset to which the expenditure relates was disposed of, lost or destroyed before 28 June 1996 or the expenditure was recouped before 28 June 1996, see section 245 ‑ 10 of the Income Tax (Transitional Provisions) Act 1997 . (2) Expenditure is covered by this subsection if: (a) it was incurred in respect of an asset you * disposed of to an entity that you dealt with at * arm’s length in respect of the disposal; and (b) the disposal occurred during the * forgiveness income year before the * forgiveness of any debt owed by you, and the forgiveness resulted in a * net forgiven amount; and (c) no provision of this Act includes an amount in your assessable income, or allows you a deduction, as a result of the disposal.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent

s 245-150 — Allocation of remaining total net forgiven amount in respect of expenditures

(1) You may choose: (a) the order in which your expenditures are reduced; and (b) the amount applied in reduction of each of those expenditures; so long as that the * total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of your expenditures. (2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-155 — How expenditure is reduced—straight line deductions

(1) This section applies in respect of the reduction under section 245 ‑ 145 of an expenditure of yours, if: (a) the amount that you could deduct, apart from this Subdivision, in respect of the expenditure is a percentage, fraction or proportion of an amount (the base amount ); and (b) the base amount is worked out without regard to any amount or amounts you previously deducted in respect of that expenditure. (2) The amount of the reduction of the expenditure must not exceed: (a) the base amount; less (b) the amount of that part of the expenditure in respect of which you have deducted (disregarding subsection (4)), or can deduct, an amount for any income year before the * forgiveness income year. (3) For the purpose of working out your deductions for the * forgiveness income year and later income years, any amount that is applied in reduction of your expenditure is taken to reduce the base amount. (4) You are taken to have deducted the amount of the reduction in respect of the expenditure: (a) before the * forgiveness income year; and (b) for the purposes of any provision of this Act that includes an amount in your assessable income or allows you a deduction: (i) because of the * disposal, loss or destruction of the asset in respect of which the expenditure was incurred; or (ii) because of the * recoupment of any of the expenditure; or (iii) because use of the asset for a particular purpose has been otherwise terminated; or (iv) because a * balancing adjustment event occurs for that asset. (5) The amount of that part of the expenditure in respect of which you have deducted (disregarding subsection (4), or can deduct, an amount for all income years (including income years before the * forgiveness income year) must not exceed the base amount as reduced under subsection (3).

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-157 — How expenditure is reduced—diminishing balance deductions

Any amount applied in reduction under section 245 ‑ 145 of an expenditure of yours is taken to have been deducted by you in respect of the expenditure before the * forgiveness income year, if the amount you could deduct, apart from this Subdivision, in respect of the expenditure is a percentage, fraction or proportion of an amount that is worked out after taking into account any amount previously deducted by you in respect of the expenditure.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-160 — Amount applied in reduction of expenditure included in assessable income in certain circumstances

If: (a) after the * forgiveness income year you * recoup an amount of expenditure that is subject to reduction under section 245 ‑ 145; and (b) as a result of the recoupment, this Act applies to disallow any amount you have deducted in respect of the expenditure; an amount equal to the amount, or the sum of the amounts, applied under this Subdivision in reduction of the expenditure is included in your assessable income in the income year in which the expenditure is recouped.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-175 — Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets

(1) The * total net forgiven amount (if any) remaining after being applied under sections 245 ‑ 115, 245 ‑ 130 and 245 ‑ 145 is applied, to the maximum extent possible, in reduction, in accordance with sections 245 ‑ 180 to 245 ‑ 190, of the * cost base and * reduced cost base of your * CGT assets. (2) Subsection (1) does not apply to the following * CGT assets: (a) a * pre ‑ CGT asset; (b) a CGT asset you * acquire after the start of the * forgiveness income year; (c) a * personal use asset; (d) a * dwelling that was your main residence at any time before the forgiveness income year; (e) goodwill; (f) a right of yours covered by section 118 ‑ 305 (which exempts from CGT certain rights relating to a superannuation fund or approved deposit fund); (g) a CGT asset that, throughout the period before the forgiveness income year when it was owned by you, was your * trading stock; (h) a CGT asset if: (i) expenditure by you (of a kind which is subject to reduction under section 245 ‑ 145) relates to the asset; and (ii) a * CGT event in relation to the asset would result in an amount being included in your assessable income, or in you being able to deduct an amount; (i) if you are a foreign resident at the beginning of the forgiveness income year—an asset of yours that is not * taxable Australian property.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-180 — Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets

