Income Tax Assessment Act 1997

s 727-910 — Treatment of value shifted under the direct value shift

(1) The first entity is treated as * providing economic benefits to the other entity, * in connection with the IVS scheme, at the time of a decrease (or future decrease) in the * market value of any of the * down interests, to the extent that the decrease is (or will be) covered by subsection 725 ‑ 155(1). (2) Despite subsections 727 ‑ 150(4) and 727 ‑ 855(2) and (3), the * market value of all economic benefits that subsection (1) of this section treats the first entity as providing to the other entity: (a) is to be determined as at the time immediately before the * IVS time, or immediately before the * realisation event, as appropriate; and (b) is equal to the total value shifted from the * down interests to the * up interests, as worked out under one or more applications of step 2 of the method statement in section 725 ‑ 365 or 725 ‑ 380. (3) The 2 entities are treated as not dealing with each other at * arm’s length in relation to the providing of those benefits. (4) None of those benefits is treated as consisting of, or including, services provided or a right to have services provided. Note: This means that the exclusions in Subdivisions 727 ‑ C and 727 ‑ G for indirect value shifts involving services will not apply. (5) Except as provided in this section, none of the following is treated as the * providing of economic benefits * in connection with the IVS scheme: (a) a decrease (or future decrease) in the * market value of * down interests owned by the first entity or the other entity, to the extent that the decrease is (or will be) covered by subsection 725 ‑ 155(1); (b) an increase (or future increase) in the market value of * up interests owned by the first entity or the other entity, to the extent that the increase is (or will be) covered by subsection 725 ‑ 145(3); (c) an issue of * up interests at a * discount to the first entity or the other entity, to the extent that the issue is (or will be) covered by subsection 725 ‑ 145(2). Note: Value shifted from down interests owned by the other entity to up interests owned by the first entity are dealt with by a separate application of this Subdivision to those interests (because of paragraphs 727 ‑ 905(2)(a) and (b).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | 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)

s 764-1 — What this Division is about

This Division contains a source rule for certain international tax agreements.

Amendment history: Inserted by No 107 of 2019, effective Sch 2 (items 1, 2): 1 Jan 2020 (s 2(1) item 3)

s 764-5 — Source rule for international tax agreements

(1) For the purposes of this Act, income, profits or gains have a source in Australia if: (a) for the purposes of an * international tax agreement, the income, profits or gains are those of a person who is a resident of a foreign country or foreign territory; and (b) the effect of the agreement is that the income, profits or gains may be taxed in Australia. (2) Subsection (1) applies in relation to * international tax agreements made on or after 28 March 2019. Note: An international tax agreement not covered by this section may be subject to specific source rules contained in the International Tax Agreements Act 1953 or in the international tax agreement itself. (3) This section has effect despite any other provision of this Act (other than Part IVA of the Income Tax Assessment Act 1936 ).

Amendment history: Inserted by No 107 of 2019, effective Sch 2 (items 1, 2): 1 Jan 2020 (s 2(1) item 3)

s 768-1 — What this Subdivision is about

If: (a) an Australian corporate tax entity receives a foreign equity distribution from a foreign company, either directly or indirectly through one or more interposed trusts or partnerships; and (b) the Australian corporate tax entity holds a participation interest of at least 10% in the foreign company; the distribution is non ‑ assessable non ‑ exempt income for the Australian corporate tax entity. Table of sections Foreign equity distributions on participation interests 768 ‑ 5 Foreign equity distributions on participation interests 768 ‑ 7 Foreign equity distributions entitled to a foreign income tax deduction 768 ‑ 10 Meaning of foreign equity distribution 768 ‑ 15 Participation test—minimum 10% participation

Amendment history: Repealed by No 178 of 1999, effective Schedule 1 (items 6, 8, 70–78): 1 July 2000 Remainder: Royal Assent | Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7)

s 768-5 — Foreign equity distributions on participation interests

Foreign equity distributions received directly (1) A * foreign equity distribution is not assessable income, and is not * exempt income, of the entity to which it is made if: (a) the entity is an Australian resident and a * corporate tax entity; and (b) at the time the distribution is made, the entity satisfies the participation test in section 768 ‑ 15 in relation to the company that made the distribution; and (c) the entity: (i) does not receive the distribution in the capacity of a trustee; or (ii) receives the distribution in the capacity of a trustee of a * public trading trust; and (d) the distribution is not one to which section 768 ‑ 7 (which is about foreign income tax deductions) applies. Foreign equity distributions received through interposed trusts and partnerships (2) An amount is not assessable income, and is not * exempt income, of an entity if: (a) the entity is a beneficiary of a trust or a partner in a partnership, an Australian resident and a * corporate tax entity; and (b) the amount is all or part of the * net income of the trust or partnership that would, apart from this subsection, be included in the entity’s assessable income because of: (i) Division 276; or (ii) Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 ; and (c) the amount can be attributed (either directly or indirectly through one or more interposed trusts or partnerships that are not * corporate tax entities) to a * foreign equity distribution; and (d) at the time the distribution is made, the entity satisfies the participation test in section 768 ‑ 15 in relation to the company that made the distribution; and (e) the entity: (i) does not receive the distribution in the capacity of a trustee; or (ii) receives the distribution in the capacity of a trustee of a * public trading trust; and (f) the distribution is not one to which section 768 ‑ 7 (which is about foreign income tax deductions) applies. (3) An amount that is * non ‑ assessable non ‑ exempt income under subsection (2) is taken, for the purpose of section 25 ‑ 90 (about deductions relating to foreign non ‑ assessable non ‑ exempt income) to be derived from the same source as the * foreign equity distribution.

Amendment history: Repealed by No 178 of 1999, effective Schedule 1 (items 6, 8, 70–78): 1 July 2000 Remainder: Royal Assent | Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7) | Amended by No 53 of 2016, effective Sch 1 (item 1), Sch 2, Sch 3 (items 2–4), Sch 4 (items 1–5), Sch 5 (items 2, 29–67, 75), Sch 6 (items 21–34), Sch 8 (item 1) and Sch 9: 5 May 2016 (s 2(1) items 2, 4) | Amended 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 768-7 — Foreign equity distributions entitled to a foreign income tax deduction

(1) This section applies to a * foreign equity distribution if: (a) all or part of the distribution gives rise to a * foreign income tax deduction; and (b) the exception in subsection (2) does not apply to the distribution. Exception for foreign corporate collective investment vehicles (2) This subsection applies to a * foreign equity distribution if: (a) the * foreign income tax deduction arises because the company that made the distribution is recognised under the law of the foreign country in which the deduction arises as being used for collective investment; and (b) * foreign income tax or a withholding ‑ type tax was payable in respect of the distribution.

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 768-10 — Meaning of foreign equity distribution

A foreign equity distribution is a * distribution or * non ‑ share dividend made by a company that is not a Part X Australian resident (within the meaning of Part X of the Income Tax Assessment Act 1936 ) in respect of an * equity interest in the company.

Amendment history: Inserted by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7) | Amended by No 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 768-15 — Participation test—minimum 10% participation

An entity satisfies the participation test in this section in relation to another entity at a time if, at that time, the sum of the following is at least 10%: (a) the * direct participation interest the entity would have in the other entity if rights on winding ‑ up were disregarded; (b) the * indirect participation interest the entity would have in the other entity if: (i) rights on winding ‑ up were disregarded; and (ii) section 960 ‑ 185 only applied to intermediate entities that are not * corporate tax entities.

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

s 768-100 — Foreign government officials in Australia

(1) The amounts of * ordinary income and * statutory income covered by the table are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both. Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6 ‑ 20. The note to subsection 6 ‑ 15(2) describes some of the other consequences of it being exempt income. Note 2: Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936 . Exempt amounts Item If you are: the following amounts are exempt from income tax: subject to these exceptions and special conditions: 1 (a) a representative in Australia of the government of a foreign country; or (b) a member of the official staff of such a representative; and you are neither an Australian citizen nor ordinarily resident in Australia (a) your official salary; and (b) your * ordinary income, and your * statutory income, from a source outside Australia (a) no Convention listed in subsection (2) applies to the representative; and (b) the country concerned grants in relation to Australia exemptions from taxes on income that correspond with the exemption in this item 2 (a) an officer of the government of a * Commonwealth of Nations country; and (b) temporarily in Australia to render service on behalf of that country, or an * Australian government agency, in accordance with an * arrangement between the governments of that country and of the Commonwealth or of a State or Territory (a) your official salary; and (b) your * ordinary income, and your * statutory income, from a source outside Australia that country exempts from income tax the salaries of officers of the government of the Commonwealth temporarily in that country for similar purposes in accordance with a similar arrangement (2) The Conventions are: (a) the Vienna Convention on Diplomatic Relations, as having the force of law because of the Diplomatic Privileges and Immunities Act 1967 ; (b) the Vienna Convention on Consular Relations, as having the force of law because of the Consular Privileges and Immunities Act 1972 . Note: Those Conventions have the force of law in Australia because of those Acts and achieve substantially the same effect as item 1 of the table: see Article 34 of the Vienna Convention on Diplomatic Relations and Article 49 of the Vienna Convention on Consular Relations.

Amendment history: Inserted by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent

s 768-105 — Compensation arising out of Second World War

(1) A payment to you is exempt from income tax if: (a) you are an Australian resident at the time when it would otherwise be included in your assessable income; and (b) the payment is from a source in a foreign country; and (c) the payment is in connection with: (i) any wrong or injury; or (ii) any loss of, or damage to, property; or (iii) any other detriment; suffered by you or another individual as a result of: (iv) persecution by the National Socialist regime of Germany during the National Socialist period; or (v) persecution during the Second World War by any other enemy of the Commonwealth or by a regime covered by subsection (3); or (vi) flight from persecution mentioned in subparagraph (iv) or (v); or (vii) participation in a resistance movement during the Second World War against forces of the National Socialist regime of Germany or against forces of any other enemy of the Commonwealth; and (d) the payment is not directly or indirectly from any of your * associates. Note: An example of a detriment covered by subparagraph (c)(iii) is if you lost the opportunity to qualify for a pension because your period of contribution was cut short because you had to flee persecution by the National Socialist regime. Duration of Second World War (2) Subsection (1) applies to: (a) the period immediately before the Second World War; and (b) the period immediately after the Second World War; in the same way as it applies to the period of the Second World War. Regimes associated with an enemy of the Commonwealth (3) This subsection covers a regime that was: (a) in alliance with; or (b) occupied by; or (c) effectively controlled by; or (d) under duress from; or (e) surrounded by; either or both of the following: (f) the National Socialist regime of Germany; (g) any other enemy of the Commonwealth. Legal personal representative (4) Subsection (1) applies to a payment to: (a) your * legal personal representative; or (b) a trust established by your will; in a corresponding way to the way in which it would have applied if: (c) the payment had been to you; and (d) if the payment is made after your death—you were still alive.

Amendment history: Inserted by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent

s 768-110 — Foreign residents deriving income from certain activities in Australia’s exclusive economic zone or on or above Australia’s continental shelf

(1) The object of this section is to ensure Australia’s compliance with certain provisions of the * United Nations Convention on the Law of the Sea. Note: The text of the United Nations Convention on the Law of the Sea is in Australian Treaty Series 1994 No. 31 ([1994] ATS 31) and could in 2014 be viewed in the Australian Treaties Library on the AustLII website (http://www.austlii.edu.au). (2) If you are a foreign resident, your * ordinary income and * statutory income is neither assessable income, nor * exempt income, to the extent that: (a) the income is from an activity carried on in an area that is: (i) part of Australia’s exclusive economic zone; or (ii) part of, or above, Australia’s continental shelf; and (b) the activity is specified by regulation to be a prescribed activity for the purpose of this section.

Amendment history: Inserted by No 2 of 2015, effective Sch 2 (items 1, 73, 111) and Sch 4 (items 1–8, 79): 25 Feb 2015 (s 2(1) items 3, 5, 6) Sch 2 (items 29–33): 1 July 2015 (s 2(1) item 4)

s 768-500 — What this Subdivision is about

If: (a) a company has a capital gain or capital loss arising from a CGT event that happens in relation to a share in a foreign company; and (b) the company holds a direct voting percentage of 10% or more in the foreign company for a certain period before the CGT event happens; the gain or loss is reduced by a percentage that reflects the degree to which the assets of the foreign company are used in an active business. Table of sections Operative provisions 768 ‑ 505 Reducing a capital gain or loss from certain CGT events in relation to certain voting interests Active foreign business asset percentage 768 ‑ 510 Active foreign business asset percentage 768 ‑ 515 Choices to apply market value method or book value method 768 ‑ 520 Market value method—choice made under subsection 768 ‑ 515(1) 768 ‑ 525 Book value method—choice made under subsection 768 ‑ 515(2) 768 ‑ 530 Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies 768 ‑ 533 Foreign company that is a FIF using CFC calculation method—treatment as AFI subsidiary under this Subdivision 768 ‑ 535 Modified rules for foreign wholly ‑ owned groups Types of assets of a foreign company 768 ‑ 540 Active foreign business assets of a foreign company 768 ‑ 545 Assets included in the total assets of a foreign company Voting percentages in a company 768 ‑ 550 Direct voting percentage in a company 768 ‑ 555 Indirect voting percentage in a company 768 ‑ 560 Total voting percentage in a company

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-505 — Reducing a capital gain or loss from certain CGT events in relation to certain voting interests

(1) The * capital gain or * capital loss a company (the holding company ) that is an Australian resident makes from a * CGT event that happened at a particular time (the time of the CGT event ) to a * share in a company (the foreign disposal company ) that is a foreign resident is reduced if: (a) the holding company held a * direct voting percentage of 10% or more in the foreign disposal company throughout a 12 month period that: (i) began no earlier than 24 months before the time of the CGT event; and (ii) ended no later than that time; and (b) the share is not : (i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936 ); or (ii) a widely distributed finance share (within the meaning of that Part); and (c) the CGT event is CGT event A1, B1, C2, E1, E2, G3, J1, K4, K6, K10 or K11. (2) The gain or loss is reduced by the * active foreign business asset percentage (see sections 768 ‑ 510, 768 ‑ 530 and 768 ‑ 535) of the foreign disposal company in relation to the holding company at the time of the CGT event.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004 | Amended by No 168 of 2006, effective Schedule 3 (items 3–5): 13 Dec 2005 Remainder: Royal Assent

s 768-510 — Active foreign business asset percentage

(1) The active foreign business asset percentage of a company (the foreign company ) that is a foreign resident, in relation to the holding company mentioned in section 768 ‑ 505, at the time of the CGT event mentioned in that section, is worked out in accordance with this section. Market value method (2) Work out that percentage under section 768 ‑ 520 if: (a) the holding company has made a choice under subsection 768 ‑ 515(1) in relation to the foreign company for that time; and (b) there is sufficient evidence of the * market value at that time of: (i) all * assets included in the total assets of the foreign company at that time; and (ii) all * active foreign business assets of the foreign company at that time. Book value method (3) Work out that percentage under section 768 ‑ 525 if: (a) the holding company has made a choice under subsection 768 ‑ 515(2) in relation to the foreign company for that time; and (b) there are * recognised company accounts of the foreign company for a period that ends no later than that time, but no more than 12 months before that time; and (c) if the foreign company was in existence before the start of the period mentioned in paragraph (b)—there are recognised company accounts of the foreign company for a period that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in paragraph (b). Default method (4) Otherwise, that percentage is: (a) 100% (if this section is being applied for the purposes of section 768 ‑ 505 to reduce a * capital loss of the holding company); or (b) zero (in any other case).

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-515 — Choices to apply market value method or book value method

Choice for market value method (1) The holding company may choose to work out the * active foreign business asset percentage of the foreign company for the time of the CGT event under section 768 ‑ 520. Choice for book value method (2) The holding company may choose to work out the * active foreign business asset percentage of the foreign company for the time of the CGT event under section 768 ‑ 525. Method of making choice (3) The way an entity making a choice under subsection (1) or (2) prepares its * income tax return is sufficient evidence of the making of the choice. Note: If an entity does not make a choice under subsection (1) or (2), it will work out the active foreign business asset percentage of the foreign company in accordance with the default method in subsection 768 ‑ 510(4).

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-520 — Market value method—choice made under subsection 768 ‑ 515(1)

(1) The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way. Method statement Step 1. Work out the * market value at that time of all * assets included in the total assets of the foreign company at that time. Step 2. Work out the * market value (see subsection (2)) at that time of all * active foreign business assets of the foreign company at that time. Step 3. Divide the result of step 2 by the result of step 1. Step 4. Express the result of step 3 as a percentage, and round that percentage to the nearest whole percentage point (rounding a number ending in .5 upwards). Step 5. The active foreign business asset percentage is: (a) if the result of step 4 is less than 10%—zero; or (b) if the result of step 4 is 10% or more, but less than 90%—that result; or (c) if the result of step 4 is 90% or more—100%. Note 1: If the foreign company is a foreign life insurance company or a foreign general insurance company, the result of step 2 is modified under section 768 ‑ 530. Note 2: If the foreign company is a member of a wholly ‑ owned group, section 768 ‑ 535 may modify the way in which this section operates. (2) If, at the time of the CGT event: (a) an * active foreign business asset of the foreign company is a * share in another company (the subsidiary company ); and (b) the subsidiary company is a foreign resident; then, in working out the * market value of all * active foreign business assets of the foreign company at that time for the purposes of step 2 of the method statement in subsection (1), treat the * market value of the share at that time according to the following table. Market value of a share in subsidiary company Item If: treat the market value of the share as: 1 (a) the foreign company has a * direct voting percentage of 10% or more in the subsidiary company at that time; and (b) the holding company has a * total voting percentage of 10% or more in the subsidiary company at that time the * share’s * market value at that time, multiplied by the * active foreign business asset percentage of the subsidiary company in relation to the holding company at that time 2 item 1 does not apply zero Note: For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-525 — Book value method—choice made under subsection 768 ‑ 515(2)

(1) The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way. Method statement Step 1. Work out the foreign company’s average value of total assets at that time under subsection (2). Step 2. Work out the foreign company’s average value of active foreign business assets at that time under subsection (3). Step 3. Divide the result of step 2 by the result of step 1. Step 4. Express the result of step 3 as a percentage, and round that percentage to the nearest whole percentage point (rounding a number ending in .5 upwards). Step 5. The active foreign business asset percentage is: (a) if the result of step 4 is less than 10%—zero; or (b) if the result of step 4 is 10% or more, but less than 90%—that result; or (c) if the result of step 4 is 90% or more—100%. Note: If the foreign company is a member of a wholly ‑ owned group, section 768 ‑ 535 may modify the way in which this section operates. (2) The foreign company’s average value of total assets at the time of the CGT event is worked out in this way. Method statement Step 1. Work out the sum of the values (see subsection (5)) of every * asset included in the total assets of the foreign company at the end of the most recent period: (a) that ends no later than that time, but no more than 12 months before that time; and (b) for which the foreign company has * recognised company accounts. Step 2. Work out the sum of the values (see subsection (5)) of every * asset included in the total assets of the foreign company at the end of the most recent period: (a) that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in step 1; and (b) for which the foreign company has * recognised company accounts. Note: See subsection (6) if the foreign company does not have recognised company accounts for a period mentioned in this step. Step 3. Work out the sum of the results of steps 1 and 2, and divide that sum by 2. (3) The foreign company’s average value of active foreign business assets at that time is worked out in this way. Method statement Step 1. Work out the sum of the values (see subsections (4) and (5)) of every * active foreign business asset of the foreign company at the end of the most recent period: (a) that ends no later than that time, but no more than 12 months before that time; and (b) for which the foreign company has * recognised company accounts. Step 2. Work out the sum of the values (see subsections (4) and (5)) of every * active foreign business asset of the foreign company at the end of the most recent period: (a) that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in step 1; and (b) for which the foreign company has * recognised company accounts. Note: See subsection (6) if the foreign company does not have recognised company accounts for a period mentioned in this step. Step 3. Work out the sum of the results of steps 1 and 2, and divide that sum by 2. Note: If the foreign company is a foreign life insurance company or a foreign general insurance company, the results of steps 1 and 2 are modified under section 768 ‑ 530. (4) If an * active foreign business asset of the foreign company is a * share in another company (the subsidiary company ) that is a foreign resident, then, for the purposes of steps 1 and 2 of the method statement in subsection (3), treat the value of the share at a particular time according to the following table. Value of a share in subsidiary company Item If: treat the value of the share as: 1 (a) the foreign company has a * direct voting percentage of 10% or more in the subsidiary company at that time; and (b) the holding company has a * total voting percentage of 10% or more in the subsidiary company at that time the * share’s value (see subsection (5)) at that time, multiplied by the * active foreign business asset percentage of the subsidiary company in relation to the holding company at that time 2 item 1 does not apply zero Note: For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company. (5) For the purposes of this section, the value of an asset of a foreign company at the end of a period is taken to be: (a) the value of the asset as shown in the * recognised company accounts of the foreign company for that period; or (b) if the value of the asset is not shown in the recognised company accounts of the foreign company for that period—zero. (6) The result of: (a) step 2 of the method statement in subsection (2); and (b) step 2 of the method statement in subsection (3); is taken to be zero if the foreign company does not have * recognised company accounts for a period mentioned in those steps. Note: This will only be the case if the foreign company was not in existence before the start of the period mentioned in step 1 of those method statements (see paragraph 768 ‑ 510(3)(c)).

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-530 — Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies

(1) If the foreign company is a * foreign life insurance company or a * foreign general insurance company, work out its * active foreign business asset percentage according to section 768 ‑ 510, but with the modifications set out in subsections (2) and (3). (2) Treat a reference in the following provisions to a period as a reference to a * statutory accounting period of the foreign company: (a) paragraphs 768 ‑ 510(3)(b) and (c); (b) section 768 ‑ 525. (3) Apply the modifications set out in the following table. Modifications for foreign life insurance companies and foreign general insurance companies Item The result of this step: is increased by the amount applicable under subsection (4) for this statutory accounting period: 1 step 2 of the method statement in subsection 768 ‑ 520(1) the most recent * statutory accounting period of the foreign company ending at or before the time mentioned in that step 2 step 1 of the method statement in subsection 768 ‑ 525(3) the * statutory accounting period mentioned in that step (as modified by subsection (2) of this section) 3 step 2 of the method statement in subsection 768 ‑ 525(3) the * statutory accounting period mentioned in that step (as modified by subsection (2) of this section) (4) The amount applicable under this subsection for a * statutory accounting period of the foreign company is worked out using the following formula: where: active insurance amount means : (a) if the foreign company is a * foreign life insurance company—the untainted policy liabilities (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period; or (b) if the foreign company is a * foreign general insurance company—the active general insurance amount worked out under subsection (5) for the statutory accounting period. total insurance assets means: (a) if the foreign company is a * foreign life insurance company—the total assets (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period; or (b) if the foreign company is a * foreign general insurance company—the total assets (within the meaning of subsection 446(4) of that Act) of the foreign company for the statutory accounting period. value of non ‑ active foreign business assets means: (a) for the purposes of item 1 of the table in subsection (3)—the difference between: (i) the result of step 1 of the method statement in subsection 768 ‑ 520(1); and (ii) the result of step 2 of that method statement (apart from this section); or (b) for the purposes of item 2 of the table in subsection (3)—the difference between: (i) the result of step 1 of the method statement in subsection 768 ‑ 525(2); and (ii) the result of step 1 of the method statement in subsection 768 ‑ 525(3) (apart from this section); or (c) for the purposes of item 3 of the table in subsection (3)—the difference between: (i) the result of step 2 of the method statement in subsection 768 ‑ 525(2); and (ii) the result of step 2 of the method statement in subsection 768 ‑ 525(3) (apart from this section). Active insurance amount for foreign general insurance company (5) The active general insurance amount under this subsection for a * statutory accounting period of the foreign company is worked out using the following formula: where: net assets means the net assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period. solvency amount means the solvency amount (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period. tainted outstanding claims means the tainted outstanding claims (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period. total general insurance assets means the total assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936 ) of the foreign company for the statutory accounting period.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-533 — Foreign company that is a FIF using CFC calculation method—treatment as AFI subsidiary under this Subdivision

(1) This section applies if: (a) the foreign company is a FIF (within the meaning of former section 481 of the Income Tax Assessment Act 1936 ); and (b) the holding company has made a choice under former subsection 559A(1) of the Income Tax Assessment Act 1936 in relation to the foreign company in respect of a notional accounting period (within the meaning of former section 486 of that Act) of the foreign company that ends in the 2009 ‑ 10 income year; and (c) because of the choice, the foreign company has been treated under former paragraph 559A(3)(c) of that Act as an AFI subsidiary (within the meaning of that Act) in relation to that holding company; and (d) the holding company makes a choice under subsection (1A) in relation to the foreign company; and (e) the holding company has not failed to make a choice under that subsection for the 2010 ‑ 11 income year or any later income year. (1A) A holding company may make a choice under this subsection in relation to a foreign company if the holding company could have made a choice in relation to the foreign company under former section 559A of the Income Tax Assessment Act 1936 if it had not been repealed by item 37 of Schedule 1 to the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010 . (2) For the purposes of this Subdivision, treat the foreign company as an AFI subsidiary in relation to that holding company at that time.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 114 of 2010, effective Schedule 1 (items 40–86, 93(1), 95): Royal Assent

s 768-535 — Modified rules for foreign wholly ‑ owned groups

(1) This section applies if: (a) for the purposes of section 768 ‑ 505, it is necessary to work out the * active foreign business asset percentage of a company (the top foreign company ) in relation to the holding company mentioned in that section, at the time of the CGT event mentioned in that section; and (b) the top foreign company is not : (i) an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ); or (ii) a * foreign life insurance company; or (iii) a * foreign general insurance company; and (c) for the purposes of section 768 ‑ 505, it is also necessary (apart from this section) to work out the active foreign business asset percentage at that time of 1 or more other companies in relation to the holding company, at that time, where: (i) the top foreign company and 1 or more of those other companies (the subsidiary foreign companies ) are members of a * wholly ‑ owned group; and (ii) each of the subsidiary foreign companies is a * 100% subsidiary of the top foreign company. (2) The holding company may choose to work out the * active foreign business asset percentage of the top foreign company in accordance with subsections (4) and (6). (3) The way an entity making a choice under subsection (2) prepares its * income tax return is sufficient evidence of the making of the choice. (4) If the holding company has made a choice under subsection (2), the provisions mentioned in subsection (5) operate, for the purposes of section 768 ‑ 505, as if each subsidiary foreign company were a part of the top foreign company, rather than a separate entity. Note 1: This subsection means that certain assets are not treated as active foreign business assets, or as assets included in the total assets, of any of the subsidiary foreign companies or of the top foreign company. For example: (a) a share owned by one of those companies in another of those companies; and (b) a debt owed by one of those companies to another of those companies. Note 2: If an asset (other than an asset mentioned in Note 1) is actually an active foreign business asset, or an asset included in the total assets, of a subsidiary foreign company, it is treated under this subsection as an active foreign business asset, or as an asset included in the total assets, of the top foreign company. (5) For the purposes of subsection (4), the provisions are: (a) section 768 ‑ 540 (active foreign business assets of a foreign company); and (b) section 768 ‑ 545 (assets included in the total assets of a foreign company). (6) If the holding company has made a choice under subsection (2), then for the purposes of sections 768 ‑ 510 and 768 ‑ 525, treat the * recognised consolidated accounts of the top foreign company and all of the subsidiary foreign companies as the * recognised company accounts of the top foreign company.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-540 — Active foreign business assets of a foreign company

(1) An asset is, at a particular time, an active foreign business asset of a company (the foreign company ) that is a foreign resident if, at that time: (a) the asset is an * asset included in the total assets of the company; and (b) the asset satisfies any of these conditions: (i) the asset is used, or held ready for use, by the company in the course of carrying on a * business; (ii) the asset is goodwill; (iii) the asset is a * share; and (c) the asset is not any of the following: (i) * taxable Australian property; (ii) a * membership interest in a company that is an Australian resident; (iii) a membership interest in a * resident trust for CGT purposes; (iv) an option or right to acquire a membership interest mentioned in subparagraph (ii) or (iii); and (d) the asset is not covered by subsection (2); and (e) if the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ) whose sole or principal business is financial intermediary business—the asset is not covered under subsection (4). (2) An asset is covered by this subsection if it is: (a) a financial instrument (other than a * share or a trade debt); or (b) either: (i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936 ); or (ii) a widely distributed finance share (within the meaning of that Part); or (c) an interest in a trust or * partnership; or (d) a * life insurance policy; or (e) a right or option in respect of: (i) a financial instrument; or (ii) an interest in a company, trust or partnership; or (iii) a life insurance policy; or (f) cash or cash equivalent; or (g) an asset whose main use in the course of carrying on the * business mentioned in subparagraph (1)(b)(i) is to * derive interest, an * annuity, rent, * royalties or foreign exchange gains unless: (i) the asset is an intangible asset and has been substantially developed, altered or improved by the foreign company so that its * market value has been substantially enhanced; or (ii) its main use for deriving rent was only temporary. (3) If, at the time mentioned in subsection (1), the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ) whose sole or principal business is financial intermediary business (within the meaning of that Part), subsection (2) operates as if: (a) paragraphs (2)(a) and (f) were omitted; and (b) paragraph (2)(g) did not contain a reference to interest, an * annuity or foreign exchange gains; and (c) subparagraph (2)(e)(i) were omitted and the following subparagraph were substituted: (i) a financial instrument, other than an asset mentioned in paragraph 450(1)(b) of the Income Tax Assessment Act 1936 ; or (4) The asset is covered under this subsection if: (a) all of these conditions are satisfied: (i) the asset is an asset mentioned in subparagraph 450(4)(b)(i) or (ii) of the Income Tax Assessment Act 1936 ; (ii) the asset was acquired from another entity; (iii) either of the conditions mentioned in subparagraph 450(6)(c)(i) and (ii) of the Income Tax Assessment Act 1936 were satisfied in relation to the other entity at the time of the acquisition; or (b) both of these conditions are satisfied: (i) the asset relates to a debt to which factoring income (within the meaning of Part X of the Income Tax Assessment Act 1936 ) of the foreign company relates; (ii) the condition in paragraph 450(8)(b) of the Income Tax Assessment Act 1936 is satisfied in relation to the debt.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004 | Amended by No 168 of 2006, effective Schedule 3 (items 3–5): 13 Dec 2005 Remainder: Royal Assent

s 768-545 — Assets included in the total assets of a foreign company

(1) At a particular time, an asset is an asset included in the total assets of a company (the foreign company ) that is a foreign resident if: (a) the asset is a * CGT asset at that time; and (b) the foreign company owns the asset at that time; and (c) if at that time the foreign company is not an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936 ) whose sole or principal business is financial intermediary business (within the meaning of that Part)—the asset is not a foreign company derivative asset covered by subsection (2). (2) An asset is a foreign company derivative asset covered by this subsection if: (a) the asset is an * arrangement covered by subsection (3), unless the regulations declare the asset not to be a foreign company derivative asset covered by this subsection; or (b) the regulations declare the asset to be a foreign company derivative asset covered by this subsection. (3) An * arrangement is covered by this subsection if: (a) under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and (b) that future time is not less than the number of days, prescribed by regulations made for the purposes of paragraph 761D(1)(b) of the Corporations Act 2001 , after the day on which the arrangement is entered into; and (c) the amount of the consideration, or the value of the arrangement, is ultimately determined, * derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following: (i) an asset; (ii) a rate (including an interest rate or exchange rate); (iii) an index; (iv) a commodity; and (d) subsection (4) does not apply in relation to the arrangement. (4) An * arrangement under which one person has an obligation to buy, and another person has an obligation to sell, property is not an arrangement covered by subsection (3) merely because the arrangement provides for the consideration to be varied by reference to a general inflation index such as the Consumer Price Index.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004 | 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)

s 768-550 — Direct voting percentage in a company

(1) An entity’s direct voting percentage at a particular time in a company is: (a) if the entity has a voting interest (within the meaning of section 334A of the Income Tax Assessment Act 1936 ) in the foreign company at that time amounting to a percentage of the voting power of the company—that percentage; or (b) otherwise—zero. (2) In applying section 334A of the Income Tax Assessment Act 1936 for the purposes of subsection (1) of this section, assume that: (a) the entity is a company; and (b) the entity is not the beneficial owner of a * share in the company if a trust or partnership is interposed between the entity and the company.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004 | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20) | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 768-555 — Indirect voting percentage in a company

(1) An entity’s indirect voting percentage at a particular time in a company (the subsidiary company ) is worked out by multiplying: (a) the entity’s * direct voting percentage (if any) in another company (the intermediate company ) at that time; by: (b) the sum of: (i) the intermediate company’s direct voting percentage (if any) in the subsidiary company at that time; and (ii) the intermediate company’s indirect voting percentage (if any) in the subsidiary company at that time (as worked out under one or more other applications of this section). (2) If there is more than one intermediate company to which subsection (1) applies at that time, the entity’s indirect voting percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate companies.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-560 — Total voting percentage in a company

An entity’s total voting percentage at a particular time in a company is the sum of: (a) the entity’s * direct voting percentage in the company at that time; and (b) the entity’s * indirect voting percentage in the company at that time.