(1) Subject to section 245 ‑ 185, you may choose: (a) your * CGT assets whose * cost base and * reduced cost base are subject to reduction under section 245 ‑ 175; and (b) the amount applied in reduction of the cost base and reduced cost base of each of those assets; so long as the * total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of the cost base and reduced cost base of such assets. (2) If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-185 — Relevant cost bases of investments in associated entities are reduced last

If your * CGT assets that are subject to reduction under section 245 ‑ 175 include investments in, or in relation to, an * associate of yours (including * membership interests, or * debt interests, in your associate), the: (a) * cost base; and (b) * reduced cost base; of those assets are not subject to reduction under section 245 ‑ 175 until the * total net forgiven amount (if any) remaining has been applied, to the maximum extent possible, in reduction of the cost bases of your other CGT assets.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-190 — Reduction of the relevant cost bases of a CGT asset

(1) Subject to subsection (3), if you choose to apply an amount in reduction of the * cost base and * reduced cost base of a particular * CGT asset, the cost base and reduced cost base of the asset, as at any time on or after the beginning of the * forgiveness income year, are reduced by that amount. (2) The reduction by a particular amount of the * cost base and * reduced cost base of a particular * CGT asset is, for the purpose of working out the amount by which the * total net forgiven amount remaining is applied, taken to be a reduction by the particular amount (and not by the sum of the amounts by which those cost bases are reduced). (3) The maximum amount by which the * cost base and * reduced cost base of a * CGT asset may be reduced is the amount that, apart from sections 245 ‑ 175 to 245 ‑ 185, would be the reduced cost base of the asset calculated as if a * CGT event had happened to the asset: (a) subject to paragraph (b), on the first day of the * forgiveness income year; or (b) if, after the beginning of that income year, an event occurred that would cause the reduced cost base of the asset to be reduced—on the day on which the event occurred; and the asset had been * disposed of at its * market value on the day concerned.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-195 — No further consequences if there is any remaining unapplied total net forgiven amount

(1) If any part of the * total net forgiven amount remains after the application of that amount in making reductions under the preceding provisions of this Subdivision, the remaining part is disregarded. (2) This section has effect subject to section 245 ‑ 215 (about partnerships and transferring the remaining part to the partners).

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-200 — What this Subdivision is about

Any part of a partnership’s total net forgiven amount left over after applying it under Subdivision 245 ‑ E is divided between the partners. Each partner treats the partner’s share as a net forgiven amount the partner has for the income year. Table of sections Operative provisions 245 ‑ 215 Unapplied total net forgiven amount of a partnership is transferred to partners

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-215 — Unapplied total net forgiven amount of a partnership is transferred to partners

(1) This section applies if any part (the residual amount ) of the * total net forgiven amount in relation to a partnership in respect of the * forgiveness income year remains after the total net forgiven amount has been applied in accordance with Subdivision 245 ‑ E. (2) If there is a * net income in relation to the partnership in respect of the * forgiveness income year: (a) each partner is taken to have had a debt * forgiven during the forgiveness income year; and (b) there is taken to be, in respect of the debt of each partner, a * net forgiven amount worked out in accordance with the following formula: where: partner’s share of net income means the part of the net income of the partnership for the forgiveness income year that is included in the partner’s assessable income. (3) If there is a * partnership loss in relation to the partnership in respect of the * forgiveness income year: (a) each partner is taken to have had a debt * forgiven during the forgiveness income year; and (b) there is taken to be, in respect of the debt of each partner, a * net forgiven amount worked out in accordance with the following formula: where: partner’s share of partnership loss means the part of the partnership loss that the partner has deducted or can deduct. (4) The * total net forgiven amount of a partner for the * forgiveness income year as worked out under subsection 245 ‑ 105(1) includes the * net forgiven amount worked out in relation to the partner under this section. (5) This section has effect in relation to a partnership irrespective of any agreement between the partners as to the operation of this section.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 245-265 — Keeping and retaining records

(1) If you incur a debt, you must keep any records that are necessary to enable the following matters to be readily found out: (a) the date on which you incurred the debt; (b) the identity of the creditor; (c) the amount of the debt; (d) the terms of repayment of the debt; (e) if the debt is not a * moneylending debt and you and the creditor were not dealing with each other at * arm’s length in respect of the incurring of the debt—your capacity at the time when the debt was incurred to pay the debt when it falls due; (f) if your debt is * forgiven—the date of the forgiveness and the amount offset under section 245 ‑ 65 (if any) in respect of the debt. Note: There is an administrative penalty if you do not keep or retain records as required by this section: see section 288 ‑ 25 in Schedule 1 to the Taxation Administration Act 1953 . (2) If a company and another company that are * under common ownership cease to be under common ownership, each company must keep any records that are necessary to enable the following matters to be readily found out: (a) the date on which the companies ceased to be under common ownership; (b) the identity of each entity that was a * controller (for CGT purposes) of the company immediately before the companies ceased to be under common ownership; (c) the identity of each entity that was a controller (for CGT purposes) of the company immediately after the companies ceased to be under common ownership. (3) You must keep the records required by subsection (1) or (2) in writing in the English language or so as to enable them to be readily accessible and convertible into writing in the English language. (4) Subject to subsection (5), you must keep the records required by subsection (1) until: (a) if paragraph (b) does not apply—the end of 5 years after the debt was * forgiven; or (b) if the period within which the Commissioner may, under section 170 of the Income Tax Assessment Act 1936 , amend your assessment for the income year to which the records relate, or in which a transaction or act to which the records relate was completed, is extended under subsection 170(7) of that Act—the later of: (i) the end of the assessment period as so extended; and (ii) the end of the period of 5 years mentioned in paragraph (a). (5) Subsection (4) does not require you to keep records after the debt is paid. (6) Subject to subsection (7), each company that keeps any records required by subsection (2) must retain the records until the end of the second income year after the income year in which the companies ceased to be * under common ownership. (7) If a debt of one of the companies mentioned in subsection (2) was * forgiven at any time after the companies ceased to be * under common ownership and before the end of the second income year after the income year in which the cessation occurred, each company that keeps records required by that subsection must retain the records until the time specified in subsection (4). (8) You commit an offence if you fail to comply with a provision of this section. Penalty: 30 penalty units. (9) An offence against subsection (8) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code . (10) This section does not limit the application of any other provision of this Act relating to the keeping or retention of records.

Amendment history: Inserted by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 247-1 — What this Division is about

Capital protection provided under a relevant capital protected borrowing to the extent that it is not provided by an explicit put option is treated (for the borrower) as if it were a put option. An amount attributable to capital protection under any relevant capital protected borrowing is treated (for the borrower) as a payment for a put option. Table of sections Operative provisions 247 ‑ 5 Object of Division 247 ‑ 10 What capital protected borrowing and capital protection are 247 ‑ 15 Application of this Division 247 ‑ 20 Treating capital protection as a put option 247 ‑ 25 Number of put options 247 ‑ 30 Exercise or expiry of option

Amendment history: Inserted by No 55 of 2007, effective 12 Apr 2007

s 247-5 — Object of Division

The object of this Division is to ensure that amounts for * capital protection under all relevant * capital protected borrowings are treated (for the borrower) under this Act as a payment for a put option.

Amendment history: Inserted by No 55 of 2007, effective 12 Apr 2007

s 247-10 — What capital protected borrowing and capital protection are

(1) An * arrangement under which a * borrowing is made, or credit is provided, is a capital protected borrowing if the borrower is wholly or partly protected against a fall in the * market value of a thing (the protected thing ) to the extent that: (a) the borrower uses the amount borrowed or credit provided to acquire the protected thing; or (b) the borrower uses the protected thing as security for the borrowing or provision of credit. (2) That protection is called capital protection .

Amendment history: Inserted by No 55 of 2007, effective 12 Apr 2007

s 247-15 — Application of this Division

(1) This Division applies to a * capital protected borrowing only if the protected thing is a beneficial interest in: (a) a * share, a unit in a unit trust or a stapled security; or (b) an entity that holds a beneficial interest in a share, unit in a unit trust or stapled security either directly, or indirectly through one or more interposed entities. (2) This Division applies only to borrowers under * capital protected borrowings. (3) This Division does not apply to a * capital protected borrowing if: (a) an * ESS interest is acquired under the borrowing; and (b) Subdivision 83A ‑ B or 83A ‑ C (about employee share schemes) applies to the ESS interest. (4) This Division does not apply to a * capital protected borrowing entered into before 1 July 2007 (except to the extent that it is extended on or after that day) unless the * share, unit in a unit trust or stapled security is listed for quotation in the official list of an * approved stock exchange. (5) This Division does not apply to a * capital protected borrowing entered into on or after 1 July 2007 if: (a) the protected thing is a beneficial interest in: (i) a * share, unit or stapled security that is not listed for quotation in the official list of an * approved stock exchange; or (ii) an entity that holds a beneficial interest in a share, unit in a unit trust or stapled security either directly, or indirectly through one or more interposed entities, that is not so listed; and (b) one of these conditions is satisfied: (i) for a non ‑ listed share—the company is not a * widely held company; (ii) for a non ‑ listed unit—the trust is not a widely held unit trust as defined in section 272 ‑ 105 in Schedule 2F to the Income Tax Assessment Act 1936 ; (iii) for a non ‑ listed stapled security—any company involved is not a widely held company and any trust involved is not such a widely held unit trust.