Amendment history: Inserted by No 96 of 2004, effective 29 June 2004

s 768-900 — What this Subdivision is about

This Subdivision modifies the general tax rules for people in Australia who are temporary residents, whether Australian residents or foreign residents. Generally foreign income derived by temporary residents is non ‑ assessable non ‑ exempt income and capital gains and losses they make are also disregarded for CGT purposes. There are some exceptions for employment ‑ related income and capital gains on shares and rights acquired under employee share schemes. Temporary residents are also partly relieved of record ‑ keeping obligations in relation to the controlled foreign company rules. Interest paid by temporary residents is not subject to withholding tax and may be non ‑ assessable non ‑ exempt income for a foreign resident. Table of sections Operative provisions 768 ‑ 905 Objects 768 ‑ 910 Income derived by temporary resident 768 ‑ 915 Certain capital gains and capital losses of temporary resident to be disregarded 768 ‑ 950 Individual becoming an Australian resident 768 ‑ 955 Temporary resident who ceases to be temporary resident but remains an Australian resident 768 ‑ 960 Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules 768 ‑ 970 Modification of rules for accruals system of taxation of certain non ‑ resident trust estates 768 ‑ 980 Interest paid by temporary resident

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006 | Amended by No 114 of 2010, effective Schedule 1 (items 40–86, 93(1), 95): Royal Assent

s 768-905 — Objects

The objects of this Subdivision are to: (a) provide * temporary residents with tax relief on most foreign source income and capital gains; and (b) relieve the burdens associated with complying with certain record ‑ keeping obligations and interest withholding tax obligations.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006

s 768-910 — Income derived by temporary resident

(1) The following are * non ‑ assessable non ‑ exempt income: (a) the * ordinary income you * derive directly or indirectly from a source other than an * Australian source if you are a * temporary resident when you derive it; (b) your * statutory income (other than a * net capital gain) from a source other than an Australian source if you are a temporary resident when you derive it. This subsection has effect subject to subsections (3) and (5). Note: A capital gain or loss you make may be disregarded under section 768 ‑ 915. (2) For the purposes of paragraph (1)(b): (a) if you have statutory income because a particular circumstance occurs, you derive the statutory income at the time when the circumstance occurs; and (b) if you have statutory income because a number of circumstances occur, you derive the statutory income at the time when the last of those circumstances occurs. Exception to subsection (1) (3) However, the following are not * non ‑ assessable non ‑ exempt income under subsection (1): (a) the * ordinary income you * derive directly or indirectly from a source other than an * Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a * temporary resident; (b) your * statutory income (other than a * net capital gain) from a source other than an Australian source to the extent that it relates to employment undertaken, or services provided, while you are a temporary resident; (c) an amount included in your assessable income under Division 86. Note: This subsection only makes an amount not non ‑ assessable non ‑ exempt income under subsection (1). It does not prevent that amount from being non ‑ assessable non ‑ exempt income under some other provision of this Act or the Income Tax Assessment Act 1936 .

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006 | 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 768-915 — Certain capital gains and capital losses of temporary resident to be disregarded

(1) A * capital gain or * capital loss you make from a * CGT event is disregarded if: (a) you are a * temporary resident when, or immediately before, the CGT event happens; and (b) you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when, or immediately before, the CGT event happens. (2) Subsection (1) does not apply in relation to * CGT event I1 if: (a) the CGT event happens in relation to an * ESS interest that is a beneficial interest in a right (or to a * share acquired by exercising such a right); and (b) the provisions referred to in paragraphs 83A ‑ 33(1)(a) to (c) (about start ups) apply to the ESS interest.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006 | Amended by No 168 of 2006, effective Schedule 3 (items 3–5): 13 Dec 2005 Remainder: Royal Assent | Amended by No 105 of 2015, effective Sch 1 (items 2–41, 44–51): 1 July 2015 (s 2)

s 768-950 — Individual becoming an Australian resident

Section 855 ‑ 45 does not apply to your becoming an Australian resident if you are a * temporary resident immediately after you become an Australian resident.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006 | Amended by No 168 of 2006, effective Schedule 3 (items 3–5): 13 Dec 2005 Remainder: Royal Assent

s 768-955 — Temporary resident who ceases to be temporary resident but remains an Australian resident

(1) If you are a * temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident), there are rules relevant to each * CGT asset that: (a) you owned just before you ceased to be a temporary resident; and (b) is not * taxable Australian property; and (c) you * acquired on or after 20 September 1985. (2) The first element of the * cost base and * reduced cost base of the asset (at the time you cease to be a * temporary resident) is its * market value at that time. (3) Also, Parts 3 ‑ 1 and 3 ‑ 3 apply to the asset as if you had * acquired it at the time you ceased to be a * temporary resident. (4) This section does not apply to an * ESS interest if: (a) Subdivision 83A ‑ C (about employee share schemes) applies to the interest, and the * ESS deferred taxing point for the interest has not yet occurred; or (b) the provisions referred to in paragraphs 83A ‑ 33(1)(a) to (c) (about start ups) apply to the ESS interest.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006 | Amended by No 168 of 2006, effective Schedule 3 (items 3–5): 13 Dec 2005 Remainder: Royal Assent | 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 | Amended by No 105 of 2015, effective Sch 1 (items 2–41, 44–51): 1 July 2015 (s 2)

s 768-960 — Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules

For the purposes of Part X of the Income Tax Assessment Act 1936 (which deals with the attribution of income in respect of controlled foreign companies), you are taken not to be an * attributable taxpayer in relation to a * CFC or * CFT at any time you are a * temporary resident.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006

s 768-970 — Modification of rules for accruals system of taxation of certain non ‑ resident trust estates

At any time when you are a * temporary resident, you are taken not to be a resident for the purposes of section 102AAZD of the Income Tax Assessment Act 1936.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006

s 768-980 — Interest paid by temporary resident

Interest that is paid by a * temporary resident: (a) is an amount to which section 128B (liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply; and (b) is * non ‑ assessable non ‑ exempt income if the interest is: (i) * derived by a foreign resident; and (ii) is not derived from carrying on * business in Australia at or through a * permanent establishment in Australia.

Amendment history: Inserted by No 32 of 2006, effective 6 Apr 2006

s 770-1 — What this Division is about

You may get a non ‑ refundable tax offset for foreign income tax paid on your assessable income. There is a limit on the amount of the tax offset. A resident of a foreign country does not get the offset for some foreign income taxes. You may also get the offset for foreign income tax paid on some amounts that are not taxed in Australia.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 770-5 — Object

(1) The object of this Division is to relieve double taxation where: (a) you have paid foreign income tax on amounts included in your assessable income; and (b) you would, apart from this Division, pay Australian income tax on the same amounts. (2) To achieve this object, this Division gives you a tax offset to reduce or eliminate Australian income tax otherwise payable on those amounts. Note 1: This Division applies in relation to Medicare levy and Medicare levy (fringe benefits) surcharge in the same way as it applies to Australian income tax. See section 90 ‑ 1 in Schedule 1 to the Taxation Administration Act 1953 . Note 2: The tax offset under this Division can be applied against your Medicare levy and Medicare levy (fringe benefits) surcharge liability for the year, if an amount of it remains after you apply it against your basic income tax liability. See item 22 of the table in subsection 63 ‑ 10(1).

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 770-10 — Entitlement to foreign income tax offset

(1) You are entitled to a * tax offset for an income year for * foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year. Note 1: The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax—even if you paid the foreign income tax in another income year. Note 2: If the foreign income tax has been paid on an amount that is part non ‑ assessable non ‑ exempt income and part assessable income for you for the income year, only a proportionate share of the foreign income tax (the share that corresponds to the part that is assessable income) will count towards the tax offset (excluding the operation of subsection (2)). Taxes paid on section 23AI or 23AK amounts (2) An amount of * foreign income tax counts towards the * tax offset for you for the year if you paid it in respect of an amount that is your * non ‑ assessable non ‑ exempt income under either section 23AI or 23AK of the Income Tax Assessment Act 1936 for the year. Note 1: Sections 23AI and 23AK of the Income Tax Assessment Act 1936 provide that amounts paid out of income previously attributed from a controlled foreign company or a foreign investment fund are non ‑ assessable non ‑ exempt income. Note 2: Foreign income taxes covered by this subsection are direct taxes (for example, a withholding tax on a dividend payment) and not underlying taxes, only some of which are covered by section 770 ‑ 135. Exception for certain residence ‑ based foreign income taxes (3) An amount of * foreign income tax you paid does not count towards the * tax offset for the year if you paid it: (a) to a foreign country because you are a resident of that country for the purposes of a law relating to the foreign income tax; and (b) in respect of an amount derived from a source outside that country. Exception for previously complying funds and previously foreign funds (4) An amount of * foreign income tax paid by a * superannuation provider in relation to a * superannuation fund does not count towards the * tax offset for the year if: (a) the tax was paid in respect of an amount included in the fund’s assessable income under table item 2 or 3 in section 295 ‑ 320; and (b) the provider paid the tax before the start of the income year. Note: Table items 2 and 3 in section 295 ‑ 320 include additional amounts in the assessable income of superannuation funds that change their status from complying to non ‑ complying or from foreign to Australian. Exception for credit absorption tax and unitary tax (5) An amount of * credit absorption tax or * unitary tax you paid does not count towards the * tax offset for the year. Exception for foreign GloBE taxes (6) An amount you paid of any of the following does not count towards the * tax offset for the year: (a) * foreign IIR tax; (b) * foreign UTPR tax. Note: For rules relating to foreign DMT tax, see section 770 ‑ 145.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 110 of 2021, effective Sch 1 and Sch 2 (items 8–13): 1 Oct 2021 (s 2(1) item 2) | Amended by No 134 of 2024, effective sch 1 (items 6 ‑ 29, 66): 11 Dec 2024 (s 2(1) item 1)

s 770-15 — Meaning of foreign income tax , credit absorption tax and unitary tax

(1) Foreign income tax means tax that: (a) is imposed by a law other than an * Australian law; and (b) is: (i) tax on income; or (ii) tax on profits or gains, whether of an income or capital nature; or (iii) any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953 . Note: Foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953 ), has been correctly imposed in accordance with that tax treaty. (2) Credit absorption tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country to the extent that the tax would not have been payable if the entity concerned or another entity had not been entitled to an offset in respect of the tax under this Division. (3) Unitary tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country, being a law which, for the purposes of taxing income, profits or gains of a company derived from sources within that country, takes into account, or is entitled to take into account, income, losses, outgoings or assets of the company (or of a company that for the purposes of that law is treated as being associated with the company) derived, incurred or situated outside that country, but does not include tax imposed by that law if that law only takes those matters into account: (a) if such an associated company is a resident of the foreign country for the purposes of the law of the foreign country; or (b) for the purposes of granting any form of relief in relation to tax imposed on dividends received by one company from another company.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 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 770-65 — What this Subdivision is about

The amount of your tax offset is based on the amount of foreign income tax you have paid. However, there is a limit on the maximum amount of your offset. The limit is the greater of $1,000 and an amount worked out under this Subdivision. This amount is based on a comparison between your tax liability and the tax liability you would have if certain foreign ‑ taxed and foreign ‑ sourced income and related deductions were disregarded. You may choose to use the limit of $1,000 and not work out this amount. There is an increase in the limit to ensure foreign income tax paid on some amounts that are not taxed always forms part of the offset. Table of sections Operative provisions 770 ‑ 70 Amount of foreign income tax offset 770 ‑ 75 Foreign income tax offset limit 770 ‑ 80 Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 770-70 — Amount of foreign income tax offset

The amount of your * tax offset for the year is the sum of the * foreign income tax you paid that counts towards the offset for the year. Note 1: The amount of foreign income tax you paid may be affected by Subdivision 770 ‑ C. Note 2: The amount of the offset might be increased under section 770 ‑ 230 of the Income Tax (Transitional Provisions) Act 1997 , if you have pre ‑ commencement excess foreign income tax.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 770-75 — Foreign income tax offset limit

(1) There is a limit (the offset limit ) on the amount of your * tax offset for a year. If your tax offset exceeds the offset limit, reduce the offset by the amount of the excess. (2) Your offset limit is the greater of: (a) $1,000; and (b) this amount: (i) the amount of income tax payable by you for the income year; less (ii) the amount of income tax that would be payable by you for the income year if the assumptions in subsection (4) were made. Note 1: If you do not intend to claim a foreign income tax offset of more than $1,000 for the year, you do not need to work out the amount under paragraph (b). Note 2: The amount of the offset limit might be increased under section 770 ‑ 80. (3) For the purposes of paragraph (2)(b), work out the amount of income tax payable by you, or that would be payable by you, disregarding any * tax offsets. (4) Assume that: (a) your assessable income did not include: (i) so much of any amount included in your assessable income as represents an amount in respect of which you paid * foreign income tax that counts towards the * tax offset for the year; and (ii) any other amounts of * ordinary income or * statutory income from a source other than an * Australian source; and (b) you were not entitled to any deductions that: (i) are * debt deductions that are attributable to an * overseas permanent establishment of yours; or (ii) are deductions (other than debt deductions) that are reasonably related to amounts covered by paragraph (a) for that year. Note: You must also assume you were not entitled to any deductions for certain converted foreign losses: see section 770 ‑ 35 of the Income Tax (Transitional Provisions) Act 1997 . Example: If an entity has paid foreign income tax on a capital gain that comprises part of its net capital gain, only that capital gain on which foreign income tax has been paid is disregarded.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 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 770-80 — Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply

Your offset limit under subsection 770 ‑ 75(2) is increased by any amounts of * foreign income tax that count towards the * tax offset for you for the year because of subsection 770 ‑ 10(2).

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 770-130 — When foreign income tax is considered paid—taxes paid by someone else

(1) This Act applies to you as if you had paid an amount of * foreign income tax in respect of an amount (a taxed amount ) that is all or part of an amount included in your * ordinary income or * statutory income if you are covered by subsection (2) or (3) for an amount of foreign income tax paid in respect of the taxed amount. (2) You are covered by this subsection for an amount of * foreign income tax paid in respect of a taxed amount if that foreign income tax has been paid in respect of the taxed amount by another entity under an * arrangement with you or under the law relating to the foreign income tax. Example: You are a partner in a partnership and the partnership pays foreign income tax on the partnership income. (3) You are covered by this subsection for an amount of * foreign income tax paid in respect of the taxed amount to the extent that: (a) the taxed amount is taken, because of section 6B of the Income Tax Assessment Act 1936 (the 1936 Act ), to be attributable to another amount of income of a particular kind or source; and (b) foreign income tax has been paid in respect of the other amount of income; and (c) the taxed amount is less than it would have been if that tax had not been paid. Example: Aust Co (an Australian resident) is the sole beneficiary of an Australian resident trust H and is presently entitled to all the income of trust H. Trust H owns shares in For Co (a foreign company). For Co pays a dividend to trust H and the dividend is subject to withholding tax in For Co’s country of residence. Trust H allocates to Aust Co, the dividend, as well as other Australian source income trust H earned in the year (none of which was subject to foreign income tax). Aust Co is treated as having paid the foreign income tax paid by For Co under subsection 770 ‑ 130(3). The foreign income tax is treated as paid in respect of the amount included in Aust Co’s assessable income that is attributable to the dividend.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 770-135 — Foreign income tax paid by CFCs on attributed amounts

(1) This Division applies to an entity (other than a * CFC) as if it had paid an amount of * foreign income tax worked out under subsection (7) in respect of an amount included in its assessable income if: (a) the amount is included in its assessable income as described in subsection (2); and (b) the conditions in subsections (3) and (5) are satisfied. (2) An amount is included in an entity’s assessable income as described in this subsection if the entity is a company and the amount is included under: (a) section 456 (a section 456 case ) of the 1936 Act in relation to a * CFC and a statutory accounting period; or (b) section 457 (a section 457 case ) of that Act in relation to a CFC. Note: Section 456 of the 1936 Act includes, in the assessable income of certain Australian shareholders, amounts that are attributable to the profits of an Australian ‑ controlled foreign company. Section 457 does likewise when a controlled foreign company changes residence from an unlisted to a listed country or to Australia. Tax paid condition (3) An amount of * foreign income tax, income tax or * withholding tax (the tax amount ) must have been paid: (a) for a section 456 case—by the * CFC in respect of an amount included in the notional assessable income of the CFC for the statutory accounting period; or (b) for a section 457 case—by the CFC. Note: Section 770 ‑ 130 deems foreign income tax to have been paid in certain circumstances. (3A) For the purposes of paragraphs (3)(a) and (b), the tax amount does not include an amount of * foreign IIR tax or * foreign UTPR tax that is treated as not being foreign tax under subsection 393(2) of the 1936 Act. (4) For the purposes of paragraphs (3)(a) and (b), the tax amount includes an amount that is taken to have been paid by the * CFC under subsection 393(4) of the 1936 Act (about tax paid on reinsurance premiums). Association condition (5) If the entity is a company, it must have an * attribution percentage of 10% or more: (a) for a section 456 case—in relation to the * CFC at the end of the statutory accounting period; or (b) for a section 457 case—in relation to the CFC at the residence ‑ change time (within the meaning of section 457 of the 1936 Act). Amount of foreign income tax (7) The amount worked out under this subsection is: (a) for a section 456 case—the sum of all the tax amounts for the statutory accounting period multiplied by the company’s * attribution percentage in relation to the * CFC at the time mentioned in paragraph (5)(a); or (b) for a section 457 case—the sum of all the tax amounts to the extent they are attributable to the amount included in the company’s assessable income under section 457 of the 1936 Act. Grossing ‑ up of attributed amount (8) For the purposes of this Act except this section and section 371 of the 1936 Act (for a section 456 case or a section 457 case), the amount included in the entity’s assessable income as described in subsection (2) is taken to be increased by the amount of tax worked out under subsection (7). Note: Section 371 of the 1936 Act records an amount in an attribution account when the amount is included in the assessable income of an attributable taxpayer in relation to a CFC.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 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 | Amended by No 114 of 2010, effective Schedule 1 (items 40–86, 93(1), 95): Royal Assent | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9) | Amended by No 134 of 2024, effective sch 1 (items 6 ‑ 29, 66): 11 Dec 2024 (s 2(1) item 1)

s 770-140 — When foreign income tax is considered not paid—anti ‑ avoidance rule

Despite anything else in this Division, this Act applies to you as if you had not paid an amount of * foreign income tax to the extent that you or any other entity become entitled to: (a) a refund of the foreign income tax; or (b) any other benefit worked out by reference to the amount of the foreign income tax (other than a reduction in the amount of the foreign income tax).

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 770-145 — When foreign income tax is considered not paid—foreign DMT tax reduced by amount of benefit

(1) This section applies if: (a) an entity is: (i) a * Group Entity of an * Applicable MNE Group; or (ii) a * GloBE Joint Venture of an Applicable MNE Group; or (iii) a * GloBE JV Subsidiary of a GloBE Joint Venture of an Applicable MNE Group; and (b) the entity pays an amount of * foreign income tax imposed by a tax law of a foreign country; and (c) the foreign income tax is * foreign DMT tax; and (d) the entity, or another entity of a kind mentioned in subparagraph (a)(i), (ii) or (iii), is entitled to an amount of any of the following benefits in respect of the entity: (i) a refundable tax credit (whether by way of cash or cash equivalent, or through an offset of unrelated, existing liabilities), to the extent that the tax credit is computed as an excess over the entity’s income tax liability; (ii) consideration received for the transfer of a transferable tax credit to which the entity was entitled in respect of foreign income tax of the foreign country; (iii) cash or cash equivalent amounts recognised as government grants under * accounting standard AASB 120 (or, if that standard does not apply to the entity, a comparable accounting standard that applies to the entity under a * foreign law); (iv) if the foreign country is specified in a determination under subsection (3)—a benefit of a kind specified in the determination in respect of the foreign country; and (e) both of the following are in relation to the same * foreign tax period in relation to the entity: (i) the foreign income tax; (ii) the benefits. (2) Despite anything else in this Division, this Act applies to the entity as if the amount of * foreign DMT tax were reduced by the amount of the benefit (but not below zero). (3) The Minister may, by legislative instrument, make a determination specifying a benefit in respect of a specified foreign country. (4) In making the determination, the Minister must have regard to the following: (a) the extent (if any) to which the benefit has been designed to be available to * Applicable MNE Groups; (b) the extent (if any) to which the benefit could increase the amount of * foreign DMT tax payable in the foreign country; (c) the extent (if any) to which the benefit could increase the amount of a * tax offset under this Division; (d) the nature of any other benefit specified in the determination. (5) A reference in this section to a * Group Entity does not include a reference to a * GloBE Excluded Entity.

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

s 770-150 — Meaning of foreign DMT tax

(1) A tax is a foreign DMT tax if it is any of the following: (a) tax that is payable under a * foreign law and is a * Qualified Domestic Minimum Top ‑ up Tax; (b) tax that is payable under a foreign law and would be a Qualified Domestic Minimum Top ‑ up Tax if paragraph (c) of the definition of Qualified Domestic Minimum Top ‑ up Tax in the * GloBE Rules were disregarded; (c) tax that is payable under a foreign law specified by regulations made for the purposes of this paragraph. (2) If regulations made for the purposes of this subsection specify a provision of this Act and a tax that is payable under a foreign law, for the purposes of that provision, that tax is also a foreign DMT tax .

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

s 770-190 — Amendment of assessments

(1) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purpose of giving effect to this Division for an income year if: (a) an event described in subsection (2) (an amendment event ) happens after the time you lodged your * income tax return for that year; and (b) the amendment is made at any time during the period of 4 years starting immediately after the amendment event. Note: Section 170 of that Act specifies the periods within which assessments may be amended. (2) The following are amendment events: (a) you pay an amount of * foreign income tax that counts towards your * tax offset for the year; (b) there is an increase in an amount of foreign income tax you paid that counts towards your offset for the year; (c) there is a reduction in an amount of foreign income tax you paid that counts towards your offset for the year.

Amendment history: Inserted by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6)

s 775-5 — What this Division is about

Your assessable income includes a forex realisation gain you make as a result of a forex realisation event. You can deduct a forex realisation loss that you make as a result of a forex realisation event. There are 5 main types of forex realisation events: (a) forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity; (b) forex realisation event 2 happens if you cease to have a right to receive foreign currency (otherwise than because you disposed of the right to another entity); (c) forex realisation event 3 happens if you cease to have an obligation to receive foreign currency; (d) forex realisation event 4 happens if you cease to have an obligation to pay foreign currency; (e) forex realisation event 5 happens if you cease to have a right to pay foreign currency. There are special rules for certain short ‑ term forex realisation gains and losses. You may choose roll ‑ over relief for certain facility agreements. You may elect to receive concessional tax treatment for a qualifying forex account that passes the limited balance test. You may choose retranslation for a qualifying forex account.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-10 — Objects of this Division

The objects of this Division are as follows: (a) to recognise * foreign currency gains and losses for income tax purposes; (b) to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations; (c) to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan; (d) to reduce compliance costs by not requiring the recognition of certain low ‑ value foreign currency gains and losses that involve substantial calculations.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-15 — Forex realisation gains are assessable

Basic rule (1) Your assessable income for an income year includes a * forex realisation gain you make as a result of a * forex realisation event that happens during that year. Exceptions (2) However, your assessable income does not include a * forex realisation gain to the extent that it: (a) is a gain of a private or domestic nature; and (b) is not covered by an item of the table: Forex realisation gains to which this subsection does not apply Item You make the forex realisation gain as a result of this event... happening to... and the following condition is satisfied... 1 forex realisation event 1 or 2 * foreign currency or a right, or a part of a right, to receive foreign currency a gain that would result from the occurrence of a * realisation event in relation to the foreign currency, or to the right, or the part of the right, would, apart from this Division, be taken into account under Part 3 ‑ 1 or 3 ‑ 3 2 forex realisation event 2 a right, or a part of a right, created or acquired in return for the occurrence of a * realisation event in relation to a * CGT asset you own, where subparagraph 775 ‑ 45(1)(b)(iv) applies a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3 ‑ 1 or 3 ‑ 3 3 forex realisation event 4 an obligation, or a part of an obligation, you incurred in return for the acquisition of a * CGT asset a gain or loss that would result from the occurrence of a * realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3 ‑ 1 or 3 ‑ 3 Note: Parts 3 ‑ 1 and 3 ‑ 3 deal with capital gains and losses. (3) Section 775 ‑ 70 provides for additional exceptions. Note: Section 775 ‑ 70 is about the tax consequences of certain short ‑ term forex realisation gains. No double taxation (4) To the extent that a * forex realisation gain would be included in your assessable income under this section and another provision of this Act, the gain is only included in your assessable income under this section. Note: Under section 230 ‑ 20, foreign exchange gains from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | Amended by No 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 775-20 — Certain forex realisation gains are exempt income

A * forex realisation gain you make is * exempt income to the extent that, if it had been a * forex realisation loss, it would have been made in gaining or producing exempt income.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-25 — Certain forex realisation gains are non ‑ assessable non ‑ exempt income

A * forex realisation gain you make is * non ‑ assessable non ‑ exempt income to the extent that, if it had been a * forex realisation loss, it would have been made in gaining or producing non ‑ assessable non ‑ exempt income.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-27 — Certain forex realisation gains are non ‑ assessable non ‑ exempt income

Sections 775 ‑ 20 and 775 ‑ 25 apply to a * forex realisation gain only if, had it been a * forex realisation loss, it would have been disregarded under section 775 ‑ 35.

Amendment history: Inserted 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 775-30 — Forex realisation losses are deductible

Basic rule (1) You can deduct from your assessable income for an income year a * forex realisation loss that you make as a result of a * forex realisation event that happens during that year. Exceptions (2) However, you cannot deduct a * forex realisation loss under this section to the extent that it: (a) is a loss of a private or domestic nature; and (b) is not covered by an item of the table: Forex realisation losses to which this subsection does not apply Item You make the forex realisation loss as a result of this event... happening to... and the following condition is satisfied... 1 forex realisation event 2 a right, or a part of a right, created or acquired in return for the occurrence of a * realisation event in relation to a * CGT asset you own, where subparagraph 775 ‑ 45(1)(b)(iv) applies a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3 ‑ 1 or 3 ‑ 3 2 forex realisation event 4 an obligation, or a part of an obligation, you incurred in return for the acquisition of a * CGT asset a gain or loss that would result from the occurrence of a * realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3 ‑ 1 or 3 ‑ 3 Note: Parts 3 ‑ 1 and 3 ‑ 3 deal with capital gains and losses. (3) Section 775 ‑ 75 provides for additional exceptions. Note: Section 775 ‑ 75 is about the tax consequences of certain short ‑ term forex realisation losses. No double deductions (4) To the extent that this section and another provision of this Act would allow you a deduction for a * forex realisation loss, you can only deduct the loss under this section. Note: Under section 230 ‑ 20, foreign exchange losses from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 775-35 — Certain forex realisation losses are disregarded

(1) A * forex realisation loss you make as a result of forex realisation event 1, 2 or 5 is disregarded to the extent that it is made in gaining or producing * exempt income or * non ‑ assessable non ‑ exempt income. (2) A * forex realisation loss you make as a result of forex realisation event 3, 4 or 6 is disregarded to the extent that: (a) it is made in gaining or producing * exempt income or * non ‑ assessable non ‑ exempt income; and (b) the obligation, or the part of the obligation, does not give rise to a deduction.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-40 — Disposal of foreign currency or right to receive foreign currency—forex realisation event 1

Forex realisation event 1 (1) Forex realisation event 1 is * CGT event A1 that happens if you dispose of: (a) * foreign currency; or (b) a right, or a part of a right, to receive foreign currency. Note: For extended meaning of right to receive foreign currency , see section 775 ‑ 135. Disposal (2) For the purposes of this section, use subsection 104 ‑ 10(2) to work out whether you have disposed of: (a) * foreign currency; or (b) a right, or a part of a right, to receive foreign currency. Note: Under subsection 104 ‑ 10(2), a disposal requires a change of ownership. Time of event (3) For the purposes of this section, subsection 104 ‑ 10(3) is modified so that the time of the event is when: (a) the * foreign currency is disposed of; or (b) the right, or the part of the right, is disposed of. Forex realisation gain (4) You make a forex realisation gain if: (a) you make a * capital gain from the event; and (b) some or all of the capital gain is attributable to a * currency exchange rate effect. The amount of the forex realisation gain is so much of the capital gain as is attributable to a currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105. (5) For the purposes of paragraph (4)(a), Part 3 ‑ 1 is modified so that section 118 ‑ 20 is disregarded in working out the * capital gain. Note: Section 118 ‑ 20 deals with reducing capital gains if an amount is otherwise assessable. Forex realisation loss (6) You make a forex realisation loss if: (a) you make a * capital loss from the event; and (b) some or all of the capital loss is attributable to a * currency exchange rate effect. The amount of the forex realisation loss is so much of the capital loss as is attributable to a currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105. No indexation of cost base (7) For the purposes of this section, disregard Division 114. Note: Division 114 deals with indexation of the cost base. Foreign currency hedging gains and losses (8) For the purposes of this section, disregard section 118 ‑ 55. Note: Section 118 ‑ 55 deals with foreign currency hedging gains and losses. Capital proceeds (9) For the purposes of this section, if the * capital proceeds from the event are more or less than the * market value of: (a) the * foreign currency; or (b) the right, or the part of the right; the capital proceeds from the event are taken to be the market value. (The market value is worked out as at the time of the event.)