Amendment history: Inserted by No 55 of 2007, effective 12 Apr 2007 | Amended by No 133 of 2009, effective Schedule 1 (items 1, 21–76, 86, 87): 14 Dec 2009 Schedule 2 (items 1–13, 15) and Schedule 3 (items 28–40, 44, 45): Royal Assent

s 247-20 — Treating capital protection as a put option

(1) This section applies to a borrower if: (aa) the borrower has an excess using the method statement in subsection (3) for: (i) a * capital protected borrowing entered into after 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008 (the 2008 Budget time ); or (ii) an extension of the capital protected borrowing; or (a) the borrower has an amount that is reasonably attributable to the * capital protection as mentioned in subsection (2) for a capital protected borrowing entered into or extended on or after 1 July 2007 and at or before the 2008 Budget time; or (b) the borrower has an amount that is reasonably attributable to the capital protection as mentioned in subsection (2) for a capital protected borrowing entered into or extended at or after 9.30 am, by legal time in the Australian Capital Territory, on 16 April 2003 and before 1 July 2007. Note: If a capital protected borrowing covered by paragraph (1)(a) or (b) is extended or otherwise changed after the 2008 Budget time, section 247 ‑ 85 of the Income Tax (Transitional Provisions) Act 1997 applies to the capital protected borrowing. (2) For paragraphs (1)(a) and (b), the amount that is reasonably attributable to the * capital protection is worked out under Division 247 of the Income Tax (Transitional Provisions) Act 1997 . (3) This is the method statement. Method statement Step 1. Work out the total amount incurred by the borrower under or in respect of the * capital protected borrowing for the income year, ignoring amounts that are not in substance for * capital protection or interest. Step 2. Work out the total interest that would have been incurred for the income year on a * borrowing or provision of credit of the same amount as under the * capital protected borrowing at the rate applicable under either or both of subsections (4) and (5A). Step 3. If the step 1 amount exceeds the step 2 amount, the excess is reasonably attributable to the * capital protection for the income year. Example: Amounts that would be ignored under step 1 include amounts that are in substance the repayment of a loan or credit, the payment of an application fee or brokerage commission and the payment of stamp duty or other tax. (4) If: (a) the * capital protected borrowing is at a fixed rate for all or part of the term of the capital protected borrowing; and (b) that fixed rate is applicable to the capital protected borrowing for all or part of the income year; use the rate worked out under subsection (5) at the first time an amount covered by step 1 of the method statement in subsection (3) was incurred, in any income year, during the term of the capital protected borrowing or that part of the term. (5) The rate (the adjusted loan rate ), at a particular time, is the sum of: (a) the Reserve Bank of Australia’s Indicator Lending Rate for Standard Variable Housing Loans at that time; and (b) 100 basis points. (5A) If: (a) the * capital protected borrowing is at a variable rate for all or part of the term of the capital protected borrowing; and (b) a variable rate is applicable to the capital protected borrowing for all or part of the income year; use the average of the adjusted loan rates applicable during those parts of the income year when the capital protected borrowing is at a variable rate. (6) If this section applies to a borrower, this Act applies as if: (a) the borrower’s excess from the method statement in subsection (3); or (b) the amount that is reasonably attributable to * capital protection as mentioned in paragraph (1)(a) or (b); (reduced by any amount the borrower incurred under or in respect of the * capital protected borrowing for an explicit put option) were incurred only for a put option granted by the lender or by another entity under the * arrangement.

Amendment history: Inserted by No 55 of 2007, effective 12 Apr 2007 | Amended by No 61 of 2011, effective s. 4, Schedule 1, Schedule 2 (items 1–8), Schedule 3, Schedule 4 and Schedule 7: Royal Assent

s 247-25 — Number of put options

(1) If a * capital protected borrowing specifies more than one occasion on which the * capital protection can be invoked, this Act applies as if there were a separate put option for each of those occasions. So much of the amount to which subsection 247 ‑ 20(6) applies as is reasonably attributable to each option is taken to have been incurred for that option. (2) However, if a borrower may invoke the * capital protection under a * capital protected borrowing at any time up to the end of a period, or only at the end of a period, for which there is capital protection, this Act applies as if there were a single put option for that period.

Amendment history: Inserted by No 55 of 2007, effective 12 Apr 2007