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-45 — Ceasing to have a right to receive foreign currency—forex realisation event 2

Forex realisation event 2 (1) Forex realisation event 2 happens if: (a) you cease to have a right, or a part of a right, to receive * foreign currency; and (b) the right, or the part of the right, is one of the following: (i) a right, or a part of a right, to receive, or that represents, * ordinary income or * statutory income (other than statutory income that is assessable under this Division or Division 102); (ii) a right, or a part of a right, created or acquired in return for your ceasing to * hold a * depreciating asset; (iii) a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency or foreign currency; (iv) a right, or a part of a right, created or acquired in return for the occurrence of a * realisation event in relation to a * CGT asset you own, and none of subparagraphs (i), (ii) and (iii) applies; and (c) you did not cease to have the right, or the part of the right, because you disposed of the right or the part of the right (within the meaning of section 775 ‑ 40). Note 1: Disposals are dealt with by section 775 ‑ 40 (forex realisation event 1). Note 2: For extended meaning of right to receive foreign currency , see section 775 ‑ 135. Time of event (2) The time of the event is when you cease to have the right or the part of the right. Forex realisation gain (3) You make a forex realisation gain if: (a) the amount you receive in respect of the event happening exceeds the * forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and (b) some or all of the excess is attributable to a * currency exchange rate effect. The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect. Note 1: For forex cost base , see section 775 ‑ 85. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. Forex realisation loss (4) You make a forex realisation loss if: (a) the amount you receive in respect of the event happening falls short of the * forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and (b) some or all of the shortfall is attributable to a * currency exchange rate effect. The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect. Note 1: For forex cost base , see section 775 ‑ 85. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. (5) You make a forex realisation loss if: (a) the event happens because an option to buy * foreign currency expires without having been exercised, or is cancelled, released or abandoned; and (b) you were capable of exercising the option immediately before the event happened. The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option. Non ‑ cash benefit (6) The amount you receive in respect of the event happening can include a * non ‑ cash benefit. Use the * market value of the benefit to work out the amount you receive. Tax recognition time (7) For the purposes of this section, the tax recognition time is worked out using the table: Tax recognition time Item If the right, or part of the right, is... the tax recognition time is... 1 a right, or a part of a right, to receive, or that represents, * ordinary income or * statutory income (other than statutory income that is assessable under this Division or Division 102) (a) in the case of ordinary income—when the ordinary income is * derived; or (b) in the case of statutory income—when the requirement first arose to include the statutory income in your assessable income. 2 a right, or a part of a right, created or acquired in return for your ceasing to * hold a * depreciating asset when you stop holding the asset. 3 a right, or a part of a right, referred to in subsection 775 ‑ 165(3) (which deals with extensions of loans) the extension time referred to in that subsection. 4 a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency, where item 3 does not apply when the amount is paid. 5 a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of * foreign currency, where item 3 does not apply when the amount is paid. 6 a right, or a part of a right, created in return for the occurrence of a * realisation event in relation to a * CGT asset you own, and none of the above items apply when the realisation event occurs. Note: Subsection 775 ‑ 260(1) modifies the tax recognition time if forex realisation event 2 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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)

s 775-50 — Ceasing to have an obligation to receive foreign currency—forex realisation event 3

Forex realisation event 3 (1) Forex realisation event 3 happens if: (a) you cease to have an obligation, or a part of an obligation, to receive * foreign currency; and (b) the obligation, or the part of the obligation, is one of the following: (i) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay foreign currency; (ii) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay Australian currency; (iii) an obligation, or a part of an obligation, under an option to sell foreign currency. Note 1: For extended meaning of obligation to receive foreign currency , see section 775 ‑ 140. Note 2: For extended meaning of right to pay foreign currency , see section 775 ‑ 135. Time of event (2) The time of the event is when you cease to have the obligation or the part of the obligation. Forex realisation gain (3) You make a forex realisation gain if: (a) the amount you receive in respect of the event happening exceeds the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and (b) some or all of the excess is attributable to a * currency exchange rate effect. The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect. Note 1: For net costs of assuming the obligation , see section 775 ‑ 100. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. (4) You make a forex realisation gain if: (a) the event happens because an option to sell * foreign currency expires without having been exercised, or is cancelled, released or abandoned; and (b) if the option had been exercised immediately before the event, you would have been obliged to buy the foreign currency. The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option. Forex realisation loss (5) You make a forex realisation loss if: (a) the amount you receive in respect of the event happening falls short of the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and (b) some or all of the shortfall is attributable to a * currency exchange rate effect. The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect. Note 1: For net costs of assuming the obligation , see section 775 ‑ 100. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. Non ‑ cash benefit (6) The amount you receive in respect of the event happening can include a * non ‑ cash benefit. Use the * market value of the benefit to work out the amount you receive. Tax recognition time (7) For the purposes of this section, the tax recognition time is the time when you received an amount in respect of the event happening. Right to pay Australian currency (8) To avoid doubt, for the purposes of this section, a right to pay Australian currency includes a right to pay Australian currency, where the right is subject to a contingency.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-55 — Ceasing to have an obligation to pay foreign currency—forex realisation event 4

Forex realisation event 4 (1) Forex realisation event 4 happens if: (a) you cease to have an obligation, or a part of an obligation, to pay * foreign currency; and (b) any of the following applies: (i) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; (ii) the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 ); (iii) the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936 ); (iv) you incurred the obligation, or the part of the obligation, in return for the acquisition of a * CGT asset; (v) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the * cost base of a CGT asset; (vi) you incurred the obligation, or the part of the obligation, in return for your starting to hold a * depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset; (vii) you incurred the obligation, or the part of the obligation, as the second element of the * cost of a depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset; (viii) you incurred the obligation, or the part of the obligation, as a * project amount; (ix) you incurred the obligation, or the part of the obligation, in return for receiving an amount of Australian currency or foreign currency; (x) you incurred the obligation, or the part of the obligation, in return for the creation or acquisition of a right to receive an amount of Australian currency or foreign currency; (xi) the obligation, or the part of the obligation, is under an option to buy foreign currency. Note: For extended meaning of obligation to pay foreign currency , see section 775 ‑ 140. Time of event (2) The time of the event is when you cease to have the obligation or the part of the obligation. Forex realisation gain (3) You make a forex realisation gain if: (a) the amount you paid in respect of the event happening falls short of the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and (b) some or all of the shortfall is attributable to a * currency exchange rate effect. The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect. Note 1: For proceeds of assuming the obligation , see section 775 ‑ 95. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. (4) You make a forex realisation gain if: (a) the event happens because an option to buy * foreign currency expires without having been exercised, or is cancelled, released or abandoned; and (b) if the option had been exercised immediately before the event, you would have been obliged to sell the foreign currency. The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option. Forex realisation loss (5) You make a forex realisation loss if: (a) the amount you paid in respect of the event happening exceeds the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and (b) some or all of the excess is attributable to a * currency exchange rate effect. The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect. Note 1: For proceeds of assuming the obligation , see section 775 ‑ 95. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. Non ‑ cash benefit (6) The amount you paid in respect of the event happening can include a * non ‑ cash benefit. Use the * market value of the benefit to work out the amount you paid. Tax recognition time (7) For the purposes of this section, the tax recognition time is worked out using the table: Tax recognition time Item In this case... the tax recognition time is... 1 (a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and (b) the obligation, or the part of the obligation, was not incurred: (i) in return for the acquisition of an item of * trading stock; or (ii) in return for your starting to hold a * depreciating asset; and (c) the obligation, or the part of the obligation, was not incurred as the second element of the cost of a depreciating asset the time when the expense or outgoing became deductible. 2 (a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and (b) the obligation, or the part of the obligation, was incurred in return for the acquisition of an item of * trading stock the time when the item becomes part of your trading stock on hand. 3 the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 ) the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount. 4 the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936 ) the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount. 5 (a) you incurred the obligation, or the part of the obligation: (i) in return for your starting to hold a * depreciating asset; or (ii) as the second element of the cost of a depreciating asset; and (b) you deduct an amount under Division 40 or 328 for the depreciating asset (a) in the case of the acquisition of a depreciating asset—when you began to hold the depreciating asset (worked out under Division 40); or (b) in the case of the second element of the cost of a depreciating asset—when you incurred the relevant expenditure. 6 you incurred the obligation, or the part of the obligation, as a * project amount the first time when any part of the amount became deductible. 7 the obligation, or the part of the obligation, is referred to in subsection 775 ‑ 165(5) (which deals with extension of loans) the extension time referred to in that subsection. 8 you incurred the obligation, or the part of the obligation, in return for: (a) receiving Australian currency or * foreign currency; or (b) the creation or acquisition of a right to receive an amount of Australian currency or foreign currency; where item 7 does not apply the time when you received the currency. 9 (a) you incurred the obligation, or the part of the obligation, in return for the acquisition of a * CGT asset; and (b) none of the above items apply the time when you acquired the CGT asset (worked out under Division 109). 10 (a) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the * cost base of a CGT asset; and (b) none of the above items apply the time of the transaction under which you incurred the obligation. Note 1: Foreign currency is a CGT asset. If you acquire foreign currency as the borrower under a loan, item 8 will apply to your obligation to repay the foreign currency borrowed under the loan. Note 2: If you have made a choice for roll ‑ over relief for a facility agreement, and forex realisation event 7 (material variation of a facility agreement) happens, subsection 775 ‑ 220(6) modifies the tax recognition time for an obligation under a security that was in existence under the agreement at the time of that event. Note 3: Subsection 775 ‑ 260(2) modifies the tax recognition time if forex realisation event 4 happens in relation to a qualifying forex account that has ceased to pass the limited balance test. Note 4: If you have made a choice for roll ‑ over relief for a facility agreement, a forex realisation gain or forex realisation loss you make under the agreement as a result of forex realisation event 4 is disregarded—see section 775 ‑ 200.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-60 — Ceasing to have a right to pay foreign currency—forex realisation event 5

Forex realisation event 5 (1) Forex realisation event 5 happens if: (a) you cease to have a right, or a part of a right, to pay * foreign currency; and (b) the right, or the part of the right, is one of the following: (i) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay foreign currency; (ii) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay Australian currency; (iii) a right, or a part of a right, under an option to sell foreign currency. Note 1: For extended meaning of right to pay foreign currency , see section 775 ‑ 135. Note 2: For extended meaning of obligation to pay foreign currency , see section 775 ‑ 140. Time of event (2) The time of the event is when you cease to have the right or the part of the right. Forex realisation gain (3) You make a forex realisation gain if: (a) the amount you pay in respect of the event happening falls short of the * forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and (b) some or all of the shortfall is attributable to a * currency exchange rate effect. The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect. Note 1: For forex entitlement base , see section 775 ‑ 90. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. Forex realisation loss (4) You make a forex realisation loss if: (a) the amount you pay in respect of the event happening exceeds the * forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and (b) some or all of the excess is attributable to a * currency exchange rate effect. The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect. Note 1: For forex entitlement base , see section 775 ‑ 90. Note 2: For tax recognition time , see subsection (7). Note 3: For currency exchange rate effect , see section 775 ‑ 105. (5) You make a forex realisation loss if: (a) the event happens because an option to sell * foreign currency expires without having been exercised, or is cancelled, released or abandoned; and (b) you were capable of exercising the option immediately before the event happened. The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option. Non ‑ cash benefit (6) The amount you pay in respect of the event happening can include a * non ‑ cash benefit. Use the * market value of the benefit to work out the amount you pay. Tax recognition time (7) For the purposes of this section, the tax recognition time is the time when you pay an amount in respect of the event happening. Obligation to pay Australian currency (8) To avoid doubt, for the purposes of this section, an obligation to pay Australian currency includes an obligation to pay Australian currency, where the obligation is subject to a contingency.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-65 — Only one forex realisation event to be counted

Option to buy foreign currency (1) The following table applies to an option to buy a particular * foreign currency if the exercise price is payable in another foreign currency: Option to buy foreign currency Item If you are... and both of these events happen when the option is exercised... this is the result... 1 the entity who is capable of exercising the option (a) forex realisation event 1; (b) forex realisation event 4 ignore forex realisation event 4. 2 the entity who is capable of exercising the option (a) forex realisation event 2; (b) forex realisation event 4 ignore forex realisation event 4. 3 the entity who granted the option (a) forex realisation event 3; (b) forex realisation event 4 ignore forex realisation event 3. Option to sell foreign currency (2) The following table applies to an option to sell a particular * foreign currency if the exercise price is payable in another foreign currency: Option to sell foreign currency Item If you are... and both of these events happen when the option is exercised... this is the result... 1 the entity who is capable of exercising the option (a) forex realisation event 3; (b) forex realisation event 5 ignore forex realisation event 3. 2 the entity who granted the option (a) forex realisation event 3; (b) forex realisation event 4 ignore forex realisation event 3. Forward contracts (3) The following table applies to a contract to buy a particular * foreign currency in return for another foreign currency: Forward contracts Item If both of these events happen when the contract is carried out... this is the result... 1 (a) forex realisation event 1; (b) forex realisation event 4 ignore forex realisation event 4. 2 (a) forex realisation event 2; (b) forex realisation event 4 ignore forex realisation event 4. Residual rule (4) If: (a) 2 or more of forex realisation events 1, 2, 3, 4 and 5 happen to you at the same time in relation to the same rights and/or obligations; and (b) none of the above subsections applies; apply the forex realisation event that is most appropriate, and ignore the remaining event or events.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-70 — Tax consequences of certain short ‑ term forex realisation gains

(1) The following table has effect unless you have made a choice under section 775 ‑ 80: Tax consequences of certain short ‑ term forex realisation gains Item In this case... this is the result... 1 you make a * forex realisation gain as a result of forex realisation event 2, and: (a) the right to receive * foreign currency was created in return for the occurrence of a * realisation event in relation to a * CGT asset you own; and (b) item 6 of the table in subsection 775 ‑ 45(7) applies; and (c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event (a) the forex realisation gain is not included in your assessable income under section 775 ‑ 15; and (b) CGT event K10 happens. 2 you make a * forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay * foreign currency was incurred: (i) in return for the acquisition of a * CGT asset; or (ii) as the second, third, fourth or fifth element of the * cost base of a CGT asset; and (b) item 9 of the table in subsection 775 ‑ 55(7) applies; and (c) the foreign currency became due for payment within 12 months after the time when: (i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or (ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure (a) the forex realisation gain is not included in your assessable income under section 775 ‑ 15; and (b) both the * cost base and the * reduced cost base of the CGT asset are reduced by an amount equal to the forex realisation gain. 3 you make a * forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay * foreign currency was incurred: (i) in return for your starting to hold a * depreciating asset; or (ii) as the second element of the cost of a depreciating asset; and (b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24 ‑ month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and (c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure (a) the forex realisation gain is not included in your assessable income under section 775 ‑ 15; and (b) if: (i) the forex realisation event happens in the income year in which the asset’s * start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; the asset’s * cost is reduced (but not below zero) by an amount equal to the forex realisation gain; and (c) if: (i) the forex realisation event happens in an income year that is later than the one in which the asset’s * start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; the depreciating asset’s * opening adjustable value for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain; and (d) if the asset is allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D—the opening pool balance of the pool for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain. 4 you make a * forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay * foreign currency was incurred as a project amount; and (b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount; and (c) the project amount is allocated to a project pool (a) the forex realisation gain is not included in your assessable income under section 775 ‑ 15; and (b) the pool value of the project pool for the income year in which you incurred the project amount is reduced (but not below zero) by an amount equal to the forex realisation gain. Additional result where forex realisation gain exceeds cost etc. (2) The following table has effect: Additional result where forex realisation gain exceeds cost etc. Item If... and the following conditions are satisfied... this is the result... 1 item 3 of the table in subsection (1) applies in relation to a * depreciating asset (a) the forex realisation event happens in the income year in which the asset’s * start time occurs; and (b) the asset is not allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; and (c) the forex realisation gain exceeds the asset’s * cost the excess is included in your assessable income. 2 item 3 of the table in subsection (1) applies in relation to a * depreciating asset (a) the forex realisation event happens in an income year that is later than the one in which the asset’s * start time occurs; and (b) the asset is not allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; and (c) the forex realisation gain exceeds the asset’s * opening adjustable value for the income year in which the forex realisation event happens the excess is included in your assessable income. 3 item 3 of the table in subsection (1) applies in relation to a * depreciating asset (a) the asset is allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; and (b) the forex realisation gain exceeds the opening pool balance of the pool for the income year in which the forex realisation event happens the excess is included in your assessable income. 4 item 4 of the table in subsection (1) applies in relation to a project amount the forex realisation gain exceeds the pool value of the project pool for the income year in which you incurred the project amount the excess is included in your assessable income. (3) To the extent that a * forex realisation gain: (a) would have been included in your assessable income under section 775 ‑ 15 if this section had not been enacted; and (b) would, apart from this subsection, be included in your assessable income under another provision of this Act; the gain is not included in your assessable income under that other provision.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-75 — Tax consequences of certain short ‑ term forex realisation losses

(1) The following table has effect unless you have made a choice under section 775 ‑ 80: Tax consequences of certain short ‑ term forex realisation losses Item In this case... this is the result... 1 you make a * forex realisation loss as a result of forex realisation event 2, and: (a) the right to receive * foreign currency was created in return for the occurrence of a * realisation event in relation to a * CGT asset you own; and (b) item 6 of the table in subsection 775 ‑ 45(7) applies; and (c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event (a) the forex realisation loss is not deductible under section 775 ‑ 30; and (b) CGT event K11 happens. 2 you make a * forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay * foreign currency was incurred: (i) in return for the acquisition of a * CGT asset; or (ii) as the second, third, fourth or fifth element of the * cost base of a CGT asset; and (b) item 9 of the table in subsection 775 ‑ 55(7) applies; and (c) the foreign currency became due for payment within 12 months after the time when: (i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or (ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure (a) the forex realisation loss is not deductible under section 775 ‑ 30; and (b) both the * cost base and the * reduced cost base of the CGT asset are increased by an amount equal to the * forex realisation loss. 3 you make a * forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay * foreign currency was incurred: (i) in return for your starting to hold a * depreciating asset; or (ii) as the second element of the cost of a depreciating asset; and (b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24 ‑ month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and (c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure (a) the forex realisation loss is not deductible under section 775 ‑ 30; and (b) if: (i) the forex realisation event happens in the income year in which the asset’s * start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; the asset’s * cost is increased by an amount equal to the forex realisation loss; and (c) if: (i) the forex realisation event happens in an income year that is later than the one in which the asset’s * start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D; the depreciating asset’s * opening adjustable value for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss; and (d) if the asset is allocated to a pool under Subdivision 40 ‑ E or 328 ‑ D—the opening pool balance of the pool for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss. 4 you make a * forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay * foreign currency was incurred as a project amount; and (b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount (a) the forex realisation loss is not deductible under section 775 ‑ 30; and (b) the pool value of the project pool for the income year in which you incurred the project amount is increased by an amount equal to the forex realisation loss. (2) To the extent that: (a) section 775 ‑ 30 would have allowed you a deduction for a * forex realisation loss if this section had not been enacted; and (b) apart from this subsection, another provision of this Act would allow you a deduction for the loss; you cannot deduct the loss under that other provision.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-80 — You may choose not to have sections 775 ‑ 70 and 775 ‑ 75 apply to you

(1) You may choose not to have sections 775 ‑ 70 and 775 ‑ 75 apply to you. (2) A choice must be in writing. (3) A choice must be made: (a) if you were in existence at the start of the applicable commencement date: (i) within 90 days after the applicable commencement date; or (ii) within 30 days after the commencement of this subsection; or (b) if you came into existence within 90 days after the start of the applicable commencement date: (i) within 90 days after you came into existence; or (ii) within 30 days after the commencement of this subsection; or (c) if the Commissioner allows a longer period—within that longer period. Note: For applicable commencement date , see section 775 ‑ 155. (4) A choice has effect from the start of the applicable commencement date. (5) A choice may not be revoked.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-85 — Forex cost base of a right to receive foreign currency

The forex cost base of a right, or a part of a right, to receive * foreign currency is the total of: (a) the money you: (i) paid; or (ii) are required to pay; or (iii) would be required to pay in the event of the exercise of an option; in respect of acquiring the right or part of the right; and (b) the * market value of any * non ‑ cash benefit you: (i) provided; or (ii) are required to provide; or (iii) would be required to provide in the event of the exercise of an option; in respect of acquiring the right or part of the right; reduced by any amounts that are deductible under a provision of this Act other than this Division.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-90 — Forex entitlement base of a right to pay foreign currency

The forex entitlement base of a right, or a part of a right, to pay * foreign currency is the total of: (a) the money you: (i) are entitled to receive; or (ii) would be entitled to receive in the event of the exercise of an option; in respect of the discharge or satisfaction of the right or the part of the right; and (b) the * market value of any * non ‑ cash benefit you: (i) are entitled to acquire or obtain; or (ii) would be entitled to acquire or obtain in the event of the exercise of an option; in respect of the discharge or satisfaction of the right or the part of the right; reduced by: (c) any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and (d) the market value of any non ‑ cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-95 — Proceeds of assuming an obligation to pay foreign currency

For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay * foreign currency are the total of: (a) the money you: (i) received; or (ii) are entitled to receive; or (iii) would be entitled to receive in the event of the exercise of an option; in return for incurring the obligation or the part of the obligation; and (b) the * market value of any * non ‑ cash benefit you: (i) acquired or obtained; or (ii) are entitled to acquire or obtain; or (iii) would be entitled to acquire or obtain in the event of the exercise of an option; in return for incurring the obligation or the part of the obligation; reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-100 — Net costs of assuming an obligation to receive foreign currency

(1) For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive * foreign currency are the total of: (a) the money you: (i) are required to pay; or (ii) would be required to pay in the event of the exercise of an option; in respect of the fulfilment of the obligation or the part of the obligation; and (b) the * market value of any * non ‑ cash benefit you: (i) are required to provide; or (ii) would be required to provide in the event of the exercise of an option; in respect of the fulfilment of the obligation or the part of the obligation; reduced by the amount worked out under subsection (2). (2) The amount worked out under this subsection is the total of: (a) the money you: (i) received; or (ii) are entitled to receive; because you incurred the obligation or the part of the obligation; and (b) the * market value of any * non ‑ cash benefit you: (i) received or obtained; or (ii) are entitled to receive or obtain; because you incurred the obligation or the part of the obligation; reduced by any amounts that are included in assessable income under a provision of this Act other than this Division. (3) To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a * non ‑ cash benefit that you: (a) received or obtained; or (b) are entitled to receive or obtain; because of the fulfilment of the obligation or the part of the obligation.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-105 — Currency exchange rate effect

(1) A currency exchange rate effect is: (a) any currency exchange rate fluctuations; or (b) a difference between: (i) an expressly or implicitly agreed currency exchange rate for a future date or time; and (ii) the applicable currency exchange rate at that date or time. (2) To work out whether there is a currency exchange rate effect and (if so), the extent of that effect, use whichever of the following translation rules is applicable to you: (a) the translation rules in section 960 ‑ 50 (the standard rules); (b) the translation rules in section 960 ‑ 80 (the functional currency rules).

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-110 — Constructive receipts and payments

For the purposes of this Subdivision, if an entity (the payer ) did not actually pay an amount to another entity (the recipient ), but the amount was applied or dealt with in any way on the recipient’s behalf or as the recipient directs (including by discharging all or a part of an obligation owed by the recipient), then: (a) the payer is taken to have paid the amount as soon as it is applied or dealt with; and (b) the recipient is taken to have received the amount as soon as it is applied or dealt with. Note: The set ‑ off of an obligation to pay an amount against a right to receive an amount is an example of how this section would operate.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-115 — Economic set ‑ off to be treated as legal set ‑ off

If the economic effect of an * arrangement is to provide for the set ‑ off, in whole or in part, of one or more amounts against one or more other amounts, this Subdivision applies as if: (a) the parties to the arrangement had the respective rights and obligations that they would have had if the provision for economic set ‑ off were structured as a provision for legal set ‑ off of rights and obligations; and (b) if the economic set ‑ off happens—the parties were taken, under section 775 ‑ 110, to have paid and received the respective amounts that they would have paid and received if the economic set ‑ off were structured as a legal set ‑ off of rights and obligations.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-120 — Non ‑ arm’s length transactions

If: (a) you and another entity did not deal with each other at * arm’s length in connection with a transaction that is relevant to working out: (i) whether you make a * forex realisation gain or a * forex realisation loss; or (ii) the amount of any * forex realisation gain or a * forex realisation loss made by you; and (b) apart from this section, a particular amount is more or less than it would have been if you and the other entity had been dealing with each other at arm’s length; this Subdivision applies to you as if that amount were the amount it would have been if you and the other entity had been dealing with each other at arm’s length.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | 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 775-125 — CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3

If you acquire * foreign currency as a result of forex realisation event 2 or 3: (a) the first element of the foreign currency’s * cost base is replaced by the foreign currency’s * market value at the time you received the foreign currency; and (b) the first element of the foreign currency’s * reduced cost base is replaced by the foreign currency’s market value at the time you received the foreign currency.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-130 — Certain deductions not allowable

If: (a) an amount is included in your assessable income under this Division; and (b) if this Division had not been enacted, the amount would not have been included in your assessable income under any other provision of this Act (other than Division 102); and (c) if this section had not been enacted, a deduction would be allowable to you under a provision listed in the table in subsection 51AAA(2) of the Income Tax Assessment Act 1936 ; and (d) if the amount had not been included in your assessable income under this Division, the deduction would not be allowable; the deduction is not allowable.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-135 — Right to receive or pay foreign currency

Extended meaning of right to receive foreign currency (1) For the purposes of this Division, a right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of * foreign currency. (2) To avoid doubt, for the purposes of this Division, a right to receive foreign currency includes a right to receive * foreign currency, where the right is subject to a contingency. Extended meaning of right to pay foreign currency (3) For the purposes of this Division, a right to pay foreign currency includes a right to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of * foreign currency. (4) To avoid doubt, for the purposes of this Division, a right to pay foreign currency includes a right to pay * foreign currency, where the right is subject to a contingency.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-140 — Obligation to pay or receive foreign currency

Extended meaning of obligation to pay foreign currency (1) For the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of * foreign currency. (2) To avoid doubt, for the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay * foreign currency, where the obligation is subject to a contingency. Extended meaning of obligation to receive foreign currency (3) For the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of * foreign currency. (4) To avoid doubt, for the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive * foreign currency, where the obligation is subject to a contingency.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-145 — Application of forex realisation events to currency and fungible rights and obligations

(1) Forex realisation event 1, 2 or 4 applies in relation to: (a) * foreign currency; or (b) a fungible right, or a part of a fungible right, to receive foreign currency; or (c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency; on a first ‑ in first ‑ out basis. (2) The regulations may provide that any or all of forex realisation events 1, 2 and 4 apply, or apply in specified circumstances, to: (a) * foreign currency; or (b) a fungible right, or a part of a fungible right, to receive foreign currency; or (c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency; on a weighted average basis (despite subsection (1)). (3) The circumstances that may be specified for the purposes of subsection (2) include the circumstance that you have made an election to use a weighted average basis. (4) Subsection (3) does not limit subsection (2).

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-150 — Transitional election

(1) You may elect to have this section apply to you. Note: For the consequences of an election, see sections 775 ‑ 160 and 775 ‑ 165. (2) An election must be in writing. (3) An election must be made: (a) within 60 days after the applicable commencement date; or (b) within 30 days after the commencement of this subsection. Note: For applicable commencement date , see section 775 ‑ 155. (4) An election may not be revoked.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-155 — Applicable commencement date

For the purposes of this Division, your applicable commencement date is: (a) the first day of the 2003 ‑ 04 income year; or (b) if that day is earlier than 1 July 2003—the first day of the 2004 ‑ 05 income year.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-160 — Exception—event happens before the applicable commencement date

(1) A * forex realisation gain or * forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4 or 5 is disregarded if the event happened before the applicable commencement date. Note: For applicable commencement date , see section 775 ‑ 155. (2) Subsection (1) does not apply if: (a) you have made an election under section 775 ‑ 150; and (b) the Commissioner is satisfied that the event happened under, or as a result of, an * arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of obtaining the benefit of the operation of subsection (1).

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-165 — Exception—currency or right acquired, or obligation incurred, before the applicable commencement date

Exception—foreign currency acquired before the applicable commencement date (1) A * forex realisation gain or * forex realisation loss you make on the disposal of * foreign currency as a result of forex realisation event 1 is disregarded if: (a) the foreign currency was acquired before the applicable commencement date; and (b) you have not made an election under section 775 ‑ 150. For the purposes of paragraph (a), the time of acquisition is worked out under Division 109. Note: For applicable commencement date , see section 775 ‑ 155. Exception—right acquired before the applicable commencement date (2) A * forex realisation gain or * forex realisation loss you make as a result of forex realisation event 1, 2 or 5 happening to a right or a part of a right is disregarded if: (a) the right, or the part of the right; (i) was acquired before the applicable commencement date; or (ii) arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936 ) that was entered into before the applicable commencement date; and (b) you have not made an election under section 775 ‑ 150. For the purposes of subparagraph (a)(i), the time of acquisition is worked out under Division 109. Note: For applicable commencement date , see section 775 ‑ 155. (3) If: (a) at a particular time (the extension time ) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and (b) either: (i) the contract is separate from the original loan contract; or (ii) the extension amounts to a variation of the original loan contract; subparagraph (2)(a)(ii) does not apply to a right, or a part of a right, that arises after the extension time and relates to the loan. Note: For applicable commencement date , see section 775 ‑ 155. Exception—obligation incurred before the applicable commencement date (4) A * forex realisation gain or * forex realisation loss you make as a result of forex realisation event 3 or 4 happening to an obligation or a part of an obligation is disregarded if: (a) either: (i) you incurred the obligation, or the part of the obligation, before the applicable commencement date; or (ii) the obligation, or the part of the obligation, arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936 ) that was entered into before the applicable commencement date; and (b) you have not made an election under section 775 ‑ 150. Note: For applicable commencement date , see section 775 ‑ 155. (5) If: (a) at a particular time (the extension time ) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and (b) either: (i) the contract is separate from the original loan contract; or (ii) the extension amounts to a variation of the original loan contract; subparagraph (4)(a)(ii) does not apply to an obligation, or a part of an obligation, that arises after the extension time and relates to the loan. Note: For applicable commencement date , see section 775 ‑ 155.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-168 — Exception—disposal or redemption of traditional securities

A * forex realisation gain or * forex realisation loss you make as a result of forex realisation event 2 is disregarded if the event happened because of a disposal or redemption covered by: (a) subsection 26BB(4) or (5) of the Income Tax Assessment Act 1936 ; or (b) subsection 70B(2B) or (2C) of that Act.

Amendment history: Inserted 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 775-175 — Application to things happening before commencement

The use of the present tense in a provision of this Division does not imply that the provision does not apply to things happening before the commencement of this Division.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-180 — What this Subdivision is about

A facility agreement is an agreement where: (a) you have a right to issue eligible securities and another entity or entities must acquire the securities; and (b) the economic effect of the agreement is to enable you to obtain finance in a particular foreign currency. If you choose roll ‑ over relief for a facility agreement: (a) a forex realisation gain or a forex realisation loss you make as a result of forex realisation event 4 is disregarded if the event happens because you discharge your obligation under an eligible security issued by you under the agreement; and (b) if you issue an eligible security under the agreement otherwise than as a result of a roll ‑ over—you are taken to have been given a loan (the notional loan ); and (c) if an eligible security is rolled ‑ over under the agreement—the period of the notional loan is extended by the term of the new security; and (d) forex realisation event 6 happens if you discharge your obligation under the notional loan; and (e) forex realisation event 7 happens if a material variation is made to the agreement. Table of sections Operative provisions 775 ‑ 185 What is a facility agreement ? 775 ‑ 190 What is an eligible security ? 775 ‑ 195 You may choose roll ‑ over relief for a facility agreement 775 ‑ 200 Forex realisation event 4 does not apply 775 ‑ 205 What is a roll ‑ over ? 775 ‑ 210 Notional loan 775 ‑ 215 Discharge of obligation to pay the principal amount of a notional loan under a facility agreement—forex realisation event 6 775 ‑ 220 Material variation of a facility agreement—forex realisation event 7

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-185 — What is a facility agreement ?

A facility agreement is an agreement between an entity (the first entity ) and another entity or entities under which: (a) the first entity has a right to issue * eligible securities; and (b) an entity or entities must acquire the securities; where the economic effect of the agreement is to enable the first entity to obtain finance in a particular * foreign currency: (c) up to the foreign currency amount specified in the agreement; and (d) during the term of the agreement.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-190 — What is an eligible security ?

An eligible security is: (a) a bill of exchange, or a promissory note, that is: (i) non ‑ interest bearing; and (ii) issued at a discount to face value; and (iii) denominated in a particular * foreign currency; and (iv) for a fixed term; or (b) a security that is: (i) specified in the regulations; and (ii) denominated in a foreign currency; and (iii) for a fixed term.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-195 — You may choose roll ‑ over relief for a facility agreement

(1) You may choose roll ‑ over relief for a * facility agreement if: (a) you have entered into the agreement; and (b) you have a right to issue * eligible securities under the agreement; and (c) the economic effect of the agreement is to enable you to obtain finance in a particular * foreign currency: (i) up to the foreign currency amount specified in the agreement; and (ii) during the term of the agreement. (2) A choice must be made: (a) within 90 days after the first time you issue an * eligible security under the * facility agreement; or (b) within 90 days after the applicable commencement date; or (c) within 30 days after the commencement of this subsection. Note: For applicable commencement date , see section 775 ‑ 155. (3) If you make a choice within 90 days after the first time you issue an * eligible security under the * facility agreement, the choice is taken to have been in effect throughout the period that began immediately before the first time you issued an eligible security under the facility agreement. (4) If: (a) you make a choice: (i) within 90 days after the applicable commencement date; or (ii) within 30 days after the commencement of this subsection; and (b) subsection (3) does not apply; the choice is taken to have been in effect throughout the period that began at whichever is the later of the following times: (c) the start of the applicable commencement date; (d) the first time you issued an * eligible security under the * facility agreement. Note: For applicable commencement date , see section 775 ‑ 155. (5) A choice must be in writing. (6) A choice continues to apply until the * facility agreement ends. Note: If forex realisation event 7 happens (material variation of facility agreement), subsection 775 ‑ 220(5) terminates your choice. (7) A choice may not be revoked.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 775-200 — Forex realisation event 4 does not apply

A * forex realisation gain or a * forex realisation loss you make as a result of forex realisation event 4 or 9 is disregarded to the extent to which the event happens because: (a) you discharge your obligation under an * eligible security issued by you under a * facility agreement; and (b) you have made a choice for roll ‑ over relief for the facility agreement, and that choice is in effect.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 775-205 — What is a roll ‑ over ?

A roll ‑ over happens under a * facility agreement if: (a) you discharge your obligation under an * eligible security issued by you under the agreement (the rolled ‑ over security ); and (b) at the same time, you issue a new eligible security (the new security ) under the agreement; and (c) the issue of the new security is related to the discharge of your obligation under the rolled ‑ over security in one of the following ways: (i) your obligation under the rolled ‑ over security is wholly or partly set off against your right to receive the * foreign currency issue price of the new security; (ii) your obligation under the rolled ‑ over security is wholly or partly satisfied by the issue of the new security; and (d) you have made a choice for roll ‑ over relief for the agreement, and that choice is in effect; and (e) the new security is issued on or after the applicable commencement date; and (f) if you have not made an election under section 775 ‑ 150—the rolled ‑ over security is issued on or after the applicable commencement date. Note: For applicable commencement date , see section 775 ‑ 155.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 775-210 — Notional loan

(1) The rules in this section have effect only for the purposes of this Subdivision. Notional loan (2) If you issue an * eligible security under a * facility agreement otherwise than as a result of a roll ‑ over, you are taken to have been given a loan (the notional loan ): (a) of a * foreign currency principal amount equal to the foreign currency face value of the security; and (b) for a period equal to the term of the security; and (c) that is taken to be attached to the security; and (d) the start time of which is the time when you issued the security. Note 1: The period of the notional loan may be extended as the result of a later roll ‑ over—see subsection (3). Note 2: The notional loan may become attached to a later security as the result of a roll ‑ over—see subsection (3). Note 3: The foreign currency principal amount of the notional loan may remain the same, or may fall (but not rise), as a result of a later roll ‑ over—see subsection (3). Note 4: If, at a later time, the security is rolled ‑ over, and the foreign currency face value of the new security exceeds the foreign currency face value of the rolled ‑ over security, you are taken to have been given an additional notional loan of a foreign currency principal amount equal to the excess—see subsection (3). Effect of roll ‑ over (3) The table has effect if an * eligible security is rolled ‑ over under a * facility agreement: Roll ‑ over of eligible security Item If the foreign currency face value of the new security... this is the result... 1 equals the * foreign currency face value of the rolled ‑ over security (a) the period of each notional loan attached to the rolled ‑ over security is extended by the term of the new security; and (b) each notional loan attached to the rolled ‑ over security is taken to be attached to the new security. 2 exceeds the * foreign currency face value of the rolled ‑ over security (a) you are taken to have been given an additional notional loan: (i) of a foreign currency principal amount equal to the excess; and (ii) for a period equal to the term of the new security; and (iii) that is taken to be attached to the new security; and (iv) the start time of which is the time when you issued the new security; and (b) the period of each notional loan attached to the rolled ‑ over security is extended by the term of the new security; and (c) each notional loan attached to the rolled ‑ over security is taken to be attached to the new security. 3 falls short of the * foreign currency face value of the rolled ‑ over security, and there is only one notional loan attached to the rolled ‑ over security (a) you are taken to have paid a foreign currency amount equal to the shortfall in order to discharge so much of your obligation to pay the foreign currency principal amount of the notional loan as equals the shortfall; and (b) the period of the notional loan is extended by the term of the new security; and (c) the notional loan is taken to be attached to the new security. 4 falls short of the * foreign currency face value of the rolled ‑ over security, and there are 2 or more notional loans attached to the rolled ‑ over security (a) you are taken to have paid a foreign currency amount equal to the shortfall in order to discharge your obligation to pay so much of the total foreign currency principal amounts of the notional loans as equals the shortfall, and to have done so on a first ‑ in first ‑ out basis, that is to say: (i) first, by fully or partly discharging (as the case requires) your obligation to pay the foreign currency principal amount of the notional loan with the earliest start date; and (ii) second, if your obligation to pay the foreign currency principal amount of the notional loan with the earliest start date is fully discharged—by fully or partly discharging (as the case requires) your obligation to pay the foreign currency principal amount of the notional loan with the next start date, and so on; and (b) the period of each notional loan attached to the rolled ‑ over security that is not fully discharged is extended by the term of the new security; and (c) each notional loan attached to the rolled ‑ over security that is not fully discharged is taken to be attached to the new security. Consequences if security is not rolled ‑ over (4) If: (a) you discharge your obligation under an * eligible security issued under a * facility agreement; and (b) the security is not rolled ‑ over at the time of discharge; and (c) you have made a choice for roll ‑ over relief for the facility agreement, and that choice is in effect; then, for each notional loan attached to the security, you are taken to have paid a * foreign currency amount equal to the foreign currency principal amount of the notional loan in order to discharge your obligation to pay the foreign currency principal amount of the notional loan. Foreign currency (5) For the purposes of the application of this section to a particular * facility agreement that provides for the issue of * eligible securities, foreign currency is the * foreign currency in which the securities are denominated. Note: Section 960 ‑ 50 (Australian currency translation rule) does not affect the operation of this section—see subsection 960 ‑ 50(10). You translate to Australian currency when you apply section 775 ‑ 215 (forex realisation event 6).

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-215 — Discharge of obligation to pay the principal amount of a notional loan under a facility agreement—forex realisation event 6

Forex realisation event 6 (1) Forex realisation event 6 happens if: (a) you discharge an obligation, or a part of an obligation, to pay the * foreign currency principal amount of a notional loan attached to an * eligible security issued by you under a * facility agreement; and (b) you have made a choice for roll ‑ over relief for the agreement, and that choice is in effect. Time of event (2) The time of the event is when you discharge the obligation or the part of the obligation. Forex realisation gain (3) You make a forex realisation gain if: (a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, exceeds the amount you paid in order to discharge the obligation or the part of the obligation; and (b) some or all of the excess is attributable to a * currency exchange rate effect. The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105. Forex realisation loss (4) You make a forex realisation loss if: (a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, falls short of the amount you paid in order to discharge the obligation or the part of the obligation; and (b) some or all of the shortfall is attributable to a * currency exchange rate effect. The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105. Exempt income etc. (5) For the purposes of the application of sections 775 ‑ 20, 775 ‑ 25 and 775 ‑ 35 to the event, assume that the notional loan had been an actual loan.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-220 — Material variation of a facility agreement—forex realisation event 7

Forex realisation event 7 (1) Forex realisation event 7 happens if: (a) a material variation is made to the terms or conditions of a * facility agreement; or (b) a material variation is made to the effect of a facility agreement; or (c) a material variation is made to the type or types of security that can be issued under a facility agreement; so long as you have made a choice for roll ‑ over relief for the facility agreement, and that choice is in effect. Note: See also subsections (7) and (8). Time of the event (2) The time of the event is when the material variation happens. Forex realisation gain (3) You make a forex realisation gain if: (a) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7: (i) discharged your liabilities under each of the notional loans to which the agreement relates; and (ii) not rolled ‑ over any * eligible security; exceeds: (b) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7: (i) discharged your liabilities under each of the notional loans to which the agreement relates; and (ii) not rolled ‑ over any eligible security. The amount of the forex realisation gain is the amount of the excess. Note: See also subsection (9). Forex realisation loss (4) You make a forex realisation loss if: (a) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7: (i) discharged your liabilities under each of the notional loans to which the agreement relates; and (ii) not rolled ‑ over any * eligible security; exceeds: (b) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7: (i) discharged your liabilities under each of the notional loans to which the agreement relates; and (ii) not rolled ‑ over any eligible security. The amount of the forex realisation loss is the amount of the excess. Note: See also subsection (9). Termination of choice (5) If forex realisation event 7 happens in relation to a * facility agreement: (a) your choice for roll ‑ over relief for the facility agreement ceases to have effect immediately after the event; and (b) you are not entitled to make a fresh choice for roll ‑ over relief for the facility agreement. Modification of tax recognition time (6) If: (a) forex realisation event 7 happens in relation to a * facility agreement; and (b) an * eligible security issued by you under the facility agreement was in existence at the time of that event; and (c) at a later time, forex realisation event 4 happens because you cease to have an obligation, or a part of an obligation, to pay * foreign currency under the security; section 775 ‑ 55 applies to you as if the tax recognition time for the obligation, or the part of the obligation, were the time of forex realisation event 7 (despite subsection 775 ‑ 55(7)). Material variation (7) To avoid doubt, if a variation to: (a) the terms or conditions of a facility agreement; or (b) the effect of a facility agreement; results in the agreement ceasing to be a facility agreement, the variation is taken to be a material variation for the purposes of subsection (1). (8) The regulations may provide that a specified kind of variation is taken to be a material variation for the purposes of subsection (1). Total amount (9) To avoid doubt, the total amount referred to in paragraph (3)(b) or (4)(b) may be zero.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-225 — What this Subdivision is about

You may elect to have this Subdivision apply to one or more qualifying forex accounts held by you. If you elect to have this Subdivision apply to an account, a forex realisation gain or a forex realisation loss you make in relation to the account as a result of forex realisation event 2 or 4 is disregarded if the account passes the limited balance test. For an account to pass the limited balance test, the combined balance of all the accounts covered by your election must not be more than the foreign currency equivalent of $250,000. The limited balance test includes a buffer provision which allows the combined balance to be more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000, for not more than 2 15 ‑ day periods in any income year. Table of sections Operative provisions 775 ‑ 230 Election to have this Subdivision apply to one or more qualifying forex accounts 775 ‑ 235 Variation of election 775 ‑ 240 Withdrawal of election 775 ‑ 245 When does a qualifying forex account pass the limited balance test ? 775 ‑ 250 Tax consequences of passing the limited balance test 775 ‑ 255 Notional realisation when qualifying forex account starts to pass the limited balance test 775 ‑ 260 Modification of tax recognition time

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-230 — Election to have this Subdivision apply to one or more qualifying forex accounts

(1) You may elect to have this Subdivision apply to one or more * qualifying forex accounts held by you. (2) An election must be in writing. (2A) If: (a) you make an election within 30 days after the commencement of this subsection; and (b) the election is expressed to have come into effect on a specified day; and (c) the specified day is included in the period: (i) beginning on 1 July 2003; and (ii) ending on the day on which the election is made; the election is taken to have come into effect on the specified day. (3) An election continues in effect, in relation to a particular account, until: (a) you cease to hold the account; or (b) the account ceases to be a * qualifying forex account; or (c) the election is varied by removing the account; or (d) a withdrawal of the election takes effect; whichever happens first. Note 1: For variation of election, see section 775 ‑ 235. Note 2: For withdrawal of election, see section 775 ‑ 240. (4) If an election made by you under this section is in effect, you are not entitled to make another election under this section. (5) An * ADI or a * non ‑ ADI financial institution is not entitled to make an election under this section.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-235 — Variation of election

(1) If you have made an election under section 775 ‑ 230, you may vary your election by: (a) adding one or more * qualifying forex accounts; or (b) removing one or more qualifying forex accounts. (2) A variation must be in writing. (3) Removing an account does not prevent you from adding the account in a future variation.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-240 — Withdrawal of election

(1) If you have made an election under section 775 ‑ 230, you may withdraw your election. (2) A withdrawal must be in writing. (3) Withdrawing an election does not prevent you from making a fresh election under section 775 ‑ 230 in relation to any or all of the same accounts.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-245 — When does a qualifying forex account pass the limited balance test ?

Basic rule (1) For the purposes of this Subdivision, a * qualifying forex account that you hold passes the limited balance test at a particular time if, at that time: (a) an election made by you under section 775 ‑ 230 has effect in relation to: (i) the account; or (ii) the account and one or more other * qualifying forex accounts; and (b) the total of the credit balances of the account and each of those other accounts (if any) is not more than the * foreign currency equivalent of $250,000; and (c) the total of the debit balances of the account and each of those other accounts (if any) is not more than the foreign currency equivalent of $250,000. Note: For buffering during an increased balance period, see subsections (2) and (3). Buffering during first and second increased balance period (2) For the purposes of this section, an increased balance period is a continuous period consisting of: (a) an income year; or (b) a particular part of an income year; where, at each time during the period, either or both of the following conditions is satisfied: (c) the total of the credit balances of the account or accounts covered by your section 775 ‑ 230 election is more than the * foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000; (d) the total of the debit balances of the account or accounts covered by your section 775 ‑ 230 election is more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000. (3) The table has effect: Increased balance period Item In this case... this is the result... 1 (a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) the duration of the period is 15 days or less; and (c) it is not the case that: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year paragraphs (1)(b) and (c) do not apply during the first ‑ mentioned increased balance period. 2 (a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) both: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year; and (c) the total duration of those increased balance periods is 15 days or less paragraphs (1)(b) and (c) do not apply during those increased balance periods. 3 (a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) the duration of the period is more than 15 days; and (c) it is not the case that: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year paragraphs (1)(b) and (c) do not apply during the first 15 days of the first ‑ mentioned increased balance period. 4 (a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) both: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year; and (c) the total duration of those increased balance periods is more than 15 days paragraphs (1)(b) and (c) do not apply during the first 15 days of the period that consists of those increased balance periods. 5 (a) an increased balance period is the second increased balance period that occurs in a particular income year; and (b) the duration of the period is 15 days or less; and (c) item 1 or 2 applies to the first increased balance period that occurred in the income year paragraphs (1)(b) and (c) do not apply during the first ‑ mentioned increased balance period. 6 (a) an increased balance period is the second increased balance period that occurs in a particular income year; and (b) the duration of the period is more than 15 days; and (c) item 1 or 2 applies to the first increased balance period that occurred in the income year paragraphs (1)(b) and (c) do not apply during the first 15 days of the first ‑ mentioned increased balance period. Translation of foreign currency (4) For the purposes of the application of section 960 ‑ 50 to this section, work out the * foreign currency equivalent of an amount of Australian currency as at a particular time in an income year by translating the foreign currency to Australian currency at the average exchange rate for the third month that preceded the income year. Debit balances (5) For the purposes of this section, a debit balance is to be expressed as a positive amount. Note: For example, if you owe $1,100 on a credit card account, the debit balance of that account is $1,100.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-250 — Tax consequences of passing the limited balance test

(1) A * forex realisation gain or a * forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if the event happens in relation to a * qualifying forex account that: (a) you hold at the time of the event; and (b) passes the limited balance test at the time of the event. (2) If CGT event C1 or C2 happens in relation to a * qualifying forex account that: (a) you hold at the time of the event; and (b) passes the limited balance test at the time of the event; disregard so much of any * capital gain or * capital loss you make as a result of the event as is attributable to a * currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-255 — Notional realisation when qualifying forex account starts to pass the limited balance test

Credit balance (1) For the purposes of this Division, if: (a) you hold a * qualifying forex account; and (b) at a particular time: (i) the account starts to pass the limited balance test; and (ii) the account has a credit balance; and (iii) you have one or more rights to receive a total amount of * foreign currency represented by the credit balance of the account; you are treated as: (c) having ceased to have those rights at that time; and (d) having re ‑ acquired those rights immediately after that time. Note: This means that forex realisation event 2 will happen when the account starts to pass the limited balance test. Debit balance (2) For the purposes of this Division, if: (a) you hold a * qualifying forex account; and (b) at a particular time: (i) the account starts to pass the limited balance test; and (ii) the account has a debit balance; and (iii) you have one or more obligations to pay a total amount of * foreign currency represented by the debit balance of the account; you are treated as: (c) having ceased to have those obligations at that time; and (d) having started to again owe those obligations immediately after that time. Note: This means that forex realisation event 4 will happen when the account starts to pass the limited balance test.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-260 — Modification of tax recognition time

Forex realisation event 2 (1) If: (a) forex realisation event 2 happens in relation to a * qualifying forex account that: (i) you hold at the time of the event; and (ii) does not pass the limited balance test at the time of the event; and (b) apart from this subsection, the tax recognition time, worked out using the table in subsection 775 ‑ 45(7), happened at a time when the account passed the limited balance test; section 775 ‑ 45 applies to you as if the tax recognition time were the most recent time before the forex realisation event when the account ceased to pass the limited balance test (despite subsection 775 ‑ 45(7)). Forex realisation event 4 (2) If: (a) forex realisation event 4 happens in relation to a * qualifying forex account that: (i) you hold at the time of the event; and (ii) does not pass the limited balance test at the time of the event; and (b) apart from this subsection, the tax recognition time, worked out using the table in subsection 775 ‑ 55(7), happened at a time when the account passed the limited balance test; section 775 ‑ 55 applies to you as if the tax recognition time were the most recent time before the forex realisation event when the account ceased to pass the limited balance test (despite subsection 775 ‑ 55(7)).

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-265 — What this Subdivision is about

If you choose retranslation for a qualifying forex account: (a) a forex realisation gain or a forex realisation loss you make in relation to the account as a result of forex realisation event 2 or 4 is disregarded; and (b) forex realisation event 8 enables any gains or losses to be worked out on a retranslation basis. Table of sections Operative provisions 775 ‑ 270 You may choose retranslation for a qualifying forex account 775 ‑ 275 Withdrawal of choice 775 ‑ 280 Tax consequences of choosing retranslation for an account 775 ‑ 285 Retranslation of gains and losses relating to a qualifying forex account—forex realisation event 8

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-270 — You may choose retranslation for a qualifying forex account

(1) You may choose retranslation for a * qualifying forex account held by you. (1A) A choice under subsection (1) does not apply to a * qualifying forex account held by you if a * foreign exchange retranslation election by you is in effect in relation to the account under Subdivision 230 ‑ D. (2) A choice must be in writing. (2A) If: (a) either: (i) you make a choice within 30 days after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 ; or (ii) you make a choice within 90 days after the commencement of Part 1 of Schedule 1 to the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 ; and (b) the choice is expressed to have come into effect on a specified day; and (c) the specified day is included in the period: (i) beginning on 1 July 2003; and (ii) ending on the day on which the choice is made; the choice is taken to have come into effect on the specified day. (3) A choice continues in effect until: (a) you cease to hold the account; or (b) the account ceases to be a * qualifying forex account; or (c) a withdrawal of the choice takes effect; whichever happens first. Note: For withdrawal of choice, see section 775 ‑ 275.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003 | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3)

s 775-275 — Withdrawal of choice

(1) If you have made a choice for retranslation for a * qualifying forex account held by you, you may withdraw your choice. (2) A withdrawal must be in writing. (3) Withdrawing a choice does not prevent you from making a fresh choice under section 775 ‑ 270.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-280 — Tax consequences of choosing retranslation for an account

(1) A * forex realisation gain or * forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if: (a) the event happens in relation to a * qualifying forex account that you hold; and (b) you have made a choice for retranslation for the account; and (c) the choice is in effect when the event happens. (2) If: (a) CGT event C1 or C2 happens in relation to a * qualifying forex account that you hold at the time of the event; and (b) you have made a choice for retranslation for the account; and (c) the choice is in effect when the event happens; disregard so much of any * capital gain or * capital loss you make as a result of the event as is attributable to a * currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-285 — Retranslation of gains and losses relating to a qualifying forex account—forex realisation event 8

Forex realisation event 8 (1) Forex realisation event 8 happens if: (a) you have made a choice for retranslation for a * qualifying forex account held by you; and (b) that choice was in effect throughout a continuous period (the retranslation period ) consisting of: (i) an income year; or (ii) a particular part of an income year; and (c) either: (i) there is a positive retranslation amount for the account for the retranslation period (worked out under subsection (2)); or (ii) there is a negative retranslation amount for the account for the retranslation period (worked out under subsection (3)). Retranslation amount (2) If the amount worked out using the formula in subsection (4) is a positive amount, that amount is a positive retranslation amount for the account for the retranslation period. (3) If the amount worked out using the formula in subsection (4) is a negative amount, that amount is a negative retranslation amount for the account for the retranslation period. (4) Work out an amount for the account for the retranslation period using the formula: (5) For the purposes of subsection (4), a debit balance is to be expressed as a negative amount (for example, a debit balance of $50,000 is to be expressed as $50,000). Forex realisation gain (6) You make a forex realisation gain if there is a positive retranslation amount for the account for the retranslation period. The amount of the forex realisation gain is the positive retranslation amount. Forex realisation loss (7) You make a forex realisation loss if there is a negative retranslation amount for the account for the retranslation period. The amount of the forex realisation loss is the negative retranslation amount. (8) For the purposes of subsection (7), reverse a negative amount (for example, a negative retranslation amount of $50,000 will become a forex realisation loss of $50,000). Translation of foreign currency (9) For the purposes of the application of section 960 ‑ 50 to this section: (a) if a retranslation period for an account did not begin immediately after the end of another retranslation period for the account—the opening balance of the account for the first ‑ mentioned retranslation period is to be translated to Australian currency at the exchange rate applicable at the start of the first ‑ mentioned retranslation period; and (b) if a retranslation period for an account began immediately after the end of another retranslation period for the account—the opening balance of the account for the first ‑ mentioned retranslation period is to be translated to Australian currency at the exchange rate applicable at the end of the other retranslation period; and (c) the closing balance of an account for a retranslation period is to be translated to Australian currency at the exchange rate applicable at the end of the retranslation period; and (d) each deposit is to be translated to Australian currency at the exchange rate applicable at the time of the deposit; and (e) each withdrawal is to be translated to Australian currency at the exchange rate applicable at the time of the withdrawal. Deposits (10) For the purposes of this section, a deposit includes any amount paid or transferred into the account. Withdrawals (11) For the purposes of this section, a withdrawal includes any amount paid, advanced, drawn or transferred out of the account.

Amendment history: Inserted by No 133 of 2003, effective 17 Dec 2003

s 775-290 — What this Subdivision is about

If you have made a foreign exchange retranslation election under Subdivision 230 ‑ D: (a) a forex realisation gain or a forex realisation loss you make in relation to an arrangement that is not a Division 230 financial arrangement as a result of forex realisation event 1 to 5 or 8 is disregarded; and (b) forex realisation event 9 enables any gains or losses to be worked out on a retranslation basis. Table of sections 775 ‑ 295 When this Subdivision applies 775 ‑ 300 Tax consequences of choosing retranslation for arrangement 775 ‑ 305 Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies—forex realisation event 9 775 ‑ 310 When election ceases to apply to arrangement 775 ‑ 315 Balancing adjustment when election ceases to apply to arrangement

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 775-295 — When this Subdivision applies

(1) A * foreign exchange retranslation election applies to an * arrangement for the purposes of this Subdivision if: (a) you start to have the arrangement after the start of the income year in which the election is made; and (b) the arrangement is recognised in financial reports of a kind referred to in paragraph 230 ‑ 255(2)(a) that are audited, or required to be audited, as referred to in paragraph 230 ‑ 255(2)(b); and (c) the arrangement is one in relation to which you are required by: (i) * accounting standard AASB 121 (or another accounting standard prescribed for the purposes of paragraph 230 ‑ 265(1)(c)); or (ii) if that standard does not apply to the preparation of the financial report—a comparable accounting standard that applies to the preparation of the financial report under a * foreign law; to recognise, in the financial reports referred to in paragraph 230 ‑ 255(2)(a), amounts in profit or loss (if any) that are attributable to changes in currency exchange rates. (2) The * foreign exchange retranslation election does not apply to an * arrangement for the purposes of this Subdivision if: (a) the election is made by the * head company of a * consolidated group or * MEC group; and (b) the election specifies that the election is not to apply to * financial arrangements in relation to * life insurance business carried on by a member of the consolidated group or MEC group; and (c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group. (3) The * foreign exchange retranslation election does not apply to an * arrangement for the purposes of this Subdivision if the arrangement is associated with a business of a kind specified in regulations made for the purposes of subsection 230 ‑ 270(4).

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 775-300 — Tax consequences of choosing retranslation for arrangement

(1) A * forex realisation gain or * forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4, 5 or 8 is disregarded if: (a) the event happens in relation to an * arrangement that you hold; and (b) you have made a * foreign exchange retranslation election that applies to the arrangement; and (c) the election is in effect when the event happens. (2) If: (a) CGT event C1 or C2 happens in relation to an * arrangement that you hold at the time of the event; and (b) you have made a * foreign exchange retranslation election that applies to the arrangement; and (c) the election is in effect when the event happens; disregard so much of any * capital gain or * capital loss you make as a result of the event as is attributable to a * currency exchange rate effect. Note: For currency exchange rate effect , see section 775 ‑ 105.

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 775-305 — Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies—forex realisation event 9

Forex realisation event 9 (1) Forex realisation event 9 happens in relation to an * arrangement during an income year if: (a) you have made a * foreign exchange retranslation election that applies to the arrangement; and (b) you are required by: (i) * accounting standard AASB 121 (or another accounting standard prescribed for the purposes of paragraph 230 ‑ 265(1)(c)); or (ii) if that standard does not apply to the preparation of the financial report—a comparable accounting standard that applies to the preparation of the financial report under a * foreign law; to recognise, in the financial report referred to in paragraph 230 ‑ 255(2)(a) for that income year, amounts in profit or loss (if any) in relation to the arrangement that are attributable to changes in currency exchange rates. The forex realisation event 9 is taken to have happened in the income year. Forex realisation gain (2) You make a forex realisation gain if the standard referred to in paragraph (1)(b) requires you to recognise an amount of gain in profit or loss in relation to the * arrangement. That amount of the forex realisation gain is the amount the standard requires you to recognise. Forex realisation loss (3) You make a forex realisation loss if the * accounting standard referred to in paragraph (1)(b) requires you to recognise an amount of loss in profit or loss in relation to the * arrangement. That amount of the forex realisation loss is the amount that the accounting standard requires you to recognise. Section does not apply to amounts previously recognised in equity (4) Subsections (1), (2) and (3) do not apply to amounts that have previously been required by the standards referred to in paragraph 230 ‑ 255(2)(a) to be recognised in equity.

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 775-310 — When election ceases to apply to arrangement

(1) For the purposes of this Division, a * foreign exchange retranslation election under subsection 230 ‑ 255(1) ceases to apply to an * arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 775 ‑ 295(1)(b) or (c) during that income year. (2) If the election ceases to apply to an * arrangement under subsection (1), the election cannot subsequently reapply to that arrangement (even if the requirements of paragraphs 775 ‑ 295(1)(b) and (c) are satisfied once more in relation to the arrangement).

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 775-315 — Balancing adjustment when election ceases to apply to arrangement

(1) This section applies if: (a) you make a * foreign exchange retranslation election; and (b) the election ceases to have effect or ceases to apply to an * arrangement. (2) You are taken, for the purposes of this Division, to have: (a) disposed of the * arrangement for its fair value immediately before the election ceases to have effect or ceases to apply to the arrangement; and (b) reacquired the arrangement at its fair value immediately after the election ceases to have effect or ceases to apply to the arrangement. Note: Paragraph (a) means that there would be a forex realisation event 9 in relation to the arrangement.

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 802-5 — What this Subdivision is about

A distribution that an Australian corporate tax entity makes to a foreign resident is not subject to dividend withholding tax, and is not assessable income, to the extent that the entity declares it to be conduit foreign income. An Australian corporate tax entity has an amount that is non ‑ assessable non ‑ exempt income if it receives a distribution including conduit foreign income from another such entity and it makes a distribution including conduit foreign income. This Subdivision sets out the method of working out an entity’s conduit foreign income. It also discourages streaming of distributions to entities that can take advantage of the receipt of conduit foreign income. Table of sections Operative provisions 802 ‑ 10 Objects 802 ‑ 15 Foreign residents—exempting CFI from Australian tax 802 ‑ 17 Trust estates and foreign resident beneficiaries—exempting CFI from Australian tax 802 ‑ 20 Distributions between Australian corporate tax entities—non ‑ assessable non ‑ exempt income 802 ‑ 25 Conduit foreign income of an Australian corporate tax entity 802 ‑ 30 Foreign source income amounts 802 ‑ 35 Capital gains and losses 802 ‑ 40 Effect of foreign income tax offset on conduit foreign income 802 ‑ 45 Previous declarations of conduit foreign income 802 ‑ 50 Receipt of an unfranked distribution from another Australian corporate tax entity 802 ‑ 55 No double benefits 802 ‑ 60 No streaming of distributions

Amendment history: Inserted by No 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent

s 802-10 — Objects

The objects of this Subdivision are: (a) to encourage the establishment in Australia of regional holding companies for foreign groups; and (b) to improve Australia’s attractiveness as a continuing base for its multinational companies; by providing relief from tax on * distributions by * Australian corporate tax entities to * members who are foreign residents or other Australian corporate tax entities if those distributions relate to * conduit foreign income.

Amendment history: Inserted by No 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent

s 802-15 — Foreign residents—exempting CFI from Australian tax

(1) So much of the * unfranked part of a * frankable distribution made by an * Australian corporate tax entity that the entity declares, in its * distribution statement, to be * conduit foreign income: (a) is not assessable income and is not * exempt income of a foreign resident; and (b) is an amount to which section 128B (Liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply. (2) The declaration must be made on or before the day on which the * distribution is made. Note: For a private company, this rule may bring forward the time at which the company is required to make its distribution statement: see section 202 ‑ 75.

Amendment history: Inserted by No 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